Insured’s Failure to Challenge Trial Court’s Application of Exclusion Makes Appeal Futile

Tred R. Eyerly | Insurance Law Hawaii

    The Texas Court of Appeals affirmed the trial court’s granting of summary judgment to the insurer because the appeal failed to challenge the exclusion under which the insurer found no coverage. Sosa v. Auto Club Indemn. Co., 2022 Tex. App. LEXIS 6520 (Tex. Ct. App. Aug. 30, 2022).

    Sosa’s house was damaged during Hurricane Harry on August 26, 2017. Sosa filed a claim with Auto Club. She reported that two feet of floodwater had entered her home, her roof was missing shingles and was leaking, and she had sustained interior damage. An adjuster estimated the cost to prepare the roof damage was $1,191.96, less that her deductible. Auto Club determined that any remaining damage was caused by flood water, which was expressly excluded from coverage. 

    On November 11, 2020, Sosa filed suit against Auto Club for breach of the policy. Among other things, she argued the adjuster spent minimal time at her home inspecting and was inexperienced. In its answer, Auto Club asserted Sosa’s claim was time-barred by the statute of limitations. Sosa then filed an amended complaint and changed the date of the loss from August 26, 2017, to June 28, 2019. 

    Auto Club filed a motion for summary judgment, primarily arguing the suit was time-barred by both the statute of limitations and the two-year limitations period in the policy. The trial court granted summary judgment to Auto Club.

    On appeal, Sosa primarily agued hat her loss occurred in June 2019, not during Hurricane Harvey in 2017. Therefore, the lawsuit filed in November 2017 was not time-barred. She did not challenge the summary judgment order on the ground that her claimed damages were covered under the policy. Her appellate brief did not mention flood or surface water.  

    Sosa did not ague that the trial court erred by granting summary judgment on the ground that her policy excluded coverage for her damages because they resulted from flood or surface water. This ground independently supported summary judgment in Auto Club’s favor because Auto Club was not liable for damages expressly excluded under Sosa’s homeowner’s policy. Therefore, any other error about which Sosa complained on appeal was harmless in light of the unchallenged ground. 

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Policy Exclusions Must Be Narrowly Applied to Assure Policyholders Receive All Benefits Available

Tamara Chen-See | Property Insurance Coverage Law Blog | May 10, 2018

In a recent post, Policyholders May Benefit From All Their Coverages, I discussed the importance of carefully evaluating all the insurance benefits potentially available to policyholders if a catastrophic loss occurs. That blog examined the decision in Citizens Property Insurance Corp. v. Hamilton,1 which allowed recovery of benefits for a total loss due to flood and due to wind damage under both a flood and a separate specified-peril wind insurance policy.

The First District Court of Appeal in Florida held that the wind-only insurance carrier, Citizens, was not entitled to set off against benefits available for wind damage under its policy the amount already paid by the flood carrier under the National Flood Insurance Program. The insured was able to recover full policy limits under both policies since the flood policy had determined total loss when the property was classified by the county building department as “substantially damaged.” That classification meant that the structure was damaged beyond 50% of its pre-loss value, and if rebuilt would be required to meet all current buildings code requirements. Since that level of code compliance would be cost prohibitive, the county’s determination essentially required demolition. Citizens was not allowed to inform the jury of the amount of recovery under the flood policy, and the jury was allowed to consider whether wind had substantially damaged the structure to the point of being a total loss before the storm surge. When the jury decided that wind had caused a total loss, the court applied Florida’s Valued Policy Law2 requiring payment for the structure as a total loss.

Multiple Causes of Loss. The Hamilton case dealt with several other issues important to full compensation for policyholders. The Citizens wind-only policy excluded payment for damage caused by flood, and used “anti-concurrent cause” language (“ACC”) as part of its exclusion. The ACC language denied “coverage for a loss caused directly or indirectly by an excluded peril.”3Citizens argued on appeal that the policy’s use of ACC language should have required the trial court to instruct the jury that the policyholder had the burden to prove that wind was the sole cause of the losses claimed to the Hamilton’s home. The court of appeals decided that the jury had been adequately instructed when the trial court instructed: “(1) that appellees shouldered the burden to prove losses ‘sustained … as a result of wind’ and (2) that Citizens would not be liable for ‘loss caused by excluded perils such as water damage. . . .’”4 The Hamilton’s met this burden through testimony from their engineering expert:

[T]he majority of the damage was caused by the high winds and the storm surge just washed away what was left of the house. The house would have been substantially damaged well before the storm surge would have washed away the debris or toppled over what was left if it hadn’t been toppled over already.

Although Citizens presented opposing opinions from its expert, the jury accepted the opinions of the policyholder’s forensic expert to find in their favor. As a result, the Hamilton’s received full benefits under their wind policy.

The Hamilton case is not new, but its holdings show the value of capable legal representation. The recent catastrophic hurricanes in Florida, the Caribbean, and Texas present similar challenges for policyholder advocates. Insurance policies need to be carefully analyzed and carrier arguments attempting to apply exclusions broadly to limit coverage benefits must be applied narrowly, as normal rules of policy interpretation hold. Policyholder advocates need to be aware of all the state laws that may operate in unison to secure insurance benefits for policyholders, supplementing the insurance policy like the collateral source rule of evidence, local building codes that apply when replacement cost benefits are triggered, and the Valued Policy Law used in Hamilton. Florida law has relatively robust protections for policyholders, but other states may have similar protections that capable legal counsel can use to turn an insurance policy into the asset—as it is meant to be—when a catastrophic risk strikes.
1 Citizens Property Ins. Corp. v. Hamilton, 43 So.3d 746, 751-52 (Fla. 1st DCA 2010).
2 Fla. Stat. 627.702.
3 In December 2016, the Florida Supreme Court resolved disagreement between the state’s Third and Second District Courts of Appeals by its decision in Sebo v. American Home Assurance Co., Inc., 208 So.3d 694 (Fla. 2016). The Sebo decision determined that where a sole cause of a loss is not undisputed, Florida courts will follow the doctrine of concurrent causation in applying policy exclusions, where if one of several concurrent causes of loss is covered, and another excluded, the policy will cover the loss. In most property insurance policies, two classes of excluded causes of loss are stated, with only one group using anti-concurrent cause language that would prevent application of the concurrent cause doctrine. Common exclusions such as for damage caused by “wear and tear,” “defective construction” and so on generally are grouped in the class of exclusions that are not preceded by anti-concurrent cause language.
4 Hamilton, 43 So.2d at p. 754.

Can an Insurer Raise an Exclusion After the Denial Letter?

Christopher Nahas – November 27, 2013

Is an Insurer’s right to raise a policy exclusion waived when it fails to identify the exclusion in its denial letter or disclaimer? Not in New York. In fact, this is the case in most jurisdictions. Generally, the doctrines of waiver and estoppel are not applicable in the context of coverage of policy risks which are either expressly excluded or not covered under the terms of the policy.1

This issue came up while I was discussing a case with two of my colleagues. A carrier had failed to incorporate an applicable policy exclusion in its denial letter disclaiming coverage and we were debating whether in so doing the carrier had waived its right to assert the exclusion as a defense. As it turns out it did not…at least not in New York.

The case law is well settled on this matter. Justice Mercure, in Perras v. Transportation Insurance,2 held that an insurer’s failure to disclaim coverage on a breach of contract claim on the grounds that breach of contract losses were not covered under the policy did not effectuate a waiver of the insurer’s rights to disclaim coverage on that ground.3 In Schiff v. Flack4 the court found “where the issue is the existence or nonexistence of coverage (e.g., the insuring clause and exclusions), the doctrine of waiver is simply inapplicable.”5

The doctrine has been re-affirmed at the federal level in multiple cases, including North American Foreign Trading Corp. v. Mitsui,6 where the court expounded that under New York law, waiver cannot be used to extend an insured’s coverage or narrow a policy’s exclusions beyond that for which the insured originally bargained. Perhaps more generally the Southern District asserted the doctrine of waiver is inapplicable where the defense raised by an insurer is existence or nonexistence of coverage.7

As a point of clarification this standard does not apply to liability claims where the defense of waiver can and does apply. In a liability claim in New York a notice of disclaimer “must promptly apprise the claimant with a high degree of specificity of the grounds under which the disclaimer is predicated.”8 In liability actions if the carrier doesn’t specify the grounds for disclaimer the exclusion can be waived.

Ultimately, when dealing with first party property disputes in New York it is essential to look to the insurance policy itself when analyzing a case in terms of coverage or lack thereof. The fact that a carrier did not specify an exclusion or lack of coverage in its disclaimer will not negate either the disclaimer or lack of coverage being raised by the carrier.

1 W.C. Crais III., Annotation, Comment Note: Doctrine of estoppel or waiver as available to bring within coverage of insurance policy risks not covered by its terms or expressly excluded therefrom, 1 A.L.R. 3d 1139 (Originally Published 1965).

2 Perras Excavating Inc. v. Transportation Insurance Company, 737 N.Y.S. 2d 692 (3rd Dep’t 2002).

3 Id.

4 Schiff Associates, Inc. v Flack, 51 NY 2d 692 (N.Y. App. 1980).

5 Id. (emphasis added).

6 North American Foreign Trading Corp. v. Mitsui Sumitomo Ins. USA, Inc., 499 F. Supp. 2d 361 (S.D. N.Y. 2007) (applying New York Law).

7 Steadfast Ins.Co. v. Stroock & Stroock & Lavan LLP, 277 F. Supp. 2d 245 (S.D.N.Y. 2003) (Applying New York law; See also, Nicoletta v. Berkshire Life Ins. Co., 99 A.D. 3d 567, 952 N.Y.S.2d 532 (1st Dep’t 2012).

8 General Acc. Ins. Grp. V. Cirucci, 46 NY 2d 862, 864 (1979); See, Adames v. Nationwide Mut. Fire Ins. Co. of New York, 55 AD 3d 513 (2nd Dep’t 2008).

via Can an Insurer Raise an Exclusion After the Denial Letter? : Property Insurance Coverage Law Blog.