Texas prides itself on its rugged, independent spirit. Often, that’s a good thing.
For instance, the robust Texas business environment sets us apart favorably from the rest of the nation.
However, there is an aspect of insurance law in which Texas stands gloomily distant from the other 49 states. They are united, and Texas is a stuck-in-the-mud outlier rather than a paragon in its isolation. Ironically, it’s an area in which the Texas jurisprudence is distinctly detrimental to Texas businesses.
That area is the “concurrent causation” question in Texas insurance coverage litigation.
You buy insurance to protect your property, business and personal, right? Even though most policies are so-called “all risk,” you know there are certain risks the policy won’t cover, either because the policy expressly excludes them or they’re outside the policy’s scope (think “riot or civil disobedience” or “rising water,” for instance). OK, fine. You can live with that.
When you make a claim, you expect to be required to establish that the damage or loss you’re claiming was caused by a risk within the policy’s coverage. Again, fine.
But when the insurance company says it shouldn’t have to pay because some of the damage resulted from a cause not covered by the policy, the burden is on the company to prove it. Right?
Of course. That’s only fair. And that’s how it is in every state in the union.
Well, every state except Texas, that is.
It shouldn’t be this way. In 1991, in a moment of clarity, the Texas Legislature even passed a statute — now codified as section 554.002 of the Texas Insurance Code — to ensure it would not be this way. So why now, 31 years later, is Texas still the only state in which Texas business policyholders are put at a distinct disadvantage when it comes to concurrent causation?
It’s because of bad timing in one case and clear appellate court error in another.
Several Texas appellate court opinions decided before 1990 held that the burden to prove that an exclusion in an all-risk policy did not apply was on the plaintiff policyholder. A case wending its way through the appellate court decision tree around this time raised the same question. The first decision in that case was in 1990 — Millers Casualty Insurance Company v. Lyons (“Lyons I”) — which held with prior case law. The plaintiff appealed to the Texas Supreme Court.
Then, in 1991, the Texas Legislature enacted Article 21.58, which is now section 554.002, to expressly overrule the illogical line of cases forming the precedent for the decision in Lyons I.
The Texas Supreme Court got around to deciding the Lyons appeal in 1993. Even though the Legislature had abrogated the Lyons I precedential foundation two years earlier, the new statute was irrelevant to the Supreme Court’s task since the Lyons controversy entered the litigation pipeline before the legislative enactment. So, the Court affirmed the lower court in Lyons v. Millers Casualty Insurance Company (“Lyons II”).
That’s the case of bad timing. While the Supreme Court opinion in Lyons II is unfortunate, one can’t label it as patently bad law, since it follows precedent existing at the time the case went on appeal. Not so with the instance of obvious appellate court error, even though the court involved got it right several years before erring so spectacularly.
In 1994, the San Antonio Court of Appeals had the chance to apply the newly enacted law in Telepak v. United Services Automobile Association. It did the right thing and ruled that the burden to plead and prove the applicability of a policy exclusion was on the insurance company, as both reason and the statute demanded.
Some seven years later, the same court in Wallis v. United Services Automobile Association. (a case involving the same insurance carrier) pulled a whiplash-inducing 180-degree turn and decided the same issue as if the Legislature had never passed the statute. Relying on the Lyons II opinion and the (legislatively overruled) precedential foundation for it, the court divorced itself from the wisdom of its Telepak decision and once again encumbered Texas policyholders with the burden of proving that the exclusions in the policy don’t apply to a given situation.
The Texas Supreme Court did not then, nor has it ever, spoken on the unmistakable error of the Wallis decision, even though the Fifth Circuit has twice requested that it do so.
It seems that whenever the Texas Supreme Court has the opportunity to rectify the San Antonio court’s mistake, the insurance company involved suddenly has an attack of conscience and settles the matter, depriving the Court of jurisdiction to render a decision.
And so, Texas persists, year after year. Alone atop a craggy hill of judicial error and confusion, watching as Texas policyholders, including Texas businesses, receive less favorable treatment under the law than they would in any other state in the union. Sometimes, standing out is not such a good thing.
Editor’s Note: (A more comprehensive article on this subject with the title “Anatomy of an Entrenched Error” by this author and Brendan McBride appears in the course materials for the 20th annual Advanced Insurance Law Course – State Bar of Texas 2023.)
Marc Gravely is the founder of Gravely PC, a Texas-based firm devoted to insurance claim and construction defect disputes on behalf of businesses, homeowners’ associations and related organizations and governmental entities.