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Policy's Notice Provision is Condition to Coverage for Advertising
Injury Claim
On August 26, 2005, a Texas Court of Appeals considered whether an
insured's untimely notice to an insurer of a copyright claim would bar the
insured's recovery under an insurance policy as a matter of law, despite
the fact that the insurer was not prejudiced by the delay. See PAJ, Inc.
d/b/a Prime Art & Jewel v. Hanover Insurance Company, 2005 WL 2046251 *1
(Tex. App.—Dallas, August 26, 2005). This issue has troubled both Texas
and Federal courts applying Texas law, leaving an unclear and inconsistent
body of law in the state of Texas.
The court in PAJ held that the notice provision is classified as a
condition, rather than a covenant, to the insurer's obligations. Id. The
court noted that Texas has adopted by statute a policy endorsement
requiring prejudice for bodily injury and property damage claims. Before
the adoption of this policy endorsement, failure to perform a notice
condition was an absolute defense to liability on the policy. Thus, the
court interpreted the policy endorsement to only apply to claims for
bodily injury and property damage and refused to broaden the endorsement's
language or application to an advertising injury.
Recent Court Decisions and Legislation
- The Texas Supreme Court has ruled in Progressive Count Mut. Ins. Co.
v. Boyd, 04-0055 (Tex. August 26, 2005) that a trial court did not err
in dismissing an uninsured motorist's bad faith claims even though the
jury had not yet entered judgment for the insurer with respect to the
insured's claim for breach of contract. The Supreme Court held that any
error on the part of the trial court was harmless as no basis existed
for pursuing a claim for common law bad faith or for damages under
Article 21.21 of the Insurance Code in the absence of any contractual
right to recovery. While acknowledging that it had left open the
possibility that an insured might be entitled to bad faith damages even
in the absence of coverage in cases such as American Motorist Ins. Co.
v. Fodge, 63 S.W.3d 801, 804 (Tex. 2001), the court noted that such an
extra-contractual obligation could only arise if the insurer's conduct
was extreme and produced damages unrelated to and independent of the
policy claim. In this case, the insured's claims were that the insurer
had improperly denied his UIM claim and had failed to fairly investigate
the facts of the accident, which the court found neither extreme nor
independent of the policy claim.
- In Lamar Homes, Inc. v. Mid Continent Casualty Co., No. 04-51074
(5th Cir. Oct 3, 2005), the U.S. Fifth Circuit Court of Appeals
certified to the Texas Supreme Court what it regards as unresolved
issues pertaining to the determination of whether claims of defective
construction under a construction contract are covered by a liability
policy providing for coverage of property damage caused by an
occurrence. If so, the Court certified the further question of whether a
claim under the policy for defense costs incurred by the insured after a
defense has been refused is subject to the 18% penalty under Article
21.55 of the Texas Insurance Code. The opinion notes that these coverage
issues are already before the Supreme Court in Gehan Homes, Ltd. v.
Employers Mut. Cas. Co., 146 S.W. 3d 833 (Tex. App.—Dallas, 2004, pet.
filed), in which briefing on the merits has been requested.
In our previous newsletters, we reported on new federal and state
legislation. In addition to previous reports, you may also be interested
in the following:
- S.B.15, New state law regarding asbestos and silica claims.
- S.256, New federal law entitled "The Bankruptcy Abe Prevention and
Consumer Protection Act."
Michael Keeley Voted Chair-Elect
Strasburger partner, Michael Keeley,
has been voted chair-elect of the American Bar Association’s Fidelity &
Surety Law Committee. Mr. Keeley will serve a one-year term as chair-elect
beginning in August 2005. Upon completion of his one-year term in August
2006, he will assume the role of committee chair for the upcoming year.
Mr. Keeley currently serves as the chair of Strasburger's
fidelity
& surety, construction, and
insurance litigation and counsel practice
areas.
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