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Attorney Blog, Human Resources

Let’s Take a Walk on the Insurance Side

Attorney Harrison Oldham

Generally, this weekly post is somewhat related to the realm of Employment Law or HR topics. However, this week I decided to take a brief jump over into the realm of Insurance Law – primarily because I thought this recent case out of the United States District Court Western District of Texas El Paso Division was interesting. In summary, in Pease v. State Farm Lloyds, the court granted State Farm’s motion to dismiss Pease’s claim for damages following his own injury, which occurred on his property.

To dig into the facts a bit, in Pease, State Farm issued a businessowners liability policy (the “Policy”) to Pease Law Office, PLLC, located in El Paso, Texas. Pease, who is the sole member of the law office, was an insured under the Policy. The Policy also provided that if the insured organization was an LLC, the members of the organization were insured under the Policy; Pease was a member of Pease Law Office, PLLC, and was thereby an insured.

The relevant provision of the Policy’s Coverage, provision L, entitled “Business Liability,” provides that State Farm “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’”  The Policy further provides: “Damages because of ‘bodily injury’ include damages claimed by any person … for care, loss of services or death resulting at any time from the ‘bodily injury.’” So, if you managed to actually read this section and not just skim over it – the coverage sounds fairly comprehensive for most bodily injury occurring on the premises.

On October 20, 2017, Pease fell “approximately 30 feet off of a ramp located on the insured premises,” (i.e., the location of Pease Law Office, PLLC), and as a result, he suffered bodily injury. He received medical services from his medical providers to treat his injuries, which resulted in expenses in excess of $100,000. Pease submitted a claim to State Farm for these expenses. State Farm denied Pease’s claim.

Thereafter, Pease sued – based on the premises of two fundamental claims under the Texas Insurance Code. First, he claimed that State Farm engaged in unfair or deceptive acts in violation of Section 541.060 of the Texas Insurance Code by misrepresenting that his claim was not covered under the Policy. Under the Insurance Code, “It is … an unfair or deceptive act … in the business of insurance to engage in the following unfair settlement practices with respect to a claim by an insured,” including “misrepresenting to a claimant a material fact or policy provision relating to coverage at issue.”

Second, he claimed that State Farm violated Section 542.058 of the Texas Insurance Code by wrongfully rejecting a valid claim and failing to pay the claim within 60 days. The Insurance Code provides, in part, that “if an insurer, after receiving all items, statements, and forms reasonably requested and required under [the Insurance Code], delays payment of the claim … for more than 60 days, the insurer shall pay damages and other items as provided” by the Code.

As the basis of these claims, Pease stated that his expenses for the medical services he received from the healthcare providers are covered under the Policy.

If you recall from above, the Policy’s Section L, entitled “Business Liability,” stated that State Farm “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’”  Pease argued that he was an insured under the Policy, and that he had become “legally obligated to pay” his medical providers for the medical expenses he incurred as a result of “his” bodily injury, and therefore, the expenses for the medical care services were covered under the Policy. State Farm, not surprisingly, argued the opposite; it contended that Pease’s legal obligation to the medical providers arose because he voluntarily purchased their services and thus, was indebted to them.

In reviewing the claims, the court stated that “[l]t is well settled that the use of the phrase ‘legally obligated to pay’ in an insurance policy limits coverage to damages arising out of tortious acts and does not cover contractual obligations.”

While discussing this question, the court looked to prior Fifth Circuit precedent, where the Fifth Circuit noted that “Texas courts seem to say that an insurer is obligated under a Certificate of Liability or a standard liability policy when the insured’s conduct is tortious in nature, a claim has been made against the insured for this tortious activity, and there has been an adjudication of the insured’s liability.” It concluded that “a Texas court would rule that the Certificate of Liability policy language ‘legally obligated to pay as damages’ applies only to tort-based obligations.”

With that in mind, the Court concluded that Pease’s obligation to pay his medical providers sounds in contract, not in tort. Concluding with, “this liability to pay healthcare providers arises ‘under elementary principles of contract law’”. More specifically, the Texas high court has held that “when [an insured] … receive[s healthcare] services, there [is] created an implied contract to pay for same, and he [is] liable therefor until he or someone else pays the bill.

Accordingly, because Pease’s obligation to pay his healthcare expenses arose under an implied contract – they did not exist as a tort, and therefore, State Farm was not required to pay them under the Policy.

With all that said, if you are thinking of throwing yourself down some stairs after reading this article, well first, sorry about that, and second, if you do, don’t go looking to your insurance company to help with any of those expenses.

About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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