|
|
Publications
All Paid Up: Payment of Policy Limits Toward Covered Damages Waives Conditions Precedent
Insurance Law Update
April 2010
U.S. District Court for the Northern District of Texas, Dallas Division
In Mid-Continent Cas. v. Eland Energy, Inc., 2010 WL 610713 (N.D. Tex. Feb. 22, 2010), the U.S. District Court for the Northern District of Texas, Dallas Division, affirmed a previous decision ruling in favor of an insurer's ability to intentionally waive conditions precedent in a policy meant to benefit the insurer, allowing the insured to more quickly terminate its obligation to pay defense costs and fund settlements.
Mid-Continent issued policies to Eland Energy and Sundown Energy (collectively, "Sundown"). Sundown tendered receipts for $5.7 million in damages stemming from Hurricane Katrina. The policies' conditions precedent stated Mid-Continent need only pay Sundown for submitted, verified damages. But upon learning that Sundown's damages would exceed $6 million, the full limits under both policies, Mid-Continent waived the protective condition and paid Sundown the full $6 million. Mid-Continent then refused to contribute to an additional settlement and stopped paying Sundown's defense costs. In Sundown's suit for bad faith and indemnification, Mid-Continent was granted summary judgment and released from its continuing obligations.
Sundown argued that Mid-Continent never met its initial burden of demonstrating an intentional waiver because the insurer failed to specifically plead that issue. Under Texas law, an insurer is permitted to "waive rights and policy provisions that are intended for its benefit," except when attempting to terminate a duty to defend. But the district court observed that any "party may waive its rights by, inter alia, intentional conduct inconsistent with that right." Accordingly, the court held that the earlier determination that Mid-Continent had waived the conditions precedent was valid because the ruling was based on undisputed evidence in the record, even though Mid-Continent had not pointed out that evidence to the court. Thus, a court may sua sponte determine whether an insurer waived a condition precedent without requiring the insurer to raise the argument, as long as the record contains undisputed evidence of intentional action not in accordance with the insurer's rights.
|
Related Offices
Related Practices
|