You buy insurance to protect your property – your business, your home, your car, whatever – right? You know there are certain risks the policy won’t cover, either because they’re expressly excluded or outside the policy’s scope. You’re OK with that.

You also know that when you make a claim, it’s up to you to establish that the damage or loss you’re claiming was caused by something within the policy’s coverage. You’re also OK with that.
But when an insurance company says it won’t pay because some of the damage resulted from a cause not covered by your policy, it’s only fair that the insurance company should be the one to provide the proof to support that claim. Right?

Of course. And that’s the way it is in every state in the union – except Texas.

That’s right: Texas – the state that touts itself as offering “a combination of unique competitive business advantages that no other state can claim”– penalizes its business and residential insurance policyholders by making them prove a negative whenever an insurance company claims a policy exclusion.

The insurance industry knows it has a good thing, and such exclusion claims are increasingly part of the industry playbook. It’s a rare property damage claim that an insurer doesn’t attempt to claim that at least some of the damage was caused by an excluded cause such as “wear and tear.” In these cases, policyholders – relative novices in these disputes – are pitted against adjusters with years of experience. Sadly, most policyholders take their licks and don’t hire legal counsel to pursue it further.
But it’s not supposed to be that way.

There is even a statute (Section 554.002 Texas Insurance Code) that clearly says it’s not supposed to be that way. Texas appellate courts, however, primarily relying on a single, badly-reasoned opinion from decades ago – a dragon of bad law, if you will – consistently rule to the contrary, giving insurance companies an unfair advantage. Appellate courts other than the Texas Supreme Court, that is. The Texas Supreme Court has the final say, but so far, the insurance industry has made sure the Court does not get the chance to speak.

It’s not for want of trying. The Fifth Circuit Court of Appeals, the federal appellate court with jurisdiction over Texas, has asked the Texas Supreme Court on more than one occasion to clarify Texas law on this point.

The most recent was in Overstreet v. Allstate. Gravely PC filed an “amicus” brief  (after amicus curiae, meaning “friend of the court”) in Overstreet on behalf of seven business and industry groups detailing the “history of lower courts confusing the issue … and overlooking or misapplying the plain language of a statute … in contravention of the legislature’s obvious purposes.” The amicus brief urged the Texas Supreme Court to slay the bad law dragon and protect Texas business and consumer policyholders.
As happened with other cases in the past, the Texas Supreme Court scheduled Overstreet for hearing on September 21, 2022. It was ready to decide the issue. But as happened with other cases in the past, Overstreet was settled quietly just days before the Texas Supreme Court had the opportunity to consider the issue.

Under the Texas Constitution, Texas courts cannot issue “advisory opinions.” For a court to have the power to act, a real live controversy must be pending before it. When a case settles, it is no longer a real live controversy, and the court before which it is pending loses the power to act in connection with it. Once Overstreet settled, the Texas Supreme Court lost the authority to answer the burning questions posed by the Fifth Circuit.So. The dragon lives on.

Why do you suppose this happened – not just in Overstreet, but repeatedly?

Insurers in Texas have zero interest in leveling the playing field for policyholders, so they’re not about to put this matter before the Texas Supreme Court. Overstreet gave the Texas Supreme Court an opportunity to bring Texas law in line not only with common sense and notions of fundamental fairness but also with the law of every other state in this country – something the insurance industry does not want to happen.
The Texas Legislature has already weighed in, stating in black-and-white that Texas law should protect policyholders and place the burden of proving policy exclusions on the insurance company. Despite this, Texas mid-level appellate courts continue to nourish the dragon, putting hard-working businesses and residential policyholders in peril.

The Texas Supreme Court has the power to protect businesses and consumers from the dragon if it is allowed to act. Still, the insurance industry can prevent the Supreme Court from exercising its power by paying those few policyholders intrepid enough to haul the company through the court system.
So, is it hopeless for Texas business and consumer policyholders? Perhaps.

But watch this space in the coming months for some ideas on how to slay the dragon.