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notice requirement constituted a condition precedent or a covenant, the court did not take that factor into account. e court based its holding on Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994). In Hernandez, the insured’s breach of a settlement-without-consent provision was held to be an immaterial breach because it did not deprive the insurer of the benefit of the bargain; thus, the insurer was not excused from performance of the contractual obligation. e court stated it so concluded in Hernandez “[w]ithout distinguishing between covenants and conditions.” Additionally, the court noted a footnote in Hernandez that recognized that many other jurisdictions have “likewise imposed a prejudice requirement, primarily on public purpose grounds.” e court went on to state that since the Hernandez decision, courts and several major treatises have acknowledged that Texas had in fact adopted a notice-prejudice rule. e Fifth Circuit noted the modern trend which required insurers to show proof of prejudice and emphasized that, in Hernandez, the Texas Supreme Court considered the law of other jurisdictions.

  • e dissent argued that Hernandez did not do away with

the condition precedent or covenant distinction, but rather only applied the prejudice requirement to a covenant. According to

Any notice

requirement under an occurrence policy is subsidiary to the event that triggers coverage and courts have not permitted insurance companies to deny coverage on the basis of untimely

the dissent, a breach of a condition precedent need not prejudice the insurer and PAJ’s policy provision was a condition precedent.

  • e court questioned the

dissent’s fundamental premise that PAJ’s timely notice provision created a condition precedent rather than a covenant because conditions are not favored in the law. When a reasonable reading is available that would avoid

notice.

forfeiture, the court must construe the language as a

covenant rather than a condition. e court held PAJ’s notice- of-claim requirement was a covenant rather than a condition because the “as a condition precedent” language did not appear in PAJ’s policy, and the notice-of-claim requirement appeared in a subsection that spoke in terms of what the insured “must do” if a claim is made against it, language more closely resembling a covenant.

  • e

court

concluded

the

timely

notice

provision

was

not an essential part of the bargained-for exchange under PAJ’s

occurrence-based occurrence policy

policy. Any is subsidiary to

notice requirement under an the event that triggers coverage

and

courts

have

not

permitted

insurance

companies

to

deny

coverage

on

the

basis

of

untimely

notice

under

an

occurrence

policy, unless the company Finally, the court stated the

shows actual prejudice from the delay. dissent’s analysis of the policy language

would

impose

draconian

consequences

even

for

small

deviations

from

the

duties

the

policy

places

on

insureds.

  • e

court

believed

under the forward a

dissent’s construction, deposition notice or a

an insured’s failure to promptly certificate of conference would

allow at all

for a forfeiture of coverage, even when the insurer was not harmed. e court concluded this was precisely the result

144

that was rejected in Hernandez.

  • us, the court reversed the court of appeals’ judgment,

and rendered judgment that the insurer could not deny coverage because of untimely notice.

COURT fINDS EVIDENCE IS LEGALLy SUffICIENT TO SUPPORT JURy’S fINDING Of “KNOWING” VIOLATION Of THE INSURANCE CODE

Tex. Mut. Ins. Co. v. Ruttiger, ____ S.W.3d Houston [1st Dist.] 2008).

____ (Tex. App.—

fACTS: Ruttiger alleged that he sustained bilateral inguinal hernias after lifting a heavy bundle of metal conduit while working as an employee of A & H Electric Company (“A & H”). He further alleged that Texas Mutual Insurance Company (“TMI”), A & H’s workers’ compensation carrier, denied him timely payment of benefits and necessary medical treatment without a reasonable basis “until finally agreeing to do so, much later in a benefit dispute agreement.” Ruttiger contended that an unbiased investigation would have confirmed that he sustained his injuries in the workplace and TMI’s delay in paying medical and income benefits caused him substantial financial hardship and medical problems. Ruttiger attached to his petition a copy of the Benefit Dispute Agreement, wherein TMI agreed that Ruttiger sustained a compensable injury in the form of a hernia and that Ruttiger suffered a disability for a specific period of time.

  • e jury found that TMI failed to comply with its duty

of good faith and fair dealing, engaged in unfair and deceptive acts or practices, and engaged in these acts and practices knowingly.

  • e trial court rendered judgment in Ruttiger’s favor on his Texas

Insurance Code theory of liability, awarded Ruttiger $163,500 in actual damages and $20,000 in additional damages based on the jury’s finding that TMI’s conduct was committed knowingly. TMI appealed. HOLDING: Affirmed as modified. REASONING: e jury was instructed that “knowingly” means actual awareness of the falsity, unfairness, or deceptiveness of the act or practice. Actual awareness may be inferred if objective manifestations indicate that a person acted with actual awareness.

  • e Texas Insurance Code does not allow policyholders to recover

extra-contractual damages when insurers are merely negligent. Such damages are reserved for cases in which an insurer knew its actions were false, deceptive, or unfair. In reviewing all the evidence the court stated that “extra-contractual damages should not be a routine addition to every breach-of-policy case” and that the Texas Constitution requires exacting appellate review of damages that punish rather than compensate.

Ruttiger presented evidence that TMI did not attempt to contact him during the course of its investigation, or, at best, made only minimal efforts to do so. Given Ruttiger’s evidence that Culbert deliberately refused to speak with him, the evidence that Culbert made little to no effort to contact Ruttiger or his treating doctors prior to disputing his claim, and the evidence that Culbert instead chose to rely upon an unverified rumor supplied by A & H, the jury could have reasonably inferred that TMI was not merely negligent, but instead knowingly engaged in unfair acts that gave rise to its liability and failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of

Journal of Texas Consumer Law

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