Court Opinion

ID: 9761258
Source: CourtListenerOpinion
Date Created: 2023-08-29 01:36:19.209321+00
Date Added: 2024-06-11T07:29:21.505541
License: Public Domain

On Motions for Rehearing
On this motion for rehearing we have-been favored with a brief by Amicus Curiae raising a question which has given us serious concern. The Amicus Curiae states this proposition:
“A casualty insurance company is required under the laws of this State to establish a reserve for a potential loss even though liability for it may be denied and since premium rates are fixed by the State the charging and accepting of a premium payment cannot be grounds to avoid the terms of an executed non-waiver agreement so as to hold the insurance company estopped to deny coverage under the policy.”
Article 21.39 of the Insurance Code, V.A.T.S. provides:
“Every insurer shall maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses or claims incurred on or prior to the date of statement, whether reported or unreported, which are unpaid as of such date and for which such insurer may be liable, and also reserves in an amount estimated to provide for the expenses of adjustment or settlement of such claims. The Board of Insurance Commissioners shall adopt each current formula for establishing reserves applicable to each line of insurance recommended by the National Association of Insurance Commissioners and all companies writing the line of insurance to which each such adopted formula is applicable shall establish reserves in compliance therewith. Acts 1951, 52nd Leg. ch. 491; Acts 1955, 54th Leg., p. 413, ch. 117, § 52.” (Emphasis supplied)
If, therefore, in this case the insurer was required by law to set up a reserve on the claim made by the Rice Mill against their assured, and if the amount of such reserve is determined by a formula prescribed by the Board of Insurance Commissioners, it could not in reason be held that the establishment of such a reserve could be the basis of an estoppel unless the prescribed formula permitted the insurer to differentiate between claims which in reasonable probability will result in losses, and claims which probably will not result in a loss.
The record does not disclose whether the regulations of the Insurance Board require that a full reserve be established on an unfounded claim or whether it is the usual practice of well managed insurance companies to set up on their books reserves adequate to pay a claim when it is their considered opinion after investigation that no liability exists.
The policy provides that the company shall make a computation of the retrospective premium based upon incurred losses valued as of a date six months after the termination of the policy. It further provides that the premium so computed shall be the final premium if all claims have been closed or if it is apparent that the retrospective premium will exceed the maximum. If all claims have not been closed and the retrospective premium does not exceed the maximum, a further computation based upon incurred losses valued as of a date eighteen months after the termination of the policy is required. Provision is made for further computation if necessary. “Incurred losses” is defined in the policy to include losses actually paid, reserves for unpaid losses as determined by the company, and allocated loss expenses. The policy does not provide that the pre*29mium be based on claims for which liability is not conceded. The word “loss” is not defined in the policy. In Black’s Law Dictionary, 4th Ed., the word “loss”, as applied to insurance, is defined:
“Ascertained liability of insurer, Michel v. American Fire and Casualty Co., C.C.A. Fla., 82 F.2d 583, 586; * * * injury or damage sustained by insured in consequence of happening of one or more of the accidents or misfortunes against which insurer has undertaken to indemnify the insured, 1 Bouv.Inst. No. 1215; pecuniary injury resulting from the occurrence of the contingency insured against, Ocean Accident & Guaranty Corporation v. Southwestern Bell Telephone Co., C.C.A.Mo., 100 F.2d 441, 446; * * * Loss from liability is loss which arises when liability becomes fixed, Cormier v. Hudson, 284 Mass. 231, 187 N.E. 625, 627; Boney v. Central Mut. Ins. Co. of Chicago, 213 N.C. 470, 196 S.E. 837, 842 [117 A.L.R. 231].”
In Manhattan Life Ins. Co. v. Stubbs, Com.App., 1921, 234 S.W. 1099, the company was sued for penalties and attorney’s fees by reason of the delay of the company in paying a “loss” after demand by insured. The court said:
“Plaintiff in error also contends that the maturing of a 15-year endowment life insurance policy, at the end of said period, is not a ‘loss,’ in the meaning of said article 4746 of the statutes. We cannot concur in this view. The maturing of the policy, whether by death of the insured or the arrival of the end of the cumulation period during the lifetime of the insured, would have the same effect. The liability attaches in either event, and a loss has occurred.” (Emphasis added)
In Miles v. United Services Automobile Ass’n, Tex.Civ.App. 1941, 149 S.W.2d 233, aff’d United Service Automobile Ass’n v. Miles, Com.App.1942, 139 Tex. 138, 161 S.W.2d 1048, the court quoted the following definition of “loss”, found in Webster’s New International Dictionary, with approval: “Destruction of or damage to the subject insured; or the death or injury of an insured person by the perils insured against in such a manner as to charge the insurer with a liability under the terms of the policy.” (Emphasis added)
The phrase “reserves for unpaid losses as determined by the Company” must be held to mean reserves in an amount determined by the company to be adequate to cover all claims for which the company concedes liability. If the company is required by law to maintain reserves on claims for which the company denies liability, nevertheless the policy does not require or authorize that such reserves be considered in computing premiums. If liability is subsequently established, the policy provides for a recomputation of the premium. The policyholder is not required to pay for protection which he does not obtain.
It follows, therefore, that the inclusion of the reserve set up for the Rice Mill claim by appellee as an “incurred loss” in computing the retrospective premium charged appellant constitutes an admission that appellee was liable under the policy to indemnify appellant for the loss, if any, which appellant might sustain by reason of the Rice Mill claim.
The policy for which the premium charge was made insured appellant against many different risks and covered its operations in a number of states. However, prior to the time appellee secured the non-waiver agreement it had charged and collected a premium $1,000.00 in excess of that it would have been entitled to collect had not this claim been considered an “incurred loss”. At the end of eighteen months after the termination of the first policy year it had recomputed the premium as required by the policy because all claims had not been settled, and the retrospective premium did not exceed the maximum. This computation was furnished to appellant before the non-waiver agreement was presented and reflected an additional pre*30mium charge by reason of the fact that the reserve for the Rice Mill claim was increased and included in “incurred losses”.
We find no basis for the inclusion of the estimated expense of an investigation to determine the liability of the company under the policy to furnish a defense to a suit against its insured as an “incurred loss.” Nor do we think the company can include as an, “incurred loss” the estimated cost of making such a defense without admitting liability unless it first secured a non-waiver agreement.
We remain of the opinion that at the time the non-waiver agreement was executed appellee was estopped as a matter of law to deny that it had waived the provisions of the policy requiring prompt notice of accidents and the immediate forwarding to it of claims.
Amicus curiae are concerned in that under their construction of the original opinion of this Court insurance companies could not charge a premium based upon a reserve for contingent liability and expense in any situation where a claim is being handled under a non-waiver agreement. Certain language in our opinion might be so construed. We restrict our holding in that respect to the facts in this record. It is our holding that in light of this record the policy in question did not authorize a premium charge based on a reserve for a contingent claim where liability under the policy was not conceded. We further point out that the acts on which waiver and es-toppel as a matter of law were predicated occurred prior to the execution of the non-waiver agreement. If an insurance company is authorized by the terms of a policy to charge a premium based on a reserve for contingent liability, it is probable that the charging of such premium would not amount to a waiver or constitute an element of estoppel even in the absence of a non-waiver agreement.
We remain of the opinion that appellant’s rights under the policy, as they existed at time of the execution of the non-waiver agreement, were preserved by the terms of that instrument. On reexamination of the record we find that appellant properly presented in this Court its point that the trial court erred in denying its motion for summary judgment. Since we have held that appellee is estopped to insist on its policy defenses and have held that the loss sustained by appellant is within the coverage of the policy, the amount of the loss not being in dispute, we are of the opinion that appellant’s motion for summary judgment should have been sustained by the trial court.
Appellees’ motion for rehearing is denied. Appellant’s motion for rehearing is granted. The judgment of the trial court is reversed and judgment is here rendered that appellant, Orkin Exterminating Company, Inc., have judgment against appellee, Hanover Insurance Company, in the sum of Fifty Four Thousand Six Hundred Twenty One and No/100 ($54,621.00) Dollars, together with interest at the rate of 6% per annum (1) on the sum of Twenty Six Thousand Seven Hundred Twenty and 2½oo ($26,720.21) Dollars from the 8th day of July, 1963; (2) on the sum of Twenty Six Thousand One Hundred Ninety Two and 6%oo ($26,192.50) Dollars from the 3rd day of September, 1963; (3) on the sum of Nine Hundred Eighty Three and 98Aoo ($983.98) Dollars from the 30th day of October, 1963; (4) on the sum of Seven Hundred Twenty Four and 3¼⅛0 ($724.31) Dollars from the 20th day of November, 1963, until the date of entry of this judgment, together with interest on the total judgment from date of entry until paid, and all costs in the trial court and this Court.