By: Steve Shattuck
House Bill 949 was passed during the regular called session of the 83rd Texas Legislature and signed into law by Governor Rick Perry. The bill applies its provisions to an insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 2014. The Act itself took effect on September 1, 2013.
H.B. 949 amends current Insurance Code section 1952.001 and adds new section 1952.059, which reads as follows:
(a) This section applies to an insurer authorized to write automobile insurance in this state, including an insurance company, reciprocal or interinsurance exchange, mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, or other entity.
(b) A personal automobile insurance policy must contain a provision defining a covered vehicle in accordance with this section for a motor vehicle acquired by the insured during the policy term.
(c) Coverage under this section is required only for a vehicle that is:
(1) a private passenger automobile; or
(2) a pickup, utility vehicle, or van with a gross vehicle weight of 25,000 pounds or less that is not used for the delivery or transportation of goods, materials, or supplies, other than samples, unless:
(A) the delivery of the goods, materials, or supplies is not the primary use for which the vehicle is employed; or
(B) the vehicle is used for farming or ranching.
(d) Coverage under this section is required only for a vehicle that is acquired during the policy term and of which the insurer is notified on or before:
(1) the 20th day after the date on which the insured becomes the owner of the vehicle; or
(2) a later date specified by the policy.
(e) Coverage under this section for a vehicle that replaces a covered vehicle shown in the declarations for the policy must be the same as the coverage for the vehicle being replaced. An insured must notify the insurer of a replacement vehicle during the time prescribed by Subsection (d) only if the insured wishes to:
(1) add coverage for damage to the vehicle; or
(2) continue existing coverage for damage to the vehicle after the period prescribed by Subsection (d) expires.
(f) Coverage under this section for a vehicle that is acquired during the policy term in addition to the covered vehicles shown in the declarations for the policy and of which the insurer is notified as prescribed by Subsection (d) must be the broadest coverage provided under the policy for any covered vehicle shown in the declarations.
H.B. 949 applies to all insurers that are authorized to write automobile insurance in the state of Texas, and so, will not apply to surplus lines carriers. The section only applies to personal automobile insurance policies, and applies only to private passenger automobiles and pickups, utility vehicles or vans that are not used primarily in the delivery of goods, materials or supplies or used for farming or ranching.
The new statute provides that it applies, with regard to vehicles acquired by an insured during a policy term, only if notice of acquisition is provided to the insurer by the 20th day after the insured becomes the owner of the vehicle, or by a later date provided in the policy. In other words, a policy must allow an insured at least 20 days to notify the insurer of a new vehicle, but can provide a longer period of time for notice to be given. This requirement is applied differently to a replacement vehicle versus an additionally acquired vehicle.
When a new vehicle is acquired to replace a covered vehicle shown in the declarations, then timely notice of the acquisition must only be given if the insured wants to add damage coverage for the vehicle or continue such coverage. In other words, if no collision or comprehensive coverage is desired, notice of the replacement vehicle does not have to be given during the policy term in order for liability coverage to exist (but an insurer would need to be told of the new vehicle if coverage is renewed after the policy term).
When a vehicle is acquired not to replace, but to be additional to existing covered autos, the notice must be provided within the 20 day (or other specified) time period in the policy. At that point, the new vehicle must be given the broadest coverage provided under the policy at issue for any covered vehicle in the declarations.
This new statute may create a number of issues for carriers, but of immediate concern is the fact that the Texas Department of Insurance indicates that it interprets that statute as providing vehicle damage coverage for a newly acquired auto that is damaged less than 20 days from its acquisition when notice has not been provided to an insurer prior to the accident, as long as notice is thereafter given within that statutory period (or any longer period provided by the policy itself). This is its interpretation even if no prior auto covered by the policy had coverage for damage to that vehicle. That effectively presents the possibility of subsequent coverage for an existing loss, which appears to violate the longstanding rule against covering non-fortuitous losses.
Normally under Texas law, the fortuity doctrine excludes coverage for known losses or losses the insured knew or should have known were ongoing before the policy was issued. See Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 687-88 (Tex. App.--Houston [14th Dist.] 2006, pet. denied) See also Warrantech Corp. v. Steadfast Ins. Co., 210 S.W.3d 760, 767 (Tex. App.--Ft. Worth 2006, no pet.); Two Pesos, Inc. v. Gulf Ins. Co., 901 S.W.2d 495, 502 (Tex. App.--Houston [14th Dist.] 1995, no writ); Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 75 (Tex.App.-Dallas 2001, pet. denied). The doctrine derives from the principle that "[i]nsurance is designed to protect against unknown, fortuitous risks," not those that are certain. Burlington Ins. Co. v. Tex. Krishnas, Inc., 143 S.W.3d 226, 230 (Tex. App.--Eastland 2004, no pet.). See also Scottsdale Ins. Co. v. Travis, 68 S.W.3d 72, 75 (Tex. App.--Dallas 2001, pet. denied) ("[B]ecause insurance policies are designed to insure against fortuities, fraud occurs when a policy is misused to insure a certainty."). A known loss is one that the insured knew had occurred at the time it purchased the policy. Scottsdale v. Travis, 68 S.W.3d at 75. Coverage is precluded under circumstances where the insured know or should have known a loss had or would occur, or where the loss is in progress at the time the policy incepts. Travis, 68 S.W.3d at 75.
Because the Department of Insurance’s interpretation of the statute appears to conflict with this long-existing public policy analysis, it will be interesting to see how Texas courts will resolve this potential issue with the new section of the Insurance Code.