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Examinations Under Oath, Proofs of Loss, and Personal Injury Protection

Examinations Under Oath, Proofs of Loss, and Personal Injury Protection

I. EXAMINATION UNDER OATH

A. Introduction

An Examination Under Oath (hereinafter "EUO") is a condition precedent found in many first party policies, more typically automobile and homeowners policies . See State Farm General Ins. Co. vs. Lawlis, 773 S.W.2d 948 (Tex. App. - Beaumont 1989, orig. proceeding). The typical language permitting an EUO is as follows:

B. A person seeking any coverage must:

. . . .

5. When required by us:

. . . .

b. submit to examination under oath

In theory, an EUO is used as an investigative tool for an insurer to validate legitimate claims and flesh out fraudulent claims or losses. EUOs have been available for nearly a century and a great majority of Texas caselaw on this subject is pre World War II. In reality, an EUO may be a pretext for denying a claim.

The focus of this topic will be on Texas cases although other authority will be cited when a void exists on a particular point.

B. The Basics

An EUO is an examination of the insured under oath, before a notary where the testimony is transcribed and submitted to the insured for signature before a notary. Potomac Fire Ins. Co. vs. Turner, 67 S.W.2d 1080 (Tex. Civ. App. - San Antonio 1934, no writ). The request for EUO should be set at a reasonable time and place and may include a request for documents. Ayoub vs. American Guarantee & Liability Ins. Co., 605 F. Supp. 713 (S.D.N.Y.1985); Pierce vs. Globe & Rutgers Fire Ins. Co., 182 F. 586 (Wash. 1919). See also Humphrey vs. National Fire Ins. Co., 231 S.W. 750, 754 (Tex. Comm'n App. 1921, judgment adopted). The request for an EUO should include the scope the examination, understanding that the basis for an EUO is to be reasonable. See generally Aetna Casualty & Surety Co. vs. Garza, 906 S.W.2d 543 (Tex. App. - San Antonio 1995, writ dism'd by agr.).

An insured has a right to counsel at the EUO. Humphrey, 231 S.W. at 755. A proof of loss is not a substitute for an EUO. Provident Fire Ins. Co. vs. Asky, 162 S.W.2d 684, 685 (Tex. 1942). Likewise a recorded statement is not a replacement for an EUO. Lawlis, 773 S.W.2d at 949; Watson vs. National Surety Corp., 468 N.W. 2d 448 (Ia. 1991 ). See also Ramsey vs. Lucky Stores, Inc., 853 S.W.2d 623 (Tex. App. - Houston [1st Dist.] 1993, no writ).

An EUO provision is material. Humphrey, 221 S.W.2d at 752. While a notice provision in an insurance policy must be evaluated by a standard of "actual prejudice" in order to avoid the claim, an EUO provision is not analogous.

An EUO can be required of at least the named insured(s). West vs. State Farm Fire Ins. Co., 868 F.2d 348, 349 (9th Cir. 1988). Substitutes for the insured(s) will not work even if a proper or legal delegation has been made. Sims vs. Union Assurance Soc., 129 F. 804 (Ga. - App. 1903) (bankruptcy receiver) and Palace Café vs. Hartford Fire Ins. Co., 305 U.S. 634 (1938) (adjuster hired by insured). If the policy permits more than one EUO, multiple exams may be permitted.

The failure to submit to an EUO can be cured by the insured by subsequently submitting to same. Humphrey, 231 S.W. at 755. The failure of the insurer to reschedule an EUO may constitute a waiver. Id.

Lastly, the insured in most cases can insist that the EUO be signed by the insured. Turner, 67 S.W.2d at 1080. Where the transcription of the EUO is incomplete or inaccurate, there is no requirement for the insured to sign. Century Ins. Co. vs. Hogan, 135 S.W.2d 224, 227 (Tex. Civ. App. - Austin 1939, no writ). Other Texas courts have a harsher view. Perrotta vs. Farmers Ins. Exchange, 47 S.W.3d 569 (Tex. App. - Houston [1st Dist.] 2001, no pet.) (discussed infra).

The EUO can be waived. Where the insurer denies the claim prior to requesting an EUO, the provision can be waived. See Beckley vs. Ostego County Farmers Cooperative Fire Ins. Co., 159 N.Y.S.2d 270, dism'd 2 N.Y.2d 711 (1957). The condition can also be waived by failure to abide by statutory deadlines and rules or an outright breach of the policy by the insurer prior to the EUO demand. See Tex. Ins. Code Ann., art. 21.55 § 3 (Vernon 2004). Compliance may also be excused due to the death, illness, and/or mental disability of the insured.

False swearing in an EUO may or may not void the policy. Vernon vs. Aetna Ins. Co., 189 F. Supp. 233 (S.D. Tex. 1960), revs'd 301 F. 2d 86 (5th Cir. 1962), cert. denied 371 U.S. 819 (1962). Tex. Ins. Code Ann., art. 21.19 (false swearing and misrepresentations) only applies to proofs of loss and death claims according to the district court and Fifth Circuit opinions in Vernon. Id. at 235. In contrast, EUOs taken pre-suit and pre-claim denial may result in forfeiture. U.S. Fire Ins. Co. vs. Skatell, 596 S.W.2d 166, 168 (Tex. Civ. App. - Texarkana 1980, writ ref-d n.r.e.). If the requirements of Article 21.19 are not met, false swearing in an EUO may void the policy.

C. Significant Texas Cases

1. Humphrey vs. National Fire Ins. Co.

The case most frequently cited in almost all EUO opinions is Humphrey, 231 S.W. at 750. The facts in Humphrey are straightforward. Julia Humphrey, insured under a fire insurance policy by National Fire Insurance Company, suffered damage to her personal property in a rented home in Galveston. Id. at 751. The trial court rendered judgment in favor of Humphrey. Id. The Court of Appeals reversed, finding that Humphrey had "knowingly refused" to submit to an EUO as requested. Id.

In the Commission of Appeals following a writ of error granted by the Supreme Court, Humphrey contended the EUO was immaterial and was unenforceable unless the failure to give the EUO caused the actual destruction of the property damaged. Id. The Court rejected Humphrey-s argument finding the EUO provision material: "-the provision in question is a material one in such contracts, and that if the same were breached, the insurer would be deprived of a valuable right for which it had contracted." Id. at 752. Emphasis Added.

However, the penalty for failure to satisfy the EUO condition (breach) is abatement not forfeiture according to the Humphrey-s court. Id. Thus, the insurer must plead abatement rather than defenses in bar: "-that such refusal should be pleaded in abatement and separately from defenses in bar of recovery in all events at any time." Id. citing Aachen & Munich Fire Ins. Co. vs. Arabian Toilet Goods Co., 10 Ala. App. 395, 64 So. 635 (1914). Emphasis Added. The Humphrey-s court went on to cite several other cases from other jurisdictions embracing abatement rather bar. 231 S.W. at 753.

The Court stated the rule that abatement must be done in "due order," that is before the merits are determined. Id. Accordingly, the Court found no abatement was requested, only the refused EUO defense alleged in a subsequent answer. Id. Therefore, abatement was waived and so was reliance on the EUO provision. Id. at 753-754. The basis for this holding was that the Insurer could wait until limitations had passed and then demand an EUO conceivably causing a dismissal of Plaintiff-s claim and ultimate loss due to a statute of limitations defense.

Furthermore, the Court held that an EUO must be fixed at a reasonable time and place and the burden to prove same including the knowing refusal to submit to the EUO is on the insurer. The Court in Humphrey found the notice for the EUO unreasonable, demanding same only a few days after the fire before Humphrey could retain counsel. Id. The adjuster gave notice to Ms. Humphrey on Sunday at 4:00 p.m. for an EUO on Monday at 2:30 p.m. Id. The Court found such notice, at least implicitly, quite unreasonable as did the jury. Id.

The Court further held such notice was unreasonable as Ms. Humphrey had a right to counsel who was entitled to attend the EUO. Id. at 755. The Court specifically rejected the notion of a private examination and quoted from a Missouri appellate court: "When insurance companies proceed to take these examinations, it is tantamount to a declaration of intention to contest the claim-" Id. citing Thomas vs. Burlington Ins. Co., 47 Mo. App. 169, 1891 WL 1841 (Mo. App. 1891). Emphasis Added. The Court viewed the insurer-s EUO demand as at least an implicit attempt to "take an undue advantage of the Plaintiff-to manufacture a mere technical defense," which "cannot be allowed to succeed." Id.

Finally, the Court ruled that even if the time set for the EUO had been reasonable, Humphrey still could have refused if she later tendered herself to the insurer. 231 S.W. at 755. While Ms. Humphrey did initially refuse the EUO, she did subsequently submit herself to exam by the State Fire Marshall within several days after the fire. Id. This was after the insurer declined her offer for an EUO. Id.

In concluding the review of Ms. Humphrey-s case, the Court stated: "We find it difficult to escape the conclusion that the insurance company was more desirous of preserving the defense than of ascertaining the information it alleged it desired." Id.

The Humphrey case is the first Texas case to set out a number of guiding principles to be used regarding EUOs. The significance of this nearly eight-five (85) year old case cannot be underestimated. Lastly, the motives of insurers in using EUOs have not changed much in the last eighty (80) years.

2. Provident Fire Ins. Co. vs. Asky

Another Texas case that is frequently cited in the EUO context is Asky, 162 S.W.2d at 684. The facts in Asky are straightforward: Asky, a minor, was insured under a Texas standard fire policy. Id. Asky-s business sustained a fire loss and a store safe saved the business-s record of store inventory and the daily sales until the date of the fire. Id. at 685. However, the records of purchases was destroyed. Id. Asky gave the insurer-s adjuster what he had and told him that he could secure invoices of purchases made. Id.

The policy required a proof of loss to be filed within ninety-one (91) days of the date of loss. Id. at 684. However, no formal proof of loss was prepared by Asky although an extensive interview on the subject of the loss was given to the adjuster. Id. Asky also provided an affidavit on the matter and Asky-s father submitted to a sworn examination by the insurer-s attorney. The insurer did not advise Asky of anything else he needed to do to submit his claim. Id. The parties did execute a non-waiver agreement. Id. at 687.

The jury found in favor of Asky, finding he timely submitted a sworn proof of loss and the insurer led Asky to believe he had done all necessary to comply with the proof of loss requirement. Id. at 684. The Court of Appeals affirmed. The Texas Commission of Appeals disagreed holding that an EUO and/or next level interview and/or submission of an affidavit, and/or documentation were not a substitute(s) for sworn proof of loss: the two (2) provisions, proof of loss and EUO, "would be meaningless repetition of words" if one was a substitute for the other. Id. at 686. The Court also concluded that the insurer had no duty to advise Asky of the need for a proof of loss.

The lesson from Asky is that an EUO will not satisfy the proof of loss requirement even when the insured is a minor and the insured-s father who cooperated with the insurer was an uneducated man whose native language may not have been English. An EUO is used in part to test the proof of loss; therefore, if the insured fails to provide same, the EUO is compromised. As a result, the submission to an EUO does not substantially comply with a requirement for a proof of loss.

This case represents a harsh result which likely would not be decided the same way even with the present day Texas Supreme Court. Indeed a review of proof of loss cases would indicate this case may be an aberration.

3. State Farm Gen. Ins. vs. Lawlis

The landmark case of State Farm vs. Lawlis is frequently cited for more than just the issue of EUOS. In Lawlis, the Caldwells, husband and wife, sued State Farm for a fire loss sustained in their home, alleging breach of contract and violations of bad faith insurance practices. 773 S.W. at 948-949. State Farm timely sought abatement for a failure to satisfy a condition precedent, submission to an EUO. Id. at 949. The Caldwells responded by arguing that they had substantially complied with the EUO provision because Ms. Caldwell had submitted herself to a four (4) hour recorded interview with State Farm-s adjuster. Id. The interview though was "neither sworn nor subscribed." Id.

The Beaumont Court of Appeals citing Humphrey held that the proper remedy to enforce a condition precedent is abatement. Id. Because there was no evidence that the EUO condition was waived, the court granted mandamus relief to State Farm and ordered abatement until the EUO requirement was satisfied. Implicit in the Court-s short per curiam opinion was the determination that the four (4) hour recorded interview was not enough.

Lawlis stands for two (2) significant but distinct rules: (1) abatement must be sought to enforce a condition precedent such an EUO; and (2) even an extensive interview of the insured is not substantial compliance of the EUO condition.

4. Aetna Casualty & Surety Co. v. Garza

While Garza, 906 S.W.2d at 543, was not actually reviewed by the Texas Supreme Court, the San Antonio Court of Appeals wrote an extensive opinion upholding a bad faith verdict against Aetna. In Garza, the insureds- home was destroyed by fire due to arson. Id. at 547. Mr. Garza was separated from Ms. Garza at the time of the fire and Mr. Garza eventually went to prison for drug related offenses. Id. at 545. Ms. Garza who was not home at the time of the fire made a claim with Aetna the next day following the fire. Id. at 546. Aetna, of course, commenced an investigation and very quickly focused on the insureds as accomplices in the fire. Id. at 547-548. The investigation took nearly two (2) years and included numerous statements from the Garzas.1 Id. at 546. At some point, Aetna sought the EUO of Ms. Garza. Id. at 547. Ms. Garza hired counsel and immediately requested a copy of her policy from Aetna since the fire destroyed her copy. Id. Some fourteen (14) months later following numerous requests for Ms. Garza-s policy, Ms. Garza hiring new counsel, receiving two reservation of rights letters, and suffering various cancellations of the EUO including at least an appearance of Ms. Garza and her attorney where Aetna and its counsel failed to appear, Aetna finally provided of copy of Ms. Garza-s policy to her. Id. at 548.

Eleven (11) months after the fire, Ms. Garza filed suit seeking declaratory relief. Id. Subsequently, the suit was amended to include various bad faith claims. Id. Aetna sought abatement even though it had not provided Garza a copy of her policy. Aetna admitted its failure and its plea for abatement was denied until such time it provided Garza-s policy to her. Id. After finally providing the policy to Ms. Garza, both Garzas EUOs were taken. Id. Nearly two (2) years after the fire and the start of its investigation, Aetna tendered approximately $95,000.00 to Ms. Garza on behalf of her $177,600.00 claim. Id.

A jury, not surprisingly, found in favor of Ms. Garza on all of her claims, awarding her $300,000.00 for the fire loss, $150,000.00 for breach of the duty of good faith and fair dealing, $150,000.00 for knowing conduct, and punitive damages for $1,000,000.00 against Aetna and its adjuster. Id. at 549. The judgment exceeded 1.5 million dollars ($1,5000,000.00) and also included attorney-s fees. Id.

Although the San Antonio Court of Appeals reversed some of Ms. Garza-s damages, the Court was harsh in its analysis of Aetna and its representatives- conduct. Aetna, predictably blamed the delay and resolution of Ms. Garza-s claim on her refusal to submit to an EUO. The Court wrote:

Aetna-s inability to obtain the examinations under oath was a situation created by Aetna itself when it failed to honor Garza-s request for a copy of the policy. Aetna could have obtained the examinations under oath long before it did by providing Garza with a copy of her policy. Aetna-s witnesses consistently acknowledged that Garza had a right to a copy of her policy and that the policy was the best source of information regarding her obligations. Aetna failed to provide Garza with a copy of her policy until required to do so by the court, despite repeated requests for more than fourteen months.

Id. at 550.

Aetna attempted to excuse its conduct by telling the Court that the issue was whether payment was delayed without a reasonable basis not whether furnishing the policy was delayed "without a reasonable basis." Id. The Court agreed with Aetna but pointed out that it could not excuse its delay when it refused a reasonable and proper request by the insured, i.e. furnishing a copy of her policy before an EUO was taken. Id. Stated simply, Aetna cannot escape liability by refusing to provide an item the insured needs in order to satisfy the condition precedent.

Furthermore, the Court found Aetna-s conduct was unconscionable under the DTPA when it deprived Ms. Garza of the "best source of information regarding the rights and obligations under an insurance policy itself." Id. at 553. Aetna-s own witnesses conceded that Ms. Garza would be at a disadvantage if she had no copy of the policy from which to refer. Id.

Finally, the Court repeatedly pointed out that Aetna was focusing its investigation only on the Garzas and any investigation was outcome oriented. Id. at 551. The Court appeared to suggest at least implicitly that the requirement of an EUO was a mere pretext and would not be allowed as a basis to justify its delay or refusal to pay a claim. Id. at 554.

Garza stands for some very significant propositions regarding EUOs. First, reasonable requests for information by the insured relating to EUOs cannot be ignored in order to set up an abatement, excuse extra-contractual conduct, or justify forfeiture of a claim. Second, when EUOs are used as a pretext, that is a technical reason not to pay a claim especially where the insurer has already made up its mind, the reliance on same by an insurer will be discounted. Third, Ms. Garza apparently did not raise the issue of waiver of the EUO as a result of Aetna-s conduct including: the failure to provide the insurance policy in a timely manner, the failure to appear for the EUO it demanded, the extensive interviews and information provided by Ms. Garza pre-EUO, and the obviously pretextual use of an EUO to delay and at least partially deny Ms. Garza-s claim. If ever a case existed for waiver and/or substantial compliance, this was it.

5. In Re Texas Farmers Ins. Exchange

One case frequently overlooked dealing with EUOs and discovery is In Re Texas Farmers Ins. Exchange, 990 S.W.2d 337 (Tex. App. - Texarkana 1999, orig. proceeding). The facts are uncomplicated: On May 13, 1996, the Chappells- home was damaged by fire and they made a claim on their Farmers- policy. Id. at 338. Following the receipt of a May 31, 1996 report from its own fire investigator that the fire was not accidental, Farmers hired attorney Greg Scott to conduct an EUO of the Chappells. Id. Scott conducted the EUOs about one month after being hired and the claim was denied on September 17, 1996 about forty-five (45) days after the EUOs were taken. Id. The claim was denied because Farmers believed that the Chappells had set the fire and/or had knowledge of same. Id. The denial letter also asserted that the Chappells made material misrepresentations in presenting their claim. Id.

Predictably, the Chappells sued Farmers on their claim and noticed the deposition of Scott including a duces tecum seeking the claims adjuster-s file which included reports and documents in Scott-s possession relating to their claims. Id. at 340. Farmers filed a motion to quash asserting various privileges including attorney-client, work product, party communications, and witness statements. Id. In essence, Farmers claimed these materials were done in anticipation of litigation. Id.

Following a hearing, the trial court overruled Farmers- objections, holding that Farmers had not presented sufficient evidence to sustain its privilege claims and Scott was merely conducting a routine investigation. Id. More significantly, the trial court held that Scott was acting as an investigator, not an attorney and Farmers had no reasonable basis to anticipate litigation prior to suit being filed. Id.

Farmers sought mandamus relief which was denied except for the date of anticipation. Id. at 340. The Texarkana Court of Appeals noted Scott-s testimony at the hearing that an EUO was "a presuit investigation tool which has been used by insurers in Texas for about 70 years." Id. at 341. The Court ruled that Scott, in taking the EUO, was conducting a routine investigation and shielding his investigation merely because Scott was an attorney would permit insurers to hire lawyers to do investigations to prevent disclosure. Id.

With regard to the date for anticipation of litigation, the appellate court noted that Scott testified that he was not told Farmers anticipated litigation on the date it received the investigator-s report or prior to the EUO. Id. at 342. Rather, the EUO was for purposes of evaluating the Chappells- claim. Id. Furthermore, the Court noted that Farmers did "not claim that it had already determined that it would likely deny the claim immediately after receiving" the investigator-s report. Id.

The Supreme Court denied relief over the dissents of Justices Hecht and Owens. In Re Texas Farmers Ins. Exchange, 12 S.W.3d 807 (Tex. 2000).

This case provides some excellent bullets for counsel in pursuing a claim on behalf of an insured. EUOs are part of an insured-s routine investigation and thus not protected from discovery. Should an insurer assert otherwise, an argument can be made that the EUO was pretextual, .i.e. the insurer had already made up its mind. An investigator for an EUO cannot be shielded from discovery merely because he is a lawyer. The Supreme Court-s refusal to grant Farmers relief validates the Texarkana Court-s holdings.

6. Perrotta v. Farmers Ins. Exchange

A more recent case that seems to muddy the EUO waters is Perrotta v. Farmers Ins. Exchange, 47 S.W.3d at 569. Raymond Perrotta was insured with Farmers under a homeowners policy. Id. at 571. In 1996, Perrotta made a theft claim with Farmers after discovering several boxes of personal property were missing. Id. Perrotta reported the loss to the police and made a claim with Farmers. Id. Mike Stevens, a Farmers adjuster, met with Perrotta where both men constructed a loss worksheet listing what was stolen and Stevens took a recorded statement from Perrotta. Stevens also received a proof of loss from Perrotta and Farmers asked Perrotta to sign an authorization so Farmers could obtain financial information on Perrotta. Id.

Farmers rejected the proof of loss allegedly because no dollar amount of loss was claimed and there was no notary seal. Id. Farmers sent a new proof of loss and new authorization which it never received back. Id. Farmers requested an EUO including a document request. Id. Perrotta appeared, answered questions, and produced nine (9) photographs depicting some of the missing items. Id. No receipts or other documents substantiating damages were provided and Perrotta failed to sign and return the EUO to Farmers. Id.

Farmers sent Perrotta additional letters seeking further information and seeking the return of a signed EUO. Id. at 572. Farmers eventually denied Perrotta-s claim because no theft occurred or Perrotta caused same and because of fraud and false swearing in the proof of loss and EUO. Id. Finally, the claim was also denied because of lack of cooperation including failing to provide Farmers with certain information it had sought following the EUO. Id.

Perrotta filed suit against Farmers and some of its representatives for the denial of his claim including extra-contractual and statutory claims. Id. Farmers answered generally denying Perrotta-s claim and that Perrotta failed to comply with certain policy conditions and violated the policy-s concealment provision. Id. While Farmers sought summary judgment on all of Perrotta-s claims, only the basis for contractual claims are relevant: (1) Perrotta committed fraud in applying for the insurance; (2) Perrotta breached the policy by refusing to comply with its terms and conditions; and (3) Perrotta violated the concealment provision. Id.

Perrotta-s response included a motion for continuance seeking additional discovery to respond to Farmers- motion for summary judgment; Perrotta also responded by claiming there were no misrepresentations, that he had fully cooperated and satisfied all conditions to the policy, and there was no fraud or intent to deceive. Id. The trial court (Judge Scott Brister) denied the motion for continuance and granted Farmers- summary judgment motion. Id.

On appeal, the Court of Appeals discussed the EUO requirement including the obligation to sign and swear to the transcript. Id. at 573. Perrotta contended that he had substantially complied with the EUO provision citing Century Ins. Co. v. Hogan, 135 S.W.2d at 228. Hogan though was distinguishable because no notary was available and the transcript was inaccurate. Id. Moreover, Perrotta never offered an excuse for failing to sign and swear to the EUO transcript given the adjuster-s summary judgment affidavit that Perrotta did not comply. Id. at 574.

The Court viewed Perrotta-s conduct as a breach of contract. Id. The Court did mention Lawlis but never discussed Humphrey and Lawlis mandating that abatement is the remedy rather than forfeiture or breach. Apparently, the argument was not made by Perrotta. Curiously, the appellate court based its affirmance of summary judgment on Perrotta-s contract claims on its EUO/breach of contract analysis even though Farmers denied the claim for false swearing in the EUO.

The reasoning in Perotta could not be more wrong although it may never have been raised by the insured. This case would appear to have limited value for EUO issues unless you have an uninformed opponent and you choose to misstate the law regarding failure to comply with the EUO condition which I would never recommend.

7. Lidawi v. Progressive Mutual Ins. Co.

The latest case on EUOs is Lidawi and appears to answer at least one unanswered question in Texas regarding EUOs. Lidawi v. Progressive Mutual Ins. Co., 112 S.W.3d 725 (Tex. App. - Houston [14th Dist.] 2003, no pet.). In Lidawi, the Houston Court of Appeals (14th Dist.) held that an insurer could compel separate EUOs from a husband and wife pursuant to the EUO provision. Id. at 727.

In Lidawi, Progressive sought separate EUOs of the two insureds, husband and wife, following a uninsured claim. Id. When both parties appeared for the EUOs, Progressive demanded they be conducted separately. Id. The insureds refused and no EUO was taken. Id. Progressive later demanded separate EUOs again but the Lidawis refused. Id. Progressive denied the Lidawis- claim for noncooperation. Id.

The Lidawis sued Progressive for declaratory relief including breach of contract. Id. Progressive counterclaimed alleging separate EUOs were consistent with the contract-s language and that the failure to comply amounted to a breach of the cooperation clause. Id. Both sides filed for summary judgment and the trial court ruled in favor of Progressive finding the request for separate EUOs was proper, the Lidawis failed to comply with such condition, and the Lidawis suit was dismissed with costs and attorney fees taxed against the Lidawis. Id. at 729.

On appeal, the Court of Appeals affirmed the trial court in part. The appellate court proceeded to hold that when a contract is silent on a matter, a reasonable interpretation will be made. Id. at 731. Furthermore, the Court held that "Texas courts will also supply missing terms when necessary to effectuate the purposes of the parties under the agreement." Id. In ruling in favor of Progressive on the issue of separate EUOs, the Court of Appeals relied heavily on Shelter Ins. Co. v. Spence, 656 S.W.2d 36, 38 (Tenn. Ct. App. 1983) for the notion that it was more likely that accurate factual information could be obtained from separate EUOs. Id.

Unfortunately, the Court of Appeals failed to analyze the long standing rule that ambiguities in an insurance policy shall be construed in favor of the insured. Given that all Texas policies are silent on the issue, it is hard to understand how an appellate court will ignore silence, obvious ambiguity, and then supply a missing term. Moreover, the Court of Appeals appeared to expressly reject this principle when it held that Texas public policy was not similar to Alabama-s which also embraced the ambiguity doctrine. This was despite the fact that the Court cited and relied heavily on Nat-l Union Fire Ins. Co. vs. CBI Industries, Inc., 907 S.W.2d 517 (Tex. 1995) which stands for the very rule the Court rejected. Lidawi, 112 S.W.3d at 520.

The Court in permitting separate EUOs failed to take into account the language approved of by the Texas Supreme Court in Humphrey: "-The liability of the Defendant having become fixed by the happening of the event, upon which the contract was to mature, conditions which prescribe methods and formalities for ascertaining the extent of it or for adjusting it, are not to be subjected to any narrow or technical construction but construed liberally in favor of the insured." Humphrey, 231 S.W.2d at 754 citing Porter vs. Ins. Co., 164 N.Y. 504, 509-510, 58 N.E. 641 (1900).

The Lidawi Court did reverse the summary judgment granted in favor of Progressive finding the remedy for Progressive was mandamus and the issue at hand was a matter of first impression. 112 S.W.3d at 735.

Bluntly stated, Lidawi is wrongly decided whether due to poor briefing, a misinformed Court, or a combination of both. Note that Lidawi was not reviewed by the Texas Supreme Court and no motion for rehearing was filed in the Court of Appeals. A Westlaw search indicates that this case has not been subsequently cited for the proposition of separate EUOs.

In addition, there is no discussion in Lidawi of Humphrey-s language regarding construction of a term and/or ambiguity in an insurance policy. The Houston Court of Appeals in contradiction of longstanding rules on interpreting insurance policies simply adopts the insurer-s interpretation because it is good policy and will prevent collusion. Lastly, the Lidawi Court notes that the Texas Rules of Civil Procedure regarding spouses does not require sequestration in lawsuits but there is "no principled reason why a spousal exemption should extend to the realm of investigation, and we discern none." Id. at 732, n.3. This statement defies logic and reverses the insured-s burden; if sequestration for a husband and wife among others is not required in actual litigation, there is no meaningful distinction for separate EUOs. In either proceeding the truth is being sought.

Respectfully, while Lidawi may decide the issue adversely to insureds in one Court of Appeals, its value is questionable at best. Given prior decisions, there are too many holes in its reasoning.

D. STRATEGY AND CONSIDERATIONS FOR EUOS

The apparent downside for failure to comply with an EUO if suit is filed is abatement. The strategy that can be employed in order to get the insurer to play by the rules and get an understanding of the scope of an EUO may well be to file suit, allow the insurer to seek abatement and get the Court to order the insurer to comply with the rules including defining the scope and basis for an EUO (type of documents, area of questions, etc.). Of course, if no abatement is sought, then the EUO requirement can be waived.

Another reason to file suit and allow the trial court to intervene is to flush out whether the EUO is a being used as a pretext. If the insurer is using the EUO as a pretext to build its denial and get a free pre-litigation deposition, the condition should be considered waived, as a denial of the claim waives the condition. Beckley, 159 N.Y.S.2d at 270. As the Humphrey-s court noted: "When insurance companies proceed to take these examinations, it is tantamount to a declaration of intention to contest the claim-" Humphrey, 231 S.W. at 755 citing Thomas, 47 Mo. App. at 169. A request for an EUO from a common sense perspective hardly indicates the insurer is being receptive to the claim especially where the insurer has had numerous interviews with insured(s) and requested various documents.

Perhaps the most effective tool for precluding an EUO is Tex. Ins. Code Ann., art. 21.55, the prompt payment statute. Article 21.55 is a part of almost every insurance policy and if not, the statute applies to almost every kind of policy. The application of EUOs and Article 21.55 works this way: Section 3 of Article 21.55 mandates that a claim must be accepted or rejected in most cases within fifteen (15) business days (exception arson) after the insurer receives "all items, statements, and forms required by the insurer." Tex. Ins. Code Ann., art. 21.55 §3(a). An insurer cannot continue to request items merely to extend Section 3(a). Colonial County Mutual Ins. Co. vs. Valdez, 30 S.W.3d 514 (Tex. App. - Corpus Christi 2000, no pet.). If the insurer has made no further request and the time period has passed, Article 21.55 has been violated, the insurance policy breached by the insurer, and the insured is excused from complying with an EUO request. See generally Gulf Ins. Co. vs. Parker Products, Inc., 498 S.W.2d 677, 679 (Tex. 1973)(breach by one party generally excuses performance of conditions by nonbreaching party). Article 21.55 is an effective tool to thwart an improper EUO or untimely EUO requests.

The importance of dealing with EUOs to secure payment of your client-s claim should not be ignored. One writer has stated the obvious and understood with respect to EUOs: "This technique is now quite common as a method for the insurer to obtain free discovery and seek ostensible reasons to refuse payment prior to suit." William J. Chriss, Compliance With Conditions Under Texas Property Insurance Policies - Waiver, Estoppel, Excuse, 1st Annual Advanced Insurance Law Course (March 25-26, 2004)" p. 4. One can either gain a general understanding of EUOs or allow your client to suffer the consequences.

II. PROOFS OF LOSS

A. Introduction

Proofs of loss provisions are found in first party coverage, more frequently in the property damage context. The typical language may be read as follows:

(6) send to us if we request, your sworn proof of loss within 91 days of our request on a standard form supplied by us. We must request a signed sworn proof of loss within 15 days after we receive your written notice, or we waive our right to require a proof of loss. Such waiver will not waive our other rights under this policy.

(a) This proof of loss shall state, to the best of your knowledge and belief:

i. the time and cause of loss.

ii. the interest of the insured and all others in the property involved including all liens on the property.

iii. other insurance which may cover the loss.

iv. the actual cash value of each item of property and the amount of loss to each item.

To gain an overview of proofs of loss one should start with Hanover Ins. Co. v. Hagler, 532 S.W.2d 136 (Tex. Civ. App. - Dallas 1975, writ ref-d n.r.e.).

B. Some Basics

"It is a settled principle of law in Texas that a stipulation in an insurance contract requiring notice and proof of loss within a reasonable time and on reasonable terms is valid and must be complied with to recover under the policy." Hanover Ins. Co. v. Hagler, 532 S.W.2d at 137. The purpose of this clause is to allow the insurer to investigate the loss "while the occurrence is fresh in the minds of witnesses, to prevent fraud, and to enable it to form an intelligent estimate of its rights and liabilities so that it may adequately prepare to defend any claim that may arise." Id. See also Allan D. Windt, Insurance Claims and Disputes §3.3, p. 185 (West 2001). Just like an EUO, the submission of a proof of loss is a condition precedent. Hagler, 532 S.W.2d at 137.

The practical use of proofs of loss is to allow the insurer a springboard to start its investigation and use same as a tool for instance in EUOs. Much like a recorded statement, the insurer can frequently use a proof of loss to impeach the insured.

More than an EUO, an insurer will not, with some exceptions, be very successful in asserting denial of a claim based upon a failure to provide a proof of loss. As Windt notes in his respected treatise on insurance, there are six (6) reasons why an insurer will "rarely be able to deny coverage because of a failure to comply timely with such provision." Windt, p. 185. Perhaps, the most frequent legal excuse permitting noncompliance is "substantial compliance." Texas Farm Bureau Underwriters v. Hasting, 449 S.W.2d 283, 285 (Tex. Civ. App. - El Paso 1969, no writ).

In Rogers v. Aetna Casualty and Surety Co., Rogers-, the insured, pool house was being constructed and was damaged by fire. 601 F.2d 840, 842 (5th Cir. 1979). Rogers promptly notified Aetna of the loss. Id. Aetna investigated the fire, visiting the fire scene at least twice. Id. at 844. Over a two month period, Rogers sent and Aetna received five (5) letters "detailing all information about the claim as it became available." Id. Aetna raised the failure to submit a proof of loss as a defense to payment. The Court summarily rejected the defense based on Rogers- substantial compliance. Id. The rule, the Court noted, was as follows: "The rule is that, when defective proofs of loss are furnished to the company, it must, within a reasonable time, object to the proofs, and point out the defects, so that the insured may, if he so desires, amend same, and cure the defects." Id. citing Anchor Casualty Co. v. Bowers, 385 S.W.2d 568, 569-570 (Tex. Civ. App. - Houston 1964), rev-d on other grounds, 393 S.W.2d 168 (Tex. 1965). Note though that substantial compliance must take place within the time period allowed for filing the proof of loss. Hagler, 532 S.W.2d at 140.

A second reason for avoiding denial of a claim is the submission of the proof of loss by someone else on the insured-s behalf. Second New Haven Bank v. Kobrite, Inc., 86 Ill. App.3d 832, 408 N.E.2d 369, 371 (1980); Commercial Bank v. St. Paul Fire & Marine Ins. Co., 336 S.E.2d 552, 557 (W.VA 1985). This practice would seem to be permitted in Texas given the frequent use of public adjusters now licensed by the State.

A third reason to excuse submission of a proof of loss is when the need for same is "obviated" by the insurer-s conduct or knowledge. Windt, p. 186. For example, if the insurer denies the claim within the time period when the proof of loss is due or the insurer leads the insured to believe no proof of loss is required, submission is excused. Hagler, 532 S.W.2d at 138. A partial payment may likewise provide a legal excuse. Id. at 138-139.

Fourth, mere mistakes or exaggeration may also not bar recovery. Windt, p. 187. However, a willful misrepresentation may so qualify. See Tex. Ins. Code Ann. §21.19 (Vernon 1981). The materiality of the misrepresentation and prejudice to the insurer appears to be the test. Delta Lloyds Ins. Co. v. Williamson, 720 S.W.2d 232, 233 (Tex. App. - Beaumont 1986, no writ). But see Lee v. National Life Assurance Co., 632 F.2d 524 (5th Cir. 1980) and Aetna Casualty & Surety Co. v. Guynes, 713 F.2d 1187 (5th Cir. 1983).

A fifth excuse is the failure of the insurer to establish prejudice. Windt, p. 187. One federal court evaluating this exception has appeared to implicitly accept the prejudice exception. U.S. v. Indiana Bonding and Surety Co., 625 F.2d 26, 30 (5th Cir. 1980). This exception would seem to make sense given prejudice requirements for other similar policy conditions.

The sixth and last basis for an exception is waiver and estoppel. This excuse is just another form or shade of the first basis to excuse performance. One Texas case deals with the insurer-s failure to furnish proof of loss forms to the insured and failure to communicate with the insured knowing he was hospitalized. Henry v. Aetna Casualty and Surety Co., 633 S.W.2d 583, 584-585 (Tex. App. - Texarkana 1982, writ ref-d n.r.e.).

Keep in mind that these exceptions and rules may differ when insurance policies under federal programs are involved. Windt, p. 190, n. 13. Indeed, the conditions of the policy may be strictly enforced.

C. The Large Category of Waiver

Just as many other conditions, the category of waiver prevents the requirement of a proof of loss. There are numerous examples of waiver of proofs of loss in Texas.

An insurer has a duty to point out defects in a proof of loss within a "reasonable time" so that the insured can amend the notice and file it timely. For example, if the proof of loss is not sworn to and the insurer fails to object and provide the insured an opportunity to cure, the requirement is waived. Austin Bldg. Co. v. Nat-l Union Fire Ins. Co., 403 S.W.2d 499, 506 (Tex. Civ. App. - Dallas 1966, writ ref-d n.r.e.). It may likewise amount to substantial compliance. Id. Moreover, failing to list this condition as a basis for denial waives the defense to the extent a defense exists. Id.

Another ground of waiver similar to an EUO occurs when the insurer denies the claim within the time period required to provide a proof of loss. Austin Bldg. Co., 403 S.W.2d at 506. However, denial after the proof of loss is due is not waiver. U.S. Fidelity & Guaranty Co. v. Bimco Iron & Metal Corp., 464 S.W.2d 353, 357 (Tex. 1971); Galveston County v. Hartford Fire Ins. Co., 231 S.W.2d 684, 685-686 (Tex. Civ. App. - Galveston 1950, writ ref-d). But an admission of partial liability after the proof of loss is due may be a waiver but such waiver may be fact intensive. See Bimco Iron & Metal, 464 S.W.2d at 357. The consideration in this context must be whether the proof of loss was required for the particular damage being sought. Hagler, 532 S.W.2d at 138-139.

An obvious method for the insurer to avoid waiver is for the insurer to issue a reservation of rights letter to the insured.

D. Time Elements Relating to Proofs of Loss

The minimum time limit for a proof of loss is ninety (90) days. Tex. Civ. Pract. & Rem. Code Ann., §16.071 provides:

§16.071. Notice Requirements

(a) A contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.

(b) If notice is required, the claimant may notify any convenient agent of the company that requires the notice.

(c) A contract stipulation between the operator of a railroad, street railway, or interurban railroad and an employee or servant of the operator is void if it requires as a condition precedent to liability.

(1) the employee or servant to notify the system of a claim for damages for personal injury caused by negligence; or

(2) the spouse, parent, or child of a deceased employee or servant to notify the system of a claim of death caused by negligence.

(d) This section applies to a contract between a federal prime contractor and a subcontractor, except that the notice period stipulated in the subcontract may be for a period not less than the period stipulated in the prime contract, minus seven days.

(e) In a suit covered by this section or Section 16.070, it is presumed that any required notice has been given unless lack of notice is specifically pleaded under oath.

(f) This section does not apply to a contract relating to the sale or purchase of a business entity if a party to the contract pays or receives or is obligated to pay or receive consideration under the contract having an aggregate value of not less than $500,000.

This statute was formally Tex. Civ. Stat. Ann., art. 5546(a) but was amended in 1985 and placed in the Texas Civil Practice and Remedies code. Case law indicates that this provision is applicable to proofs of loss. Texas Farm Bureau Mutual Ins. Co. v. Carnes, 416 S.W.2d 863, 869 (Tex. Civ. App. - Corpus Christi 1967, writ ref-d n.r.e.); Fidelity & Deposit Co. v. Fidelity Finance Co., 111 S.W.2d 809, 811-812 (Tex. Civ. App. - Dallas 1937, writ dism-d).

E. Burden of Proof and Pleading For Proofs of Loss

Absent pleading to the contrary, compliance with notice including proofs of loss is presumed. Specifically, Tex. R. Civ. P. 93 mandates that a verified denial must be filed to properly contest any presumed or pled allegation that a proof of loss has been provided. The denial cannot be generic in nature but must state the filing of the proof of loss was insufficient. Anchor Cas. Co. v. Bowers, 393 S.W.2d 168, 170 (Tex. 1965). The presumption of a valid proof of loss may not be conclusive for the insured where the failure to assert a verified denial is not raised by the insured or the issue of the proof of loss is tried by consent. Aetna Ins. Co. v. Durbin, 417 S.W.2d 485, 487-488 (Tex. Civ. App. - Dallas 1967, no writ).

F. Bad Faith and Proofs of Loss

One landmark bad faith case addresses proofs of loss. In Viles v. Security National Ins. Co., 788 S.W.2d 566 (Tex. 1990). the issue presented was whether the insured-s failure to timely file a proof of loss form barred a claim for breach of the duty of good faith and fair dealing. Id. In Viles, the insureds made a claim for foundation damage. Id. Several weeks later the insurer inspected the home and denied the claim but offered the Viles $3,000.00 as a compromise. Id. at 567. It was undisputed that the denial was within the ninety-one (91) day period for a proof of loss to be filed. Id. The Viles sued for breach of contract and breach of the duty of good faith and fair dealing. Id.

The Viles prevailed at trial. Id. The Court of Appeals reversed holding that the failure of the Viles to secure a favorable jury finding that noncompliance with the proof of loss provision was either satisfied or waived was fatal to the breach of the duty of good faith and fair dealing claim. Id. Specifically, the failure to secure such a finding meant that the insurer had a reasonable basis to deny the claim as a matter of law. Id.

The Texas Supreme Court reinstated the trial court verdict. (This was, of course, a long time ago). The Court held that the breach of the duty and fair dealing was a separate cause of action for any breach of contract. Id. As a result, there was no requirement to submit the proof of loss issue to the jury. Id. This was due in particular because the claim was denied before the proof of loss was due. Id. at 567-568.

While Viles stands for a number of significant issues, the insurer-s denial of a claim before a proof of loss is due constitutes waiver of that condition as a matter of law. Id. at 568 (Hecht, J. dissenting). Apparently, there is no need to secure waiver or compliance finding to support a recovery. The better practice though may well be to do so although a summary judgment on this condition before trial would certainly make the issue moot.

III. PERSONAL INJURY PROTECTION

A. Introduction

"Personal Injury Protection," often referred to as "PIP," refers to no fault coverage provided in automobile policies. This coverage provides for payment of medical bills and lost wages for damages incurred up to three (3) years after the accident.

PIP is optional coverage and is governed by Tex. Ins. Code Ann., art. 5.06-3 (Vernon Supp. 2004). An insurer paying PIP cannot subrogate against another for payment of a PIP claim.

B. The Basics

The typical PIP policy language is as follows:

PART B2-PERSONAL INJURY PROTECTIONCOVERAGE I. INSURING AGREEMENT

A. We will pay Personal Injury Protection benefits because of bodily injury:

1. Resulting from a motor vehicle accident; and

2. sustained by a covered person

Our payment will only be for losses or expenses incurred within three years from the date of the accident.

B. Personal Injury Protection benefits consist of:

1. Reasonable expenses incurred for necessary medical and funeral services.

2.1 Eighty percent of a covered person-s loss of income from employment. These benefits apply only if, at the time of the accident, the covered person:

a. was an income producer; and

b. was in an occupational status.

These benefits do not apply to any loss after the covered person dies.

II. Loss of income is the difference between:

a. income which would have been earned had the covered person not been injured; and

b. the amount of income actually received from employment during the disability

III. If the income being earned as of the date of accident is a salary or fixed remuneration, it shall be used in determining the amount of income which would have been earned. Otherwise, the average monthly income earned during the period (not more than 12 months) preceding the accident shall be used.

3.1 Reasonable expenses incurred for obtaining services. These services must replace those a covered person would normally have performed:

a. without pay;

b. during a period of disability; and

c. for the care and maintenance of the family or household

The benefits do not apply to any loss after the covered person dies.

C. "Covered person" as used in this Part means:

1. you or any family member:

a. while occupying; or

b. when struck by;

a motor vehicle designed for use mainly on public roads or a trailer of any type.

2. Any other person while occupying your covered auto with your permission.

EXCLUSIONS

We do not provide Personal Injury Protection Coverage for any person for bodily injury sustained:

1. In an accident caused intentionally by that person.

2. By that person while in the commission of a felony.

3. By that person while attempting to elude arrest by a law enforcement official.

4. While occupying, or when struck by, any motor vehicle (other than your covered auto) which is owned by a family member.

LIMIT OF LIABILITY

The limit of liability shown in the Declarations for this coverage is our maximum limit of liability for each person injured in any one accident. This is the most we will pay regardless of the number of:

1. covered persons;

2. Claims made;

3. Vehicles or premiums shown in the Declarations; or

4. Vehicles involved in the accident.

OTHER INSURANCE

Of there is other Personal Injury Protection insurance, we will pay only our share. Our share is the proportion that out limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible Personal Injury Protection insurance.

OTHER PROVISIONS

A. Loss Payments. Benefits are payable:

1. Not more frequently than every two weeks; and

2. Within 30 days after satisfactory proof of claim is received.

B. Modification. The General Provision part of this policy entitled "Our Right to Recover Payment: does not apply to this coverage.

As previously noted, Tex. Ins. Code Ann., art. 5.06-3 addresses the statutory basis for PIP coverage:

Art. 5.06-3. Personal Injury Protection Coverage

(a) No automobile liability insurance policy, including insurance issued pursuant to an assigned risk plan established under authority of Section 35 of the Texas Motor Vehicle Safety-Responsibility Act covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be delivered or issued for delivery in this state unless personal injury protection coverage is provided therein or supplemental thereto. The coverage required by this article shall not be applicable if any insured named in the policy shall reject the coverage in writing; provided, unless the named insured thereafter requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy if the named insured has rejected the coverage in connection with a policy previously issued to him by the same insurer or by an affiliated insurer.

(b) "Personal injury protection" consists of provisions of a motor vehicle liability policy which provide for payment to the named insured in the motor vehicle liability policy and members of the insured-s household, any authorized operator or passenger of the named insured-s motor vehicle including a guest occupant, up to an amount of $2,500 for each such person for payment of all reasonable expenses arising from the accident and incurred within three years from the date thereof for necessary medical, surgical, X-ray and dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing and funeral services, and in the case of an income producer, payment of benefits for loss of income as the result of the accident; and where the person injured in the accident was not an income or wage producer at the time of the accident, payments of benefits must be made in reimbursement of necessary and reasonable expenses incurred for essential services ordinarily performed by the injured person for care and maintenance of the family or family household. The insurer providing loss of income benefits may require, as a condition of receiving such benefits, that the insured person furnish the insurer reasonable medical proof of his injury causing loss of income. The personal injury protection in this paragraph specified shall not exceed $2,500 for all benefits, in the aggregate, for each person.

(c) The benefits required by this Act shall be payable without regard to the fault or non-fault of the named insured or the recipient in causing or contributing to the accident, and without regard to any collateral source of medical, hospital, or wage continuation benefits. An insurer paying benefits pursuant to this Act shall have no right of subrogation and no claim against any other person or insurer to recover any such benefits by reason of the alleged fault of such other person in causing or contributing to the accident.

(d) All payments of benefits prescribed under this Act shall be made periodically as the claims therefore arise and within thirty (30) days after satisfactory proof thereof is received by the insurer subject to the following limitations:

(1) The coverage described in this Act may prescribe a period of not less than six months after the date of the accident within which the original proof of loss with respect to a claim for benefits must be presented to the insurer.

(2) The coverage described in this Act may provide that in any instance where a lapse occurs in the period of total disability or in the medical treatment of an injured person who has received benefits under such coverage and such person subsequently claims additional benefits based upon an alleged recurrence of the injury for which the original claim for benefits was made, the insurer may require reasonable medical proof of such alleged recurrence; provided, that in no event shall the aggregate benefits payable to any person exceed the maximum limits prescribed in the policy.

(3) In the event the insurer fails to pay such benefits when due, the person entitled to such benefits may bring an action in contract to recover the same; and, in the event the insurer is required to pay such benefits, the person entitled to such benefits shall be entitled to recover reasonable attorneys fees plus 12% penalty, plus interest thereon at the legal rate from the date such sums become overdue.

(e) An insurer shall exclude benefits to any insured, or his personal representative, under a policy required by Section 1, when the insured-s conduct contributed to the injury he sustained in any of the following ways:

(1) Causing injury to himself intentionally.

(2) While in the commission of a felony, or while seeking to elude lawful apprehension or arrest by a law enforcement official.

(f) This article applies only to motor vehicle insurance policies subject to this subchapter and does not apply to other accident or health policies even though they promise indemnity against automobile-connected injuries.

(g) Nothing contained in this Act shall affect the offering of medical payments coverage, disability benefits, and accidental death benefits, as presently prescribed by the State Board of Insurance; and nothing contained in this Act shall be construed to prevent an insurer from providing broader benefits than the minimum benefits enumerated in this Act subject to the rules and forms prescribed by the State Board of Insurance.

(h) When any liability claim is made by any guest or passenger described in paragraph (b) hereof against the owner or operator of the motor vehicle in which he was riding or the owner-s or operator-s liability insurance carrier, the owner or operator of such motor vehicle or his liability insurance carrier shall be entitled to an offset, credit or deduction against any award made to such guest or passenger in an amount of money equal to the amounts paid by the owner, operator or his automobile liability insurance carrier under "personal injury protection" as defined in this Act to such guests or passengers; provide, however, that nothing herein shall be construed to authorize a direct action against a liability insurance company if such right does not presently exist at law.

The purpose of PIP is no fault designed to cover the immediate expenses that result from physical injuries due an "automobile accident." Creighton v. Fidelity & Cas. Co., 581 S.W.2d 815 (Tex. Civ. App. - Fort Worth 1979, no writ). It is automatically provided unless rejected with a minimum of $2,500.00. Tex. Ins. Code Ann., art. 5.06-3(a) and (b). Ortiz v. State Farm Mutual Automobile Ins. Co., 955 S.W.2d 353, 356-357 (Tex. App. - San Antonio 1997, writ denied).

A question has arisen from time to time as to who can reject PIP to make a rejection valid. The statute provides the rejection is valid "if any insured named in the policy shall reject the coverage in writing." Tex. Ins. Code Ann., art. 5.06-3(b). The Texas Supreme Court has recently spoken to this issue. In Old American County Mutual Fire Ins. Co. v. Sanchez, the Court was faced with the issue of whether the spouse of the named insured was the proper person to make a PIP and uninsured rejection valid. 149 S.W.3d 111, 113 (Tex. 2004). The Court found the spouse-s rejection valid as the spouse (wife) was a named insured in the policy even though she was not specifically named. Id. at 116. The Court concluded Ms. Sanchez-s rejection was valid since the named insured was the individual named in the declarations page "-and she was-that individual-s spouse, if a resident of the same household." Id. at 118 citing Texas Family Automobile Policy (1956).

As to lost wages, the insured is entitled to recover eighty percent (80%) of lost wages. This differs from Medical Payments Coverage (Medpay) which does not provide such coverage. Finally, the collateral source applies to PIP benefits. Lawrence v. State Farm Mutual Automobile Ins. Co., 984 S.W.2d 351, 353-354 (Tex. App. - Austin 1999, no writ)("A unique feature of the Texas statute is its retention of the collateral source rule with regard to other medical and wage continuation benefits that the recipient might be entitled to receive.").

C. What is a Motor Vehicle Accident?

PIP covers injuries and lost wages due to a "motor vehicle accident". Obviously, a vehicle accident involving two or more vehicles qualifies but what about other twists?

The Courts of Appeal provide varying interpretations of what constitutes a "motor vehicle accident." In Berry v. Dairyland County Mutual Ins. Co., the Fort Worth Court of Appeals interpreted the term broadly. 534 S.W.2d 428, 431-433 (Tex. Civ. App. - Fort Worth 1976, no writ). The Court held that the term encompassed a collision between two vehicles, a collision between a car and a fixed or stationary object, injury suffered by a person while engaged in the use of a vehicle, and injury to a person while occupying a vehicle. Id. at 432-433. Additionally, injury that occurred from alighting a vehicle likewise embraced the term. Id. at 433.

Subsequent cases narrowed any liberal construction of the term "motor vehicle accident." In Flores v. Dairyland County Mutual Ins. Co., the Eastland Court of Appeals refused to extend coverage to an insured who was injured after alighting from his vehicle closing the door, taking four (4) steps, and falling on the curb resulting in a broken ankle. 595 S.W.2d 893 (Tex. Civ. App. - Eastland 1980, writ ref-d n.r.e.). In Le v. Farmers Texas County Mutual Ins. Co., the Houston First District Court of Appeals held no PIP and UIM benefits due a passenger who was shot in a drive by shooting. 936 S.W.2d 317, 324-325 (Tex. App. - Houston [1st Dist.] 1996, writ denied).

Then along came a trio of Texas Supreme Court cases which clarified these holdings. In Farmers Texas County Mutual Ins. Co. v. Griffin, a declaratory judgment action was filed by the insurer involving the duty to defend and indemnify an insured regarding a drive by shooting of a pedestrian. In Griffin, the Court construed the term "auto accident." 955 S.W.2d 81, 82 (Tex. 1997). The Court, in construing "auto accident" as opposed to "motor vehicle accident," held that such facts do not qualify as an auto accident requiring the insurer to defend its insured. Id. at 83. This holding likewise would apply in the PIP context.

Two years later in Mid-Century Ins. Co. v. Lindsey, the Supreme Court held that UIM benefits were available to an insured who was injured when a child crawled from the bed of a pick up through the sliding window to the cab hitting a gun in the cab gun rack which discharged striking the insured. 997 S.W.2d 155, 157 (Tex. 1999). Lindsey addressed construction of the term "accident" and "arising out of" the "use" of the truck as it related to underinsured coverage. Id. at 154. The insured had previously recovered the policy limits of the truck owner-s insurance. Id. The Court concluded after discussing the terms "accident", "auto accident", and "motor vehicle accident", that the incident qualified for underinsured coverage. Id. at 158-159. In doing so, the Court noted that if the vehicle had moved and the gun discharged there would be no question of coverage and if the gun-s discharge would have occurred regardless of the vehicle then there would be no coverage. Id. at 158-159. The distinction was that the vehicle must have some causal connection to the injury versus being the mere situs for the accident. Id. at 163-164. This case supports a broader view of PIP coverage.

The latest of these three cases is Texas Farm Bureau Mutual Ins. Co. v. Sturrock, 146 S.W.3d 123 (Tex. 2004). In Sturrock, the insured drove to work where he parked and turned off the engine; while exiting his vehicle, Sturrock, the insured, found his foot entangled in the "raised portion of the truck-s door facing." Id. at 125. As a result, Sturrock injured himself trying to prevent a fall. Id. Sturrock filed a PIP claim. Id.

The Court made an extensive discussion of Griffin and Lindsey, recognizing the holding in Lindsey would seem to support coverage for Sturrock. Id. at 126-127. In finding PIP coverage due to a motor vehicle accident, the Court embraced the Texas Department of Insurance-s position that adopting a narrow reading of motor vehicle accident would "contravene" the purpose of the PIP statute. Id. at 129. Much like Lindsey, the Court held that "the vehicle must be more than the mere situs of the accident or injury-producing event." Id. citing Lindsey, 997 S.W.2d at 156. For PIP purposes, the Court held that a "motor vehicle accident occurs when (1) one or more vehicles are involved with another vehicle, an object, or a person; (2) the vehicle is being used, including exit or entry, as a motor vehicle; and (3) a casual connection exists between the vehicle-s use and the injury-producing event." Sturrock, 146 S.W.3d at 134. The Court though did disapprove of Berry to the extent it was inconsistent with its opinion. Id. at 129, n. 6. Ultimately, it appears that the Supreme Court has adopted Berry with a nexus requirement between the vehicle and injury producing event.

D. The Expenses Covered and Incurred

In broadest terms, PIP benefits cover reasonable expenses arising from the accident and incurred within three (3) years from the date thereof. Tex. Ins. Code Ann., art. 5.06-3(b). These include: "medical, surgical, x-ray and dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing and funeral services, and in the case of an income producer, payment of benefits for loss of income as a result of the accident-" Id.

The question of what constitutes "incurred" has been broadly interpreted. For example, an insured who was treated at a military hospital free was still entitled to receive the reasonable value of the services received. Geico v. Vail, 623 S.W.2d 170, 172 (Tex. App. - Beaumont 1981, writ ref-d n.r.e.).

One issue raised recently by some insurers is whether a claim is limited to the actual amount of bills incurred. See Tex. Civ. Pract. & Rem. Code Ann. §41.0105 (Vernon Supp. 2004). The argument goes that one cannot recover more than that he actually paid for the service rendered. Id. Upon review of the language of §41.0105 as well as consideration of the legislative history of this statute, this argument is meritless. The statute did not change the PIP statute or much else. See Jim M. Perdue, Jr., Medical Damages After HB4, Advanced Personal Injury Law Course of the State Bar of Texas (2004).

Regarding lost wages, the claimant need not be on the job when the injury occurred. The only requirement is that one need be employed. Slocum v. United Pacific Ins. Co., 615 S.W.2d 807, 810 (Tex. Civ. App. - Houston [1st Dist.] 1981, writ ref-d n.r.e.). In Slocum, the claimant accepted a job just before the motor vehicle accident and was injured the day before he was to start work. Id. The Court though, found the claimant did not qualify as a wage earner. Id.

E. Covered Persons and Family Members

For PIP benefits, the insured and any family member of the insured, while occupying a motor vehicle, are covered. Berry, 534 S.W.2d at 433. Coverage is also extended to any other person who is injured while occupying the covered auto. Tex. Ins. Code Ann., art. 5.06-3(b). In terms of family members, the Texas Supreme Court has ruled that the daughter of the lone shareholder of the insured corporation was not a family member for PIP and UIM benefits. Grain Dealers Mutual Ins. Co. v. McKee, 943 S.W.2d 455, 459-460 (Tex. 1997).

F. Scheduled Versus Unscheduled Vehicles

A vehicle which is owned but unscheduled under the policy will not provide coverage. Springfield v. Aetna Casualty & Surety Ins. Co., 612 S.W.2d 285 (Tex. Civ. App. - Austin 1981, writ ref-d n.r.e. per curiam, 620 S.W.2d 557 (Tex. 1981)(holding that insurers have a right to know and charge premiums for such coverage). See also Moore v. State Farm Mutual Automobile Ins. Co., 792 S.W.2d 818 (Tex. App. - Houston [1st Dist.] 1990, no writ). In another case, an insured was allowed to recover PIP benefits under his motorcycle policy but not his auto policy (motorcycle not listed). State Farm Mutual Automobile Ins. Co. v. Maynord, 689 S.W.2d 292 (Tex. App. - Fort Worth 1985, writ ref-d n.r.e.).

G. Stacking PIP Coverage

Basic stacking *that is multiplying the amount of PIP coverage by the number of vehicles insured* is not permitted. Guerrero v. Aetna Casualty & Surety Co., 575 S.W.2d 323 (Tex. Civ. App. - San Antonio 1978, no writ); Carter v. Republic Ins. Co., 579 S.W.2d 326 (Tex. Civ. App. - Fort Worth 1979, writ ref-d n.r.e.). However, if there are two separate policies which cover the same claim, the insurer is required to pay up to the limit of each policy. Travelers Indemnity Co. v. Lucas, 678 S.W.2d 732, 735-736 (Tex. App. - Texarkana 1984, no writ). In simple terms, double recovery is not permitted. USAA v. DiCarlo, 670 S.W.2d 756, 757-758 (Tex. App. - El Paso 1984, writ ref-d n.r.e.).

H. Exclusions for PIP

Tex. Ins. Code Ann., art. 5.06-3(e) sets out two exclusions to PIP: (1) causing injury to oneself intentionally; and (2) while in the commission of a felony or seeking to elude "lawful apprehension or arrest" by law enforcement officials. These exclusions mirror those found in the liability portion of the automobile policy.

I. Time for Payment Versus Tex. Ins. Code Ann., art. 21.55

Under the PIP statute, the insurer has thirty (30) days to pay after "satisfactory proof thereof is received by the insurer-" Id. at (d). However, Article 21.55 which is now a part of most policies specifies fifteen (15) days after the insurer receives the same sort of proof. A question arises which one authority controls. Only one Texas case has addressed this issue finding the PIP statute controlled. Lush v. Mid-Century Ins. Co., 1998 WL 609766 (Tex. App. - Amarillo 1998, n.w.h.). This case has not been cited by any other court and the conclusory analysis by the Amarillo Court of Appeals is not helpful. Caution should rule when relying on this case.

J. Offsets and PIP

Subsection (h) of Article 5.06(3) permits the amount of PIP benefits paid to be used as an offset for amounts paid to a guest or passenger under a liability claim. For PIP payments and uninsured/underinsured claims for an insured, the result is less clear. See generally Kim v. State Farm Mutual Automobile Ins. Co., 966 S.W.2d 776, 778-779 (Tex. App. - Dallas 1998, no writ). But in Mid-Century Ins. Co. v. Kidd, the Texas Supreme Court held that the PIP benefits can be used as offset where the damages do not reduce UM/UIM policy limit benefits. 997 S.W.2d 265 (Tex. 1999). See also Dabney v. Home Ins. Co., 643 S.W.2d 386, 388-389 (Tex. 1982). The Kidd Court held "that a non-duplication-of-PIP-benefits provision in an automobile insurance policy is valid and enforceable." 997 S.W.2d at 267.

IV. CONCLUSION

EUO is a condition precedent which is to be enforced by a motion for abatement. An EUO cannot, except in rare cases, be avoided by substantial compliance. The opposite seems to be true with proofs of loss. They are frequently waived or avoided by substantial compliance.

PIP coverage is governed by statute. It covers medical expenses and lost wages. Whether an insured or covered person is entitled to PIP benefits depends on the specific facts. However, absent a valid rejection, every automobile policy has PIP coverage.

1 Because the fire occurred on August 19, 1990, _______________________________ Tex. Ins. Ann., art. 21.55 was not applicable.