Barns v. Underwriting Members

685 F. Supp. 144, 1987 U.S. Dist. LEXIS 13483, 1987 WL 46620
CourtDistrict Court, N.D. Texas
DecidedDecember 24, 1987
DocketCiv. A. No. 3-86-3065-H
StatusPublished
Cited by2 cases

This text of 685 F. Supp. 144 (Barns v. Underwriting Members) is published on Counsel Stack Legal Research, covering District Court, N.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Barns v. Underwriting Members, 685 F. Supp. 144, 1987 U.S. Dist. LEXIS 13483, 1987 WL 46620 (N.D. Tex. 1987).

Opinion

MEMORANDUM OPINION AND ORDER

SANDERS, Acting Chief Judge.

Before the Court is a dispute between the insured and the insurer about an insurance contract. One of the disputed issues of law concerns a particular subparagraph of the policy, which states:

Notwithstanding anything stated to the contrary in this Condition, in the event that the Insured Person signs a contract for Professional Football before the termination date of this Policy, this Policy shall be deemed cancelled from said date of the signing and the Premium charged for this Policy shall be deemed Fully Earned and no return of premium will be allowed the Holder.

For the reasons stated below, the Court is of the opinion that the subparagraph is invalid as a matter of law.

The parties to this case do not dispute that the insurer defendants, the Underwriting Members of Lloyds, London (“Lloyds”), accepted the entire amount of the premium from the plaintiff insured, John Bams. As stated on the schedule page of the policy, “[t]he period of Insurance [was] from 9th August, 1985 to 30th August, 1986 both days at Noon Standard Time at the Residence of the Holder, and for such further periods as may be mutually agreed upon.” The disputed subparagraph, which purports to limit the period of coverage, appears on page four of the policy as the last part of paragraph nine in “Part V-Conditions.”

The defendants claim that the subparagraph terminated Bams’ coverage on April 30, 1986, when Bams signed an NFL contract with the Seattle Seahawks. The plaintiff claims that under Art. 3.70-7 of the Texas Insurance Code the subparagraph is a nullity. Article 3.70-7 states in pertinent part:

“If any ... policy contains a provision establishing, as an age limit or otherwise, a date after which the coverage provided by the policy will not be effective, and if such date falls within a period for which premium is accepted by the insurer ... the coverage provided by the policy will continue in force subject to any right of cancellation until the end of the period for which the premium has been accepted.”

Tex.Ins.Code Ann. art. 3.70-7 (Vernon 1981).

[146]*146Defendants argue that Art. 3.70-7 does not apply to this case as a matter of law. First, defendants argue that they are not subject to regulation by the state of Texas because they do not do business in Texas. Second, defendants argue that as a surplus lines insurer they are outside the scope of Art. 3.70-7. Finally, defendants argue that even if Art. 3.70-7 applies to them, it does not apply to language such as that contained in the disputed subparagraph of Bams’ insurance policy. This opinion addresses each of defendants’ arguments in turn.

Defendants Subject to Regulation

The Court holds that defendants do transact business in Texas and, therefore, are subject to regulation by the state. Milton O. Johnston of Houston, Texas is listed on page five of the insurance contract as “Insurer’s Representative.” He is also named on the insurance application form as Lloyds’ agent. That Johnston was authorized to represent defendants and perform business on their behalf is further evidenced by the fact that he was plaintiff’s sole contact with Lloyds during the negotiations regarding the policy.

Johnston held himself out as Lloyds’ authorized representative, and there is no reason to believe that he was not. Furthermore, the policy was delivered and the premium was paid in Texas. The business of purchasing the insurance policy clearly was transacted in Texas.

Defendants Within Scope of Article 3.70-7

The Court also rejects defendants’ second argument, that as a surplus lines insurer Lloyds is outside the scope of Art. 3.70-7. Article 3.70-7 is part of subchapter G of the Insurance Code. Subchapter G was originally enacted separately from the Insurance Code, and its scope is stated in Art. 3.70-l(C) as follows:

This Act shall apply to and govern individual accident and sickness insurance policies delivered, or issued for delivery, in the State of Texas by life, health and accident companies, mutual life insurance companies, mutual assessment life insurance companies, mutual insurance companies, local mutual aid associations, mutual or natural premium life or casualty insurance companies, general casualty companies, Lloyds, reciprocal or inter-insurance exchanges ... or any other insurer which by law is required to be licensed by the Board; provided, however, this Act shall not apply to any ... insurer whose activities are by statute exempt from the control of the Board and which are entitled by statute to an exemption certificate from the Board in evidence of their exempt status____

Tex.Ins.Code Ann. art. 3.70-l(C) (Vernon 1981) (emphasis added).

Defendants argue that the language “or any other insurer which by law is required to be licensed by the Board” modifies the long list of organizations that precedes it thereby exempting any listed insurer that is not required to be licensed by the Board. Defendants maintain that they are surplus lines insurers, and, by the terms of Art. 21.43 of the Insurance Code, are not required to be licensed by the Board. Thus defendants contend they are outside the scope of Art. 3.70-7.

The Court disagrees with defendants’ position for a number of reasons. First, Lloyds is an insurer specifically listed in Art. 3.70-1. The Court holds that the insurers specifically listed in Art. 3.70-1 are governed by subchapter G unless, as is provided by the statute, the activities of that insurer “are by statute exempt from the control of the Board.” If Art. 3.70-1 were to be interpreted as defendants urge, then the legislature’s specific listing of companies therein would be meaningless. The legislature might as well have said: “This Act shall apply to any insurer which by law is required to be licensed by the Board.” The legislature did not so state and this Court refuses to do so judicially.

The legislature did, however, provide to specifically listed insurers a statutory exemption from the scope of subchapter G’s coverage. Article 3.70-1 provides that sub-chapter G will not apply to an “insurer whose activities are by statute exempt from the control of the Board.” For the [147]*147reasons stated below the Court finds that defendants are not such an insurer.

Defendants rely on Art. 21.43 of the Texas Insurance Code to show that they are not required to be licensed by the Board. Article 21.43 governs foreign insurance corporations; it states:

It shall be unlawful, except as is provided for surplus lines in Articles 1.14-1 and 1.14-2 of this code, for any foreign insurance corporation ... to engage in the business of insuring others against losses ... without initially procuring a certificate of authority from the commissioner of insurance permitting it to engage in those business activities.

Tex.Ins.Code.Ann. art. 21.43(a) (Vernon Supp.1987). Defendants are correct that Art. 21.43(a) exempts them as surplus lines insurers from procuring a certificate of authority. However, Art. 21.43(a) does not wholly exempt defendants from control of the Board — the standard required for exemption from subchapter G. Article 21.-43(a) does, however, incorporate Articles 1.14-1 and 1.14-2 of the Insurance Code thereby raising the possibility that those statutes may provide the exemption defendants seek.

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Bluebook (online)
685 F. Supp. 144, 1987 U.S. Dist. LEXIS 13483, 1987 WL 46620, Counsel Stack Legal Research, https://law.counselstack.com/opinion/barns-v-underwriting-members-txnd-1987.