Oh, Duty: What a Tangled Web we’ve Weaved!
INTRODUCTION
Kenyon v. Elephant Ins. Co., No. 04-18-00131-CV (Tex. App.—San Antonio Apr. 1, 2020) arose out of a permissive appeal to the San Antonio division of the Texas Court of Appeals (“the Court”). This case is important for Texas insurers in that: (1) insurers should instruct their insureds to only take photos at accident scenes if it is safe to do so; and (2) the general risk of harm in this case is foreseeable and unreasonable given the probability of death or serious bodily injury to insureds and first responders and the relatively low burden on insurers to exercise ordinary care.
FACTS
Lorraine Kenyon was involved in a single-car accident in which her car slid and spun into a guardrail in rainy weather. Lorraine called her husband, Theodore, who arrived at the scene of the accident. Lorraine then called Elephant to report the accident. Elephant’s First Notice of Loss (“FNOL”) representative instructed Lorraine to take photos of the car involved in the accident.
As Theodore took photos of the car, another car spun out of control, striking and killing Theodore. Lorraine later sued that driver and also Elephant for Theodore’s wrongful death. Elephant moved for summary judgment. The trial court granted Elephant’s motion as to all of Lorraine’s claims except one, determining as the sole basis for granting the motion that Elephant owed no duty to the Kenyons. The trial court granted Lorraine permission to appeal, but limited the appeal to the “existence of a duty.” The Court determined that Elephant’s motion failed to stand on its own merits and reversed in favor of Lorraine.
ANALYSIS
The Insurer Owed Lorraine a Duty of Reasonable Care
Practitioners must remember that summary judgments cannot be granted by default, but must stand on their own merits. The Court held that Elephant’s motion was deficient in three ways.
First, Lorraine alleged that Elephant owed her a duty of reasonable prudence that exists due to the special relationship between insured and insurer. Elephant instead alleged that it did not owe Lorraine a duty to protect Theodore’s physical safety. Thus, Elephant failed to address the duty that Lorraine alleged.
A duty can arise due to the parties’ special relationship created by a contractual agreement, such as an insurance policy. Arnold v. Nat’l Cty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). Lorraine’s call to report her claim implicated the parties’ special relationship and therefore, Elephant owed her a duty.
In contrast, Elephant argued that the duty Lorraine alleged covered only “extra-contractual financial loss, not damages for physical harm the insured may [have] sustain[ed].” The Court disagreed because: (1) Elephant’s argument related to the damages available for such a cause of action and not to the existence of a duty; (2) Elephant did not expressly present this argument in its summary judgment motion; and (3) the purpose of tort law, and negligence specifically, is to be “a vehicle of legal redress for victims of physical injury.” Thus, if an insurance company breaches a duty that arises due to a special relationship, it can foreseeably cause both economic and personal injury damages.
Second, Elephant argued that Lorraine’s “negligence claim fail[ed] because her allegation that Elephant failed to exercise ordinary care when it ‘instructed’ her to take [pictures] ha[d] nothing to do with the processing of claims or Elephant’s failure or delay in paying a claim.” The Court stated that Elephant’s argument expressly challenged Lorraine’s allegation as to how “Elephant failed to exercise reasonable care,” which is an issue of breach, not duty. Thus, Elephant did not effectively challenge the duty element of Lorraine’s common law negligence claim and acknowledged that a duty of care in fact existed. The Court elaborated that the trial court did not grant summary judgment on the ground that Elephant did not “breach[] any duty or standard of care imposed by Texas law.” It granted summary judgment because it determined Elephant owed no duty to Lorraine and thus, the permissive appeal was limited to that sole issue.
Third, Elephant argued that an instruction to take photos at the scene of an accident by one of its representatives had nothing to do with the processing of Lorraine’s claim or Elephant’s failure or delay in processing said claim. On appeal, Lorraine argued that such instruction was related to the processing of her claim. The Court agreed because: (1) Lorraine called Elephant to report an accident pursuant to the terms of her auto insurance policy; (2) Elephant’s FNOL representative instructed Lorraine to take photos as required by the policy; and (3) Elephant requested photos from Lorraine to “document vehicle damage” so that it could “determine liability.” Thus, Elephant’s request or instruction that Lorraine take photos “ha[d] [some]thing to do with the processing [or paying] of claims.”
Elephant Assumed a Negligent Undertaking Duty
A negligent undertaking duty arises when the: (1) defendant voluntarily undertakes to perform services it knew or should have known were necessary for the plaintiff’s benefit or protection; and (2) plaintiff relies on the defendant’s performance, or the defendant’s performance increases the risk of harm. Midwest Employers Cas. Co. ex rel. English v. Harpole, 293 S.W.3d 770, 777–78 (Tex. App.—San Antonio 2009, no pet.).
- Elephant voluntarily undertook the performance of services it knew or should have known were necessary for the plaintiffs’ benefit or protection.
The Court held that Elephant assumed a negligent undertaking duty by performing certain insurance-related services for Lorraine. Conducting an insurance investigation is a service that can give rise to a negligent undertaking claim. See Thomas v. Select Portfolio Servicing, Inc., 293 S.W.3d 316, 322 (Tex. App.—Beaumont 2009, no pet.). Lorraine’s phone call and Elephant’s instructions to her at the accident scene were actions in furtherance of Elephant providing insurance-related services to her.
The Court explained that insurance services are generally undertaken for another’s benefit or protection. See Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116, 120 (Tex. 1976). Lorraine’s auto insurance policy included a promise to pay certain benefits and expenses “for bodily injury sustained by the insured in a motor vehicle accident” for both Lorraine and Theodore. Thus, Lorraine’s auto insurance policy showed its purpose—to benefit and protect her and Theodore against losses from certain auto-related personal injury damages.
Furthermore, Elephant’s post-accident guidance was a component of its investigation into Lorraine’s claim. See W. Hills Bowling Ctr., Inc. v. Hartford Fire Ins. Co., 412 F.2d 563, 564-65 (5th Cir. 1969) (“Having exercised their right under the contract of insurance to undertake an investigation, the insurers cannot interpose the absence of a prior duty as a defense against a claimant injured as a result of their failure to exercise due care.”). Under Elephant’s auto insurance policy, claims processing commenced with the insured reporting the accident or loss within 24 hours or as soon as practicable.
In this case, the FNOL representative accepted Lorraine’s report of the accident, inquired as to her recent activities and her background information, encouraged her to call the police, and instructed her to “[g]o ahead and take pictures.” Elephant trained FNOL representatives to make these inquiries because it could help it determine liability. Because Elephant “undertook an investigation, [it was] bound under the applicable Texas substantive law to exercise reasonable care and diligence.” W. Hills Bowling Ctr., Inc., 412 F.2d at 564-65.
Also, the Court noted that summary judgment evidence raised a fact issue as to whether Elephant’s post-accident guidance included providing roadside assistance services, which a factfinder could reasonably infer was a service for the Kenyons’ benefit or protection. Contrarily, Elephant argued that even it undertook the performance of services it knew or should have known were necessary for the plaintiffs’ benefit or protection, it did so involuntarily as required by Texas law. Therefore, Elephant argued that the voluntary nature of the first element of a negligent undertaking claim was not satisfied. Elephant did not raise this argument in its motion for summary judgment and thus, it was improperly before the Court. The Court found that this argument was also inconsistent with negligent insurance investigation cases in Texas.
Additionally, Elephant argued that the benefit or protection for which a service is performed limits the recoverable damages, and because the phone call and instructions were not intended to protect the Kenyons from bodily injury, Lorraine could not recover personal injury damages. This argument relates to recoverable damages that are proximately caused by a breach whereas the scope of this appeal was the existence of a duty. Furthermore, the principle Elephant relied upon to support this argument is merely “that the defendant’s negligence [must occur] in performing the undertaking itself.” This principle does not limit the recoverable damages, but limits a negligent undertaking duty regarding “acts . . . [performed] in the future.” This principle was inapplicable because Lorraine alleged a negligent undertaking duty arose when Elephant opened its investigation of her claim and provided post-accident guidance. The Court further explained that it would make little sense “that the insured’s estate could recover economic damages resulting from any wrongful delay of the insured’s claim caused by the insured’s death, but not recover foreseeable damages resulting from the insured’s death itself.”
Lastly, Elephant’s argument was irreconcilable with the Texas Supreme Court’s decisions in negligent undertaking cases (see, e.g., Am. K-9 Detection Services, LLC v. Freeman, 556 S.W.3d 246, 258 (Tex. 2018) (The undertaking to build and repair a dog kennel “supported a negligent-undertaking claim” in which the injury was a dog bite)) and with § 324A of the Restatement. See RESTATEMENT § 324A (providing examples where injury exceeded scope of the intended benefit or protection).
- Lorraine’s reliance on Elephant’s undertaking or performance increased the risk of harm to the Kenyons.
The Court held that Lorraine’s reliance on Elephant’s undertaking or performance increased the risk of harm to the Kenyons. The summary judgment evidence raised a fact issue as to whether Elephant’s investigative request—instructing Lorraine to take photos—and the manner in which it provided roadside assistance increased the risk of harm. Contrarily, Elephant argued that its FNOL representative did not “command” or “require” Lorraine to take photos at the scene of the accident. The transcript of the call, however, demonstrated that the representative told Lorraine “[g]o ahead and take pictures.” This statement was made in the imperative (i.e., a command or instruction). A jury could reasonably believe that Elephant intended for Lorraine to take photos while at the accident scene, and that she understood the statement as an instruction to do so.
CONCLUSION
In addition to reconsidering the instructions given to insureds during post-accident guidance, insurers should be aware that a duty to investigate a claim is often triggered at the time an insured reports a car accident, which usually occurs at the scene of the accident. Insurers often contract for this duty within the insurance policy. Insurers owe a duty to exercise reasonable care and diligence to an insured when rendering post-accident guidance. Breaching said duty can result in insurer liability.
Bria Riley is an associate attorney who focuses her practice on insurance and civil litigation.She attended law school at the UIC John Marshall Law School in Chicago, Illinois. While in law school, Bria became the first African-American female Student Bar Association President, externed with judges at both the local and federal level, and gained client relations skills while serving at the Veterans Legal Support Center & Clinic. Upon graduating in the top 15% of her law school class, Bria became one of two students to accept and complete a federal judicial clerkship with the Honorable Hal R. Ray, Jr., United States Magistrate Judge for the Northern District of Texas.