TEXAS SUPREME COURT MAY PROVIDE GUIDANCE ON INSURER’S LIABILITY SETTLEMENT CHECK TO TWO PAYEES

On October 22, 2014, Allied Insurance petitioned the Supreme Court of Texas to review the Dallas Court of Appeals’ holding that Allied’s liability was not discharged when it issued a check co-payable to ViewPoint Bank and the insured, and the insured alone was able to cash the check. In ViewPoint Bank v. Allied Property and Cas. Ins. Co., No. 05-12-01370, 2014 WL 3867810, (Tex. App.—Dallas Aug. 7, 2014), Allied Property and Casualty Insurance Company issued checks jointly payable to its insured, Optimum Deerbrook, LLC and Optimum’s mortgagee, ViewPoint Bank. Optimum endorsed and cashed the checks without ViewPoint’s consent; ViewPoint sued to recover these checks. After the trial court granted summary judgment in favor of Allied, the Court of Appeals reversed, holding that Allied was not discharged of its liability for paying the claim under Article 3 of the Uniform Commercial Code.

The Dallas Court of Appeals cited to McAllen Hospitals, LP v. State Farm Mutual Ins. Co. of Texas, No. 12-0983, 2014 WL 1998245 (Tex. May 16, 2014), a recent Texas Supreme Court case that addressed whether a hospital’s statutory lien was discharged upon an insurer’s payments to the patients and the hospital when only the patient endorsed the check. Following the reasoning in the McAllen decision, the Dallas Court of Appeals similarly found that in this case because the check was made payable to non-alternative payees, the policyholder alone was not entitled to endorse the check and that the insurer’s obligations were therefore not discharged.

Although this portion of the Dallas court’s holding was consistent with McAllen, it is unclear whether the court was correct that Allied’s obligations were not discharged under these circumstances. Allied’s pending brief to the Texas Supreme Court cites several portions of Texas UCC that the Dallas Court of Appeals may have ignored in holding that an insurer remains strictly liable if a policyholder that was not authorized to endorse an instrument does so without a mortgagee’s consent.

Editor’s Note:  Martin Disiere hopes that the Texas Supreme Court will accept the petition to clarify these issues for future guidance and is evaluating options to assist the high court in reaching the correct decision to protect reasonable insurers that have fully paid their claims. Insurers interested in filing and amicus brief with the Texas Supreme Court may contact Christopher Martin or the head of our appellate section, Levon Hovnatanian for more information.