Appellate Court Says No to Texas Mutual Verdict

An appellate court in Houston has reversed a nearly $3 million jury verdict against Texas Mutual Insurance Company in a dispute over cancellation of a workers' compensation policy

Former policyholder Sembera Security Systems Inc. of Cypress, Texas, had sued its insurance agent in Harris County District Court for allowing coverage with Texas Mutual to lapse for non-payment of a premium. The agent then added Texas Mutual to the case, alleging that the insurer cancelled the policy in error.

Sembera settled with the agent, then sued Texas Mutual for breach of contract, among other claims. Texas Mutual maintained that its cancellation of the Sembera policy had been proper, as the insurer had given the permitted 10 days' notice of cancellation for non-payment.

At trial, Sembera won its case, and a jury awarded nearly $3 million against Texas Mutual. Much of that verdict was attributed to lost profit from a contract with a major Sembera customer.

The First Court of Appeals of Texas in Houston sided with Texas Mutual in its appeal of the lower court's decision by throwing out Sembera's claims and the nearly $3 million judgment. The court ruled that because the terms of the policy gave Texas Mutual the right to cancel coverage, the cancellation of the Sembera policy was not a breach of contract.