An appeals court in Houston has reversed a $3.1 million juryverdict against Austin, Texas-based Texas Mutual Insurance Companyin a dispute over cancellation of a firm's workers' compensationpolicy.

The plaintiff in the case, Texas Mutual's former policyholderSembera Security Systems Inc. of Cypress, Texas, first sued itsinsurance agent in Harris County District Court for allowingcoverage with Texas Mutual to lapse for nonpayment of apremium.

The agent then added Texas Mutual to the case, alleging that theinsurer cancelled the policy in error.

Sembera secured a $200,000 settlement from the agent, El DoradoInsurance Agency Inc. of Houston, Texas, and then sued Texas Mutualfor breach of contract, among other claims.

Texas Mutual maintained that its cancellation of the Semberapolicy had been proper, as the insurer had given the permitted 10days' notice of cancellation for nonpayment.

At trial, Sembera won its case, and a jury awarded $1.71 millionfor past lost profits when it lost a big account because it did nothave required workers' comp insurance, $1.08 million in future lostprofits as well as $187,000 in attorneys' fees and $125,000 forvarious appeals.

A three-judge panel of the First District Court of Appeals ofTexas in Houston sided with Texas Mutual in its appeal of the lowercourt's decision by throwing out Sembera's claims and the nearly $3million judgment.

The court ruled that because the terms of the policy gave TexasMutual the right to cancel coverage, the cancellation of theSembera policy was not a breach of contract.

“We are heartened that the First Court of Appeals clearlyunderstands Texas Mutual was operating well within its rights incancelling the plaintiff's policy,” said Mary Nichols, senior vicepresident and general counsel of Texas Mutual.

The company describes itself as Texas' leading provider ofworkers' compensation insurance, with approximately 25 percent ofthe market.