An appeals court in Houston has reversed a $3.1 million jury verdict against Austin, Texas-based Texas Mutual Insurance Company in a dispute over cancellation of a firm's workers' compensation policy.

The plaintiff in the case, Texas Mutual's former policyholder Sembera Security Systems Inc. of Cypress, Texas, first sued its insurance agent in Harris County District Court for allowing coverage with Texas Mutual to lapse for nonpayment of a premium.

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

Sembera secured a $200,000 settlement from the agent, El Dorado Insurance Agency Inc. of Houston, Texas, and 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 nonpayment.

At trial, Sembera won its case, and a jury awarded $1.71 million for past lost profits when it lost a big account because it did not have required workers' comp insurance, $1.08 million in future lost profits as well as $187,000 in attorneys' fees and $125,000 for various appeals.

A three-judge panel of the First District 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.

“We are heartened that the First Court of Appeals clearly understands Texas Mutual was operating well within its rights in cancelling the plaintiff's policy,” said Mary Nichols, senior vice president and general counsel of Texas Mutual.

The company describes itself as Texas' leading provider of workers' compensation insurance, with approximately 25 percent of the market.

Special Reports /

$3 Million Verdict Against Texas Mutual Thrown Out

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