Zalma on Insurance
Education • Business
Insurance Claims professional presents articles and videos on insurance, insurance Claims and insurance law for insurance Claims adjusters, insurance professionals and insurance lawyers who wish to improve their skills and knowledge. Presented by an internationally recognized expert and author.
Interested? Want to learn more about the community?
December 26, 2022
Failure to Read Policy Fatal to Insured’s Claim

No Breach of Contract No Bad Faith
Barry Zalma

Plaintiff Cannot Create an Ambiguity

Read the full article at https://lnkd.in/ga7XRq7B and see the full video at https://lnkd.in/gd7NRCiU and at https://lnkd.in/g_G7QwwB and at https://zalma.com/blog plus more than 4400 posts.

In Michel Ngakoue v. Safeco Insurance Company Of Indiana, No. 1:22-CV-00363-LY, United States District Court, W.D. Texas, Austin Division (December 19, 2022) the Magistrate Judge made well reasoned recommendations to the District Judge regarding Safeco’s Motion for Summary Judgment.

BACKGROUND

Michel Ngakoue sued his insurance company, Safeco Insurance Company of Indiana, after his property damage claim under his landlord protection insurance policy was denied.

Three buildings were located on the Property: two dwellings to be rented out as residences and a “main building” that could be used for commercial purposes (“Main Building”). Plaintiff contends that he bought the Property with the intention of opening numerous rental properties and utilizing the main building as a community center to which the space could be rented out for various meetings and parties. After buying the Property, Plaintiff alleges, he began using the Main Building “for commercial purposes and not as a residence.”

The Policy provides coverage for certain “accidental direct physical loss” to the “dwelling” and “other structures” on the Property specifically excluded coverage for property used for commercial purposes.

THE POLICY

Section A of the Policy provides coverage to “the dwelling on the Described Location shown in the Declarations, used principally for dwelling purposes.” The Policy excluded coverage to other structures “used in whole or in part for commercial, manufacturing or farming purposes.”

Plaintiff alleged that on February 20, 2021, the Main Building sustained direct physical damage as a result of a severe winter storm, with extensive interior damage, including walls, ceilings, flooring, and fixtures, due to a storm created rupture in the ceiling.

Plaintiff alleged that the damage to the Main Building was approximately $24,326.39. On April 16, 2021, Defendant denied the claim on the basis that it was unable to identify any hail related damage to your property.

Plaintiff sued alleging breach of contract, common law bad faith, fraud, and violations of the TDTPA and Sections 541 and 542 of the Texas Insurance Code
Texas Insurance Law

Because this case was removed from Texas state court on diversity jurisdiction, Texas substantive law applies. Texas law directs courts to apply a burden-shifting scheme. Initially, the insured has the burden of establishing coverage under the policy and if it does the defendant must prove that an exclusion applies.

ANALYSIS

Plaintiff alleged that Defendant wrongfully denied and mishandled his insurance claim.

Breach of Contract

The Policy contains a provision excluding coverage to “other structures . . . used in whole or in part for commercial, manufacturing or farming purposes.” Defendant argues that this “clear and unambiguous” exclusion bars coverage under the Policy because: “It is undisputed that Ngakoue used the structure as an events center for commercial purposes.”

Plaintiff admitted that he used the Main Building “for commercial purposes and not as a residence.”

The Commercial Purpose Exclusion Is Not Ambiguous

Plaintiff argued that the commercial purpose exclusion in the Policy is ambiguous because it fails to define “commercial purpose,” and thus the Court must interpret the exclusion in favor of coverage. The Court found that Plaintiff failed to show that the commercial purposes exclusion is subject to two or more reasonable interpretations and thus did not show that the exclusion is ambiguous. Importantly, Plaintiff admitted that he used the Main Building for the “buying and selling” of services.

Plaintiff does not dispute that the Policy clearly and unambiguously excluded “other structures” on the Property that are “used in whole or in part” for commercial purposes. And Plaintiff admits that he used the Main Building for commercial purposes: renting out the building as an event space in exchange for a fee. The Magistrate concluded that the Policy does not provide coverage for the Main Building, and Plaintiff cannot show that Defendant breached the Policy. The fact that the exclusion does not define commercial purpose created no ambiguity since the facts fit the ordinary meaning of the language used.

Waiver and Estoppel Do Not Create Coverage

Plaintiff also argued that Defendant should be estopped from relying on the commercial purpose exclusion under the Policy because it did not do so in its initial denial letter on April 16, 2021. Since the defendant did not seek a forfeiture of the Policy, but instead argued that the Policy does not cover one of the three buildings on the Property. Defendant continued to provide insurance coverage to the other two buildings on the Property until Plaintiff terminated the Policy in June 2021 so estoppel was not established.

In Texas the doctrine of estoppel cannot be used to create insurance coverage when none exists by the terms of the policy. Waiver and estoppel may operate to avoid a forfeiture of a policy, but they have consistently been denied operative force to change, re-write and enlarge the risks covered by a policy. In other words, waiver and estoppel cannot create a new and different contract with respect to risks covered by the policy. [Texas Farmers Ins. Co. v. McGuire, 744 S.W.2d 601, 603 (Tex. 1988) (cleaned up); accord Minnesota Mut. Life Ins. Co. v. Morse, 487 S.W.2d 317, 320 (Tex. 1972)]

Consistent with this precedent, because the Policy excludes coverage for property used for commercial purposes and the Main Building was used for commercial purposes, the doctrines of waiver and estoppel cannot be used to create coverage.

Extra-Contractual Claims

Because Plaintiff’s breach of contract claim fails, his claims of bad faith and statutory violations based on coverage issues and the denial of his claim also fail. As a result, the Magistrate Judge recommended that the District Court grant Safeco Insurance Company of Indiana’s Motions for Summary Judgment and dismiss Plaintiff’s lawsuit.

ZALMA OPINION

Plaintiff knew he intended to use one of the structures on the property for commercial purposes yet purchased a policy that excluded coverage for damage to one of the structures. Failure to read the policy when purchased, failure to explain the need for coverage of a commercial facility, was clearly the error of the Plaintiff. A homeowners type policy with a commercial use exclusion is not the type of coverage Plaintiff needed. He only covered the two dwellings but did not protect the structure intended for commercial use.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Go to substack at https://lnkd.in/gEEnV7Dd Consider subscribing to my publications at substack at https://lnkd.in/gEEnV7Dd

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at 
Zalma on Insurance

Insurance, insurance claims, insurance law, and insurance fraud .
By Barry Zalma

. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://lnkd.in/gfFKUaTf.

00:10:45
Interested? Want to learn more about the community?
What else you may like…
Videos
Posts
September 05, 2025
Interpleader Helps Everyone Potential Claimant to Insurance Proceeds

Interpleader Protects All Claimants Against Life Policy and the Insurer

Who’s on First to Get Life Insurance Proceeds

Post 5184

See the full video at https://lnkd.in/gyxQfnUz and at https://lnkd.in/gAd3wqWP, and at https://zalma.com/blog plus more than 5150 posts.

Go to X @bzalma; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gRthzSnT; Go to Barry Zalma on YouTube- https://lnkd.in/g2hGv88; Go to the Insurance Claims Library – https://lnkd.in/gwEYk.
Interpleader Protects All Claimants Against Life Policy and the Insurer

In Metropolitan Life Insurance Company v. Selena Sanchez, et al, No. 2:24-cv-03278-TLN-CSK, United States District Court, E.D. California (September 3, 2025) the USDC applied interpleader law.
Case Overview

This case involves an interpleader action brought by the Metropolitan Life Insurance Company (Plaintiff-in-Interpleader) against Selena Sanchez and other defendants (Defendants-in-Interpleader).

Key Points

Plaintiff-in-Interpleader’s Application:

The Plaintiff-in-Interpleader...

00:06:34
September 05, 2025
Demands for Reasons for Termination not a “Claim”

A Claim by Any Other Name is not a Claim
Post 5182

It is Imperative that Insured Report Potential Claim to Insurers

Read the full article at https://lnkd.in/gfbwAsxw, See the full video at https://lnkd.in/gea_hgB3 and at https://lnkd.in/ghZ7gjxy, and at https://zalma.com/blog plus more than 5150 posts.

In Jeffrey B. Scott v. Certain Underwriters At Lloyd’s, London, Subscribing To Policy No. B0901li1837279, RLI Insurance Company, Certain Underwriters At Lloyds, London And The Insurance Company, Subscribing To Policy No. B0180fn2102430, No. 24-12441, United States Court of Appeals, Eleventh Circuit (August 25, 2025) the court explained the need for a claim to obtain coverage.

Case Background:

This appeal arises from a coverage dispute under a Directors & Officers (D&O) insurance policy. Jeffrey B. Scott, the plaintiff-appellant, was terminated from his role as CEO, President, and Secretary of Gemini Financial Holdings, LLC in October 2019. Following his termination, Scott threatened legal action against Gemini, and ...

00:08:22
September 04, 2025
Demands for Reasons for Termination not a “Claim”

A Claim by Any Other Name is not a Claim
Post 5182

It is Imperative that Insured Report Potential Claim to Insurers

Read the full article at https://lnkd.in/gfbwAsxw, See the full video at https://lnkd.in/gea_hgB3 and at https://lnkd.in/ghZ7gjxy, and at https://zalma.com/blog plus more than 5150 posts.

In Jeffrey B. Scott v. Certain Underwriters At Lloyd’s, London, Subscribing To Policy No. B0901li1837279, RLI Insurance Company, Certain Underwriters At Lloyds, London And The Insurance Company, Subscribing To Policy No. B0180fn2102430, No. 24-12441, United States Court of Appeals, Eleventh Circuit (August 25, 2025) the court explained the need for a claim to obtain coverage.

Case Background:

This appeal arises from a coverage dispute under a Directors & Officers (D&O) insurance policy. Jeffrey B. Scott, the plaintiff-appellant, was terminated from his role as CEO, President, and Secretary of Gemini Financial Holdings, LLC in October 2019. Following his termination, Scott threatened legal action against Gemini, and ...

00:08:22
September 03, 2025

Barry Zalma: Insurance Claims Expert Witness
Posted on September 3, 2025 by Barry Zalma
The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit

© 2025 Barry Zalma, Esq., CFE

When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.

On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive ...

post photo preview
September 03, 2025
Barry Zalma, Esq., CFE Insurance Claims Expert Witness

The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit
© 2025 Barry Zalma, Esq., CFE

When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.

On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive and became a consultant and expert witness for lawyers representing insurers and lawyers ...

post photo preview
September 03, 2025
Evidence Required to Prove Breach of Contract

APPRAISAL AWARD SETS AMOUNT OF DAMAGES RECOVERED FROM INSURER

Post 5180

See the full video at https://rumble.com/v6yd2z0-evidence-required-to-prove-breach-of-contract.html and at https://youtu.be/2ywEjs3hZsw, and at https://zalma.com/blog plus more than 5150 posts.

It’s a Waste of Time to Sue Your Insurer if You Don’t Have Evidence

Evidence Required to Prove Breach of Contract

Read the full article at https://www.linkedin.com/pulse/evidence-required-prove-breach-contract-barry-zalma-esq-cfe-rfelc, see the full video at https://rumble.com/v6yd2z0-evidence-required-to-prove-breach-of-contract.html and at https://youtu.be/2ywEjs3hZsw, and at https://zalma.com/blog plus more than 5150 posts.

It’s a Waste of Time to Sue Your Insurer if You Don’t Have Evidence

In Debbie Beaty and Jonathan Hayes v. Homeowners Of America Insurance Company, No. 01-23-00844-CV, Court of Appeals of Texas, First District (August 26, 2025) Debbie Beaty and Jonathan Hayes filed a claim under their homeowner’s insurance policy with Homeowners of ...

See More
Available on mobile and TV devices
google store google store app store app store
google store google store app tv store app tv store amazon store amazon store roku store roku store
Powered by Locals