“Hey Boss, welcome back from vacation.”

“Thanks. Anything happen while I was away?”

“Well, not much, except we got sued!”

“What does the plaintiff say we did?”

“She claims that we violated some provision the Texas Retail Installment Sales Act. And it’s a class action.”
“What’s the problem? That’s why we’ve got insurance. Just send the complaint papers to the insurance company and let me know when they get rid of it.”

“I did that, boss, but the insurance company refused to cover us. They said that we had Truth in Lending coverage, but no coverage for the violation of that particular statute.”

“We’ll just see about that. Call our lawyers. If we have to sue to make that insurance company cover us, we will!

The conversation above is imaginary, but something like it might have occurred to create the following dispute.

J.C. Wink, Inc. operated an auto dealership. Wink obtained a commercial general liability insurance policy from Service Lloyd’s Insurance Company. The policy provided errors and omissions coverage. Under the policy, Service Lloyd’s agreed to defend Wink in any lawsuit alleging violations of any federal, state or local truth-in-lending law.

A class of vehicle purchasers sued Wink for violation of the Texas Motor Vehicle Installment Sales Act. Believing that claims under the MVISA alleged state truth-in-lending violations, Wink notified Service Lloyd’s about the suit and requested a defense.

Service Lloyd’s refused to defend the suit, claiming the class action did not allege truth-in-lending violations. Wink filed for a declaratory judgment. Both parties filed motions for partial summary judgment, and Wink’s motion was granted. Thus, the trial court ruled Wink was entitled to a defense by the insurance company.

Service Lloyd’s appealed to the court of appeals. The appeals court considered whether the alleged violation of the MVISA constituted a truth-in-lending violation requiring Service Lloyd’s to defend the matter.

Because the MVISA serves the same objectives as the federal Truth in Lending Act, namely to provide meaningful disclosure to consumers and prevent abuse and deceptive practices, and because the MVISA contains provisions establishing substantive disclosure requirements similar to TILA, the appellate court found that the MVISA’s disclosure provisions constituted state truth-in-lending laws. Further, because the class action petition claimed violations of the disclosure provisions of the MVISA, such claims implicated Service Lloyd’s duty to defend the class action lawsuit against Wink.

The decision went the dealer’s way, but the time to determine whether you have coverage is before trouble arises, not afterward. Have your friendly local shyster take a look at your policy, and if he or she uncovers any ambiguity in the language describing your coverage, get it fixed before you get served with those suit papers.

Service Lloyd’s Insurance Company v. J.C. Wink, Inc., 2005 WL 2438350 (Tex. App. October 5, 2005)

Vol 2, Issue 12