Livestock and Equine Mortality: A Texas Niche and a Late Notice Trap

Texas has been the source of much of the law, nationally, in regard to construction of livestock and equine mortality policies. Perhaps because of the extent of farm and ranch operations in Texas, livestock and equine mortality policies have been treated somewhat differently than other policies to which they bear a resemblance, especially in regard to compliance with notice provisions.

Mortality policies frequently include requirements that the insured provide immediate notice of injury or illness, allow the insurer to have a veterinarian examine the animal, or assume its treatment, obtain permission prior to euthanization, and conduct post-mortem examinations. While Texas courts have indicated a reluctance to allow insurers to use a breach of a policy condition as a basis for denial of coverage, in other contexts, courts have strictly enforced the conditions in livestock and equine policies.

In both liability and property contexts, courts have been hesitant to allow insurers to avoid liability based on late notice of a claim or loss, unless there is some prejudice, or the breach of a condition is material. While the prejudice standard originally developed in regard to auto liability, and then general liability policies, courts have recently expanded it to other forms of insurance. In addition, some courts have suggested that a materiality requirement should apply to any breach of a condition precedent, at least in the third party context.

A bar to coverage
In livestock and equine policies, however, courts have continued to strictly enforce the policy conditions, either without a prejudice requirement or with a presumption of prejudice. Thus, late notice of an injury or illness, failure to seek treatment, or failure to seek an autopsy after the animal’s death, may be a total bar to coverage.

In Underwriters at Lloyd’s v. Harkins, 427 S.W.2d 659 (Tex. Civ. App.–Houston [14th Dist.] 1968, writ ref’d n.r.e.), the policy included a 30-day extension clause, which covered the death of a horse within 30 days of expiration of the policy, as long as the accident, illness or disease was reported to the insurer prior to expiration. The insured horse developed an infection while in transit. The horse was seen by a veterinarian 17 times, but appeared to be recovering. Shortly before his death, the horse became dull and listless and went off his feed. A post-mortem examination revealed that the horse died of pneumonia. Underwriters denied coverage, based on the lack of timely notice.

The insured contended that the condition that led to the horse’s death had manifested before the expiration date, and was probably irreversible, so that there could be no detriment or prejudice to the insurer. The court nevertheless found that the 30-day extension was not activated, because no notice was provided prior to policy expiration. In addition, the court found an independent basis for denial was the failure to provide notice of the horse’s illness, as required by the policy conditions. The court specifically held that no showing of harm to the insurer was necessary, and that the 23-day delay providing notice was not reasonable.

The court noted the enforcement of similar provisions under livestock policies in other jurisdictions, and concluded the policy language was clear and unambiguous. The court further reasoned that, “only through immediate notice can the insurer investigate the causes of illness or death that are certainly unique to livestock policies. Only through immediate notice can the insurer know, or have an opportunity to know, that the animal will receive proper attention and treatment. Only through immediate notice can the insurer protect itself from the unusual hazards that accompany the insuring of animal life, as contrasted to the insuring of human life.” Id. at 664.

The holding in Harkins was reaffirmed in Circle 4 Stables Inc. v. Nat’l Surety Corp., 451 S.W.2d 564 (Tex. Civ. App.–Amarillo 1970, writ ref’d n.r.e.). In Circle 4, the insured horse was observed acting unusually, and was feverish and colicky, but the insurer was not notified. The policy was cancelled for failure to pay premium. Shortly after cancellation, the horse became ill and died due to peritonitis. The insured attempted to invoke the policy’s 30-day extension clause. The court agreed that the clause could apply even after early cancellation, but held that it never came into effect because of the insured’s failure to comply with the notice requirements.

Peculiar circumstances
A number of other states have followed the seminal Texas cases, and concluded that policy notice conditions are enforceable, without regard to prejudice, when a livestock or equine mortality policy is at issue. Courts generally recognize that there are peculiar circumstances applicable to livestock or equine insurance that are not applicable to other property or liability coverages, and that warrant enforcement of the policy conditions, without regard to prejudice.

The reasoning of the Texas courts, in regard to late notice, has also been extended to failure to comply with notice provisions prior to euthanization, see, e.g., Patti v. Monarch Ins. Co. of Ohio, 401 N.Y.S.2d 682 (N.Y. App. 1977), failure to obtain a post-mortem examination required by the policy, see, e.g., Jhan v. Great American Ins. Co., No. 03C6203 (N.D. Ill. 2004), and failure to provide notice of illness or injury, see, e.g., Hiscox Dedicated Corp. Member Ltd. v. Wilson, 246 F.Supp.2d 684 (E.D. Ky. 2003). In Hiscox, the court noted that Kentucky requirement of prejudice in the third party liability context did not apply, as “the peculiar circumstances of the thoroughbred industry . . . require immediate notice of potential claims.” Id. at 693.

While there are no recent Texas cases discussing equine or livestock policies, in the context of conditions of prejudice and materiality, the older case law, and its legacy in the nation of jurisprudence, suggests that courts will hold the line. Thus, while the notice standard may be relaxed in other contexts, insureds under livestock and equine policies need to be familiar with the policy conditions and strictly comply with the policy conditions to ensure that their claim is recognized.

Bradley is a partner in the Dallas office of Thompson, Coe, Cousins & Irons, L.L.P. She is a member of the Insurance Litigation and Coverage Section and leads the firm’s coverage practice. She has represented agents in disputes with policyholders and insurers and routinely represents insurers in evaluating and litigating coverage issues under general and professional liability policies, commercial auto and trucking policies, commercial property policies and homeowners policies.