Increased Insurance Premiums: Are They Recoverable from Third-Party Tortfeasors?

For the typical American employer, payments of insurance premiums are among the greatest expenses, and are important and unavoidable costs of operating a business.  It is common for an employer to see a spike in the cost of these premiums after experiencing an accident with an employee or a significant loss.  Insurance companies raising rates for coverage is hardly a phenomenon, but it does raise a question of fairness: should the insured bear the burden of paying increased premiums raised as a result of the tortious acts of a third-party?  According to Texas courts, principles of fairness must take a back seat on this issue.

This issue predominately arises out of Worker’s Compensation claims where an employer seeks recovery for past or future increased premiums against the tortfeasor responsible for injuring their employee.[1]  Texas follows the majority rule on this issue which disfavors the innocent business owner.[2]  The majority rule dictates that increased premiums are not recoverable damages because this type of economic harm is too remote to be foreseeable to the third-party actor.[3]

On the contrary, the minority rule better aligns with our system’s traditional notions of fairness.[4]  So far Minnesota is the only state that has adopted this plaintiff-friendly position.  This minority view does recognize employers' damages claims against their wrongdoers for increased insurance premiums under certain circumstances.  To recover however, the employer must prove there was a likelihood of their future premiums rising as a result of the tortfeasor's acts.[5]

In AVCO Corp. v. Interstate Southwest, the Texas Court of Appeals addressed the problem that arises with the speculative nature of increased insurance premiums.[6]  This case concerned a commercial dispute in which the plaintiff brought several claims for breach of contract and fraud.  The court held an increase in premiums on plaintiff’s insurance policy was not directly traceable to the defendant’s alleged fraudulent conduct, and thus could not be recovered.[7]

In deciding AVCO, the court relied on a previous decision made in a 1999 Houston case: Higbie Roth Construction Co. v. Houston Shell & Concrete.[8]  With its negligence claim, the plaintiff employer sought reimbursement from the tortfeasor for economic losses in the form of increased worker’s compensation premiums.[9]  In the court’s refusal to recognize a right to recover insurance premiums, it stated that an increase in worker’s compensation premiums is not foreseeable to the defendant as a matter of law.[10]  The Higbie court relied on a Pennsylvania court’s decision which explained that a tortfeasor cannot reasonably foresee its conduct would cause increased premiums because “premium rates result from many concurring factors, many of which are entirely unrelated to the third party's alleged negligence in injuring a particular worker.”[11]

Although it may seem antithetical to the fundamentals of our compensation system, Texas law does not recognize a plaintiff’s right to recover from the tortfeasor the cost of paying increased insurance premiums.  Unless a plaintiff can establish the increased premiums were foreseeable by the defendant, a Texas court is likely to find the damages too remote to be recoverable.

[1] Steven Plitt, The Justiciability of Increased Insurance Premium Claims: A Uniformity of Dismissal?, 30 No. 2 Ins. Litig. Rep. 41, (2008).

[2] Id.

[3] Id.

[4] Gary L. Wickert, The Fight to Reclaim Premium Increases from Tortfeasors,, April-May 2016.

[5] Id.; M.S.A. § 176.061 (5)(b).

[6] AVCO Corp. v. Interstate Southwest, Ltd., 251 S.W.3d 632 (Tex. App.—Houston [14th Dist.] 2007, pet. denied).

[7] Id.

[8] Higbie Roth Const. Co. v. Houston Shell & Concrete, 1 S.W.3d 808 (Tex. App.—Houston [1st Dist.] 1999, pet. denied).

[9] Id.

[10] Id. at 812.

[11] Id. (quoting Whirley Indus., Inc. v. Segal, 316 Pa.Super. 75, 462 A.2d 800 (1983).)