In a significant win for a church, a United States District Court in Texas recently issued a decisive ruling in First Baptist Church of Sour Lake v. Church Mutual Insurance Company. 1 The case centered on an insurance coverage dispute involving a reduction in policy limits without adequate notice, and the outcome reinforces key consumer protections embedded in the Texas Insurance Code.
At the heart of the dispute was a parsonage building insured under a policy that, in 2019, carried a $209,000 replacement cost value. In subsequent renewal years, however, Church Mutual Insurance Company unilaterally reduced the limit to $139,000. The church did not explicitly consent to this change, and the insurer failed to provide proper statutory notice alerting the church to the coverage reduction. When the parsonage sustained damage and the insurer applied the reduced limit, litigation ensued.
The church argued that Church Mutual violated Texas Insurance Code § 551.056(c), which requires insurers to give advance notice if a renewal policy contains changes that reduce or restrict coverage. The notice must be conspicuous and clear, so the insured can make informed decisions. The renewal letter Church Mutual issued failed to satisfy this statutory requirement. The trial court agreed with the church’s position that the defective notice rendered the reduction in coverage ineffective and triggered statutory remedies designed to protect insureds from surprise limitations.
The insurer argued that the church should have read the policy and been aware of the change. However, the court, following established Texas precedent, rejected the insurer’s “duty-to-read” defense in this context. The court found it inconsistent with both consumer protection principles and the purpose of statutory notice provisions. The fact that no conspicuous notice was given and that the church had consistently maintained full coverage for over fifteen years bolstered its argument.
The court further ruled that, under § 551.054(b) of the Insurance Code, the 2019 policy remained in effect by operation of law. Because Church Mutual failed to satisfy the notice requirements under the Texas Code and also failed to issue a valid notice of nonrenewal or cancellation under § 551.054 and § 551.055, the insurer was treated as if it had not lawfully changed the policy. The court acknowledged that under Texas law, if an insurer attempts to renew a policy with materially altered terms without proper notice, it is legally equivalent to failing to renew or improperly cancelling the policy altogether. In such cases, the previous policy continues in effect.
As a result of the jury verdict and the court’s post-trial rulings, the First Baptist Church of Sour Lake recovered a total of $994,634.59. This sum included $209,000 in actual damages, representing the correct coverage under the reformed policy. But the court did not stop there. It also awarded $418,000 in additional damages under § 541.152(b) of the Insurance Code, which provides for enhanced damages when a statutory violation is committed knowingly. These additional damages represent a form of punishment and deterrence, acknowledging that the insurer’s conduct went beyond mere oversight. The court also awarded $58,217.60 in statutory penalty interest under § 542.058 for delayed payment, $28,598.04 in pre-judgment interest under the Texas Finance Code, and $275,740 in attorney’s fees. The judgment includes an additional $40,000 in appellate attorney’s fees should the insurer pursue and lose an appeal.
This case serves as a reminder that insurers must strictly adhere to statutory notice requirements when altering policy terms. A mere policy renewal letter is not enough if it fails to alert the policyholder to significant changes in a bold and conspicuous manner.
The decision demonstrates how legislators can protect consumers from insurance companies making subtle, yet substantial changes to policies without clear disclosure. Not all states follow this rule. Some states, such as Florida, have enacted anti-consumer legislation that allows insurers to bury these changes at the time of renewal without providing a remedy.
For policyholders, especially non-profit institutions like churches that rely on consistent and dependable coverage, this ruling confirms that courts will enforce these protections and hold insurers accountable when they fall short.
Thought For The Day
“The rule of law means that the law applies equally to everyone—especially to those in positions of power.”
— Justice Sonia Sotomayor
1 First Baptist Church of Sour Lake v. Church Mutual Ins. Co., No. 1:23-cv-00391 (E.D. Tex. July 22, 2025). See also, Plaintiff’s Brief, and Defendant’s Brief.