Many people in Grand Praire, Arlington, Irving, Mansfield, Garland, Mesquite, De Soto, Duncanville, Dallas, Fort Worth, Hurst, Euless, Bedford, and other places in Texas will wonder from time to time if they can sue the insurance company when something goes wrong.
Here is a short answer that does not necessarily apply to all situations.
When it is your own insurance company that commits a wrong then there is a procedure to be followed, but you can sue them.
When it is someone else’s insurance company then generally the answer is no, but there are exceptions.
The following case may help someone to understand the difference. The case is a 1987, case decided by the Texas Court of Appeals, Houston, 14th District. The style of the case is, Robert A. Chaffin and G. Robert Friedman v. Transamerica Insurance Company, Premier Insurance Company, and Crown Underwriters.
Here is some background. Chaffin and Friedman (Plaintiffs) sued the insurers (Defendants) listed above for their alleged tortious handling of their property damage claim. Plaintiffs owned two townhomes that were being remodeled. They subcontracted with U.S. Seal to waterproof the townhome roofs. U.S. Seal was negligent and both properties sustained damage in a rainstorm. U.S. Seal was informed of the damage, they admitted fault, and notified the Defendants. The Defendants denied the claim on the basis of no coverage. The Defendants neither conducted an invstigation of the merits of the claim nor appraised the damage before closing the file without payment.
Plaintiffs then sued U.S. Seal for damages resulting from the faulty repair work and then they sued the Defendants for tortious handling of the claim.
The Defendants later admitted no reason existed for its previous denial of coverage. The Defendants eventually paid $100,000, the limits for the damages sustained. However, Plaintiffs continued their suit against Defendants for their torious handling of the property claim, which they allege resulted in expenditures caused by their unnecessary litigation against U.S. Seal. Plaintiffs sought recovery for attorneys’ fees, expenses of litigation, plus interest on the money borrowed to repair the property until the settlement with U.S. Seal.
The trial court ruled in favor of Defendants and this appeals court upheld that ruling. On the appeal Plaintiffs argued that Texas law recognizes an independent cause of action by a third party against a tortfeasor’s insurance company, arising from the carrier’s wrongful denial of coverage under the tortfeasor’s policy. Plaintiffs alleged four causes of action but the relevant one here is one under Chapter 541, Texas Insurance Code.
In discussing this case the court pointed out that the Plaintiffs are not listed as insured’s under Defendants insurance policy, they are not third party intended beneficiaries of the contract, and there is no legal relationship between the Plaintiffs and the Defendants in this situation.
In response to the Plaintiffs assertions this court pointed out that Texas Insurance Code, Section 541.151, does allow for an action against any “person” harmed or injured by the conduct of one in the insurance business without regard to the “person’s” relationship to the insurer. However, the law is settled that even though the term “person” used in this section is not to be construed as being limited to one “engaged in the business of insurance,” there is no authority for extending the construction of “person” beyond one who is either an insured or a beneficiary of the policy.
In fact, Texas Rule of Civil Procedure, 51(b), specifically prohibits the joiner of an insurance company by an injured third party in a tort action. Further, Texas case law is in accord both that an injured party has no direct cause of action against a tortfeasor’s insurance company, whether or not the insured party is joined; and that the carrier owes a legal duty only to its insured or to an intended beneficiary of the policy.
In citing other cases, this court said, “Direct action by a third party may lie against a carrier after an injured party has secured a judgment against the insured. However, the insurer’s liability is nontheless limited to the amount of the policy.”
This court then stated, “We are aware of no Texas case providing a statutory remedy for an injured third party against the insurance carrier of an insured. Therefore, although (Plaintiffs) construction of the term “person” appears on its face to lend credence to their position, the weight of authority belies such an interpretation of the term.”
One thing that is hopefully very clear is that an experienced Insurance Law Attorney needs to be consulted in these matters.
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