Experienced Grand Prairie insurance lawyers can tell you how the Texas Insurance Code and the Texas Deceptive Trade Practices Act (DTPA) interact. A 1996, San Antonio Court of Appeals opinion also shows this interaction or lack thereof as it related to the case. The case is styled, Saunders v. Commonwealth Lloyd’s Insurance Company. Here is some of the relevant information from the opinion.
This is an appeal from the granting of a summary judgment in an insurance bad faith case. Jan Saunders, the insured, sued Commonwealth alleging several instances of improper claims handling including failure to promptly pay a fire loss that completely destroyed Saunders’ home in 1988.
Jan and Dan Saunders’ house was completely burned down by a fire in 1988. The Saunders made a claim on their policy. The insurance company investigated the claim and concluded that Dan Saunders was responsible for setting the fire. Saunders was convicted of the felony of conspiring to burn the house down. The insurance company then denied the claim. This court reversed that conviction. Saunders was acquitted of the charge following a retrial.
The insurance company continued to deny the claim based on the evidence that Saunders was involved in setting the fire. Both of the Saunders brought suit for breach of contract.
Although Commonwealth treated Jan Saunders as an innocent spouse, it refused to pay any part of the claim because the house was community property. The insurance company claims that the case law at the time supported its decision not to pay Jan any proceeds. In 1993, the insurance company agreed to pay Jan one-half of the available insurance proceeds, plus interest, to extinguish her contractual claim.
Following the jury’s verdict in Dan’s case, the insurance company filed a motion for summary judgment on Jan’s claims for extra-contractual damages which was granted. Jan Saunders appealed from that summary judgment.
Jan Saunders claims in her first point of error that “the motion and the proof were legally insufficient to resolve sua sponte her Insurance Code and Deceptive Trade Practices claims.” Saunders said that the insurance company’s motion for summary judgment addressed only part of her Insurance Code and DTPA claim: the part pertaining to the cancellation of the insurance policy. She alleged various other violations of the Insurance Code and DTPA including failure to properly investigate the claim and failure to promptly pay the claim. Saunders also claims that the motion did not contain any summary judgment proof concerning the claims not expressly addressed in the motion.
Saunders’ position that Commonwealth’s motion for summary judgment only addressed the notice issue is easily resolved. Commonwealth alleged in its motion that it was moving for summary judgment “on all of Plaintiff’s causes of action based on its alleged denial of Plaintiffs’ claims without a reasonable basis.” In paragraph three of the motion Commonwealth states that it “was aware of the following evidence, which provide a reasonable basis to deny the Plaintiffs’ claim as a matter of law.” Commonwealth Lloyd’s goes on to say that it “moves for summary judgment on Jan Saunders’ claims that Commonwealth Lloyds delayed or denied her claim without a reasonable basis. There is no genuine issue that Commonwealth Lloyd’s had a bona fide dispute with Jan Saunders regarding whether she was entitled to one-half the insurance policy proceeds.” In later paragraphs, Commonwealth specifically alleges that it is moving for summary judgment on plaintiffs claims for slander, false light publicity and intentional infliction of emotional distress. Clearly, Commonwealth did everything it needed to move for summary judgment on all of Jan Saunders’ claims and not just the lack of notice. To the extent that Saunders’ first point of error alleges that the motion for summary judgment does not raise the bad faith, DTPA and insurance code claims based upon the failure to promptly pay a claim, it was overruled.
Saunders’ first point of error also seems to raise the issue that the summary judgment evidence was insufficient to support a summary judgment on all causes of action asserted by Jan based on failure of Commonwealth Lloyds to promptly pay her claim. This is closely related to her second point of error that she raised material issues of fact sufficient to defeat the summary judgment.
Under Texas law, an insurer who can prove that it possessed a reasonable basis for denying or delaying payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, enjoys immunity from statutory bad faith under the Texas Deceptive Trade Practices Act and the Texas Insurance Code.
The issue here is whether Commonwealth proved it was entitled, as a matter of law, to judgment because it had a reasonable basis to deny the claim. Commonwealth argues that its reasonable basis for denying the claim was that Texas law did not (and presumably still does not) allow the innocent spouse to recover insurance proceeds when community property was destroyed by the arson acts of the culpable spouse. An examination of the law concerning innocent spouses and the facts of this case demonstrate that Commonwealth had a reasonable basis to deny Jan Saunders’ claim as a matter of law.
Historically, Texas law did not allow either an innocent spouse or an innocent co-insured to recover insurance proceeds when community property was destroyed by the arson acts of her culpable spouse.
In 1992, three years after Commonwealth Mutual denied Saunders’ claim, the Fifth Circuit held that a post-fire divorce between the innocent and culpable spouses, which decreed one-half of the insurance proceeds on the destroyed community property as the innocent spouse’s separate property, still does not allow the innocent spouse to recover insurance proceeds for a pre-divorce arson fire.
Later in 1992, the Amarillo Court of Appeals issued an opinion. The fact pattern in the opinion was similar to the one in the 5th Circuit. The innocent spouse there divorced the culpable spouse after an arson fire set by him destroyed the community property. The court allowed the innocent spouse to recover her separate property interest in the insurance proceeds. The case was not applicable to Saunders because she was still married to the culpable spouse. After that case, Commonwealth decided to pay Jan Saunders one half of the policy limits. Based upon the Fifth Circuit’s opinion, Commonwealth had a reasonable basis for refusing to pay Jan Saunders on the basis that the insured property was community property and that she was married to the culpable party.
Saunders also argues that Commonwealth had no reasonable basis for concluding that her husband had been a culpable party in the arson. Commonwealth attached as evidence to its motion for summary judgment evidence supporting its decision to treat Mr. Saunders as a culpable spouse. This same evidence was considered sufficient by two juries to reach the conclusion that Dan Saunders had in fact been a party to the arson fire which destroyed the couple’s house, the insured property. The insurance company possessed a reasonable basis for denying payment of the claim to Jan Saunders. This is not a case where Commonwealth Lloyd’s was unable to convince the fact finder that its basis for denying the claim was correct.
Based upon the existing caselaw, and the facts available to Commonwealth, the court held that Commonwealth had a reasonable basis as a matter of law to deny the claim. Therefore, the summary judgment as to all causes of action was proper.
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