Azle insurance lawyers need to be able to recognize when a case might have extra-contractual issues to litigate.
A mere breach of an insurance contract is not actionable under the DTPA or Insurance Code. There must be something more in the way of fraud or misrepresentation in order to establish a cause of action. A breach of contract, even if proven, does not constitute an “unconscionable” act.
A reasonable basis for an insurance company to deny a claim may establish a defense to a claim for breach of the duty of good faith and fair dealing. But this defense to a bad faith suit does not foreclose any other contractual claims, such as violation of the DTPA. violation of the Insurance Code or common law negligence. The Texas Supreme Court has repeatedly instructed that an insurance company will not be faced with a tort suit for challenging a claim of coverage if there was any reasonable basis for its denial of that coverage.
The threshold of bad faith, according to the Texas Supreme Court, is reached when a breach of contract is accompanied by an independent tort. Evidence that merely shows a bona fide dispute about the insurer’s liability on the contract does not rise to the level of bad faith. Even a wrong decision about the contract claim would not establish bad faith on the part of the insurance company. The issue of bad faith focuses not on whether the claim was valid but on the reasonableness of the insurer’s conduct.
Frequently, the facts supporting a bad faith claim are the same as the facts that would establish a claim for violations of the Texas DTPA and the Texas Insurance Code. In such a situation, a defense to a bad faith claim serves to defeat the other extra-contractual causes of action. However, there are exceptions to this rule as pointed out in the 1996, Amarillo Court of Appeals case styled, Escajeda v. Cigna Insurance Company of Texas. There the court stated:
When the tortious acts underlying the Deceptive Trade Practices / Insurance Code and bad faith claims differ, Emmert (a previous case) doe not bar recovery for the former simply because the insurer proved that it had a reasonable basis to deny coverage and thereby defeat the claim of bad faith. For instance, if one sued an insurer contending that it (1) committed a deceptive act by stating that the cost of the policy was only $100 when in truth it was $300, and (2) denied a claim in bad faith, the insurer’s proving that it had a reasonable basis to deny the claim does not prevent the insured from pursuing recovery for the deceptive act of misrepresenting the policy’s cost.
Breach of the duty of good faith will not, standing alone, justify the imposition of punitive damages. In order for punitive damages to be imposed, the insurer must have acted with “conscious indifference” to the rights of the insured. The Beaumont Court of Appeals has stated that the insurer must have actual knowledge that its actions would cause imminent physical harm or financial ruin to justify the imposition of punitive damages.
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