Experienced insurance law attorneys know at least part of the answer to the above question. In that regard, a 1994, Texas Supreme Court case is helpful to read. It is styled, Allstate v. Watson. Here is the relevant information.
Watson was injured in a car accident. The driver of the other car was Townley, an insured under an automobile liability policy issued by Allstate. Watson filed suit against Townley alleging that Townley was negligent and that his negligence was a proximate cause of the accident and her injuries. In the same action, Watson also sued Allstate under the current Insurance Code, Section 541.060(a)(2) for alleged unfair claim settlement practices in failing to attempt in good faith to effectuate prompt settlement of her claims where liability had become reasonably clear and in denying or unreasonably delaying payment of her claim. Watson also alleged that Allstate’s conduct violated 28 Tex. Admin. Code Section 21.3 (Board Order 18663) and section 17.46 of the Texas Deceptive Trade Practices (DTPA), thereby giving rise to her cause of action under Texas Insurance Code, Section 541.060(a)(2). In addition to her claim under Section 541.060, Watson alleged violations of the DTPA, breach of contract, breach of the duty of good faith and fair dealing, and sought a declaratory judgment that Watson was an intended third party beneficiary of the Allstate liability policy.
On Allstate’s motion, the trial court severed the claims against Allstate, struck Watson’s pleadings as to Allstate for failure to state a claim, and granted Allstate’s motion for summary judgment.
The Texas Insurance Code provides a private cause of action for any practice defined by section 17.46 of the DTPA as an unlawful deceptive trade practice. “Unfair claim settlement practices” is not among the enumerated items defined by section 17.46 as an unlawful deceptive trade practice. While section 17.46 may not be a complete list of unlawful deceptive trade practices for purposes of asserting claims under the DTPA, the Insurance Code expressly makes actionable those acts or practices that, in fact, are defined in section 17.46 as unlawful deceptive trade practices. Unfair claim settlement practices are not listed and, therefore, they are not actionable under the Insurance Code.
To be sure, the Insurance Code is worded as providing a cause of action to “any person.” However, for Watson to assert her cause of action against Allstate for unfair claim settlement practices, she must do so through the reasoning of Texas case law.
Watson, however, is not an insured. Rather, she asserts her claims against Allstate as a third party to the contract between Allstate and its insured. The obligations imposed by the Insurance Code and are engrafted onto the contract between the insurer and insured and are extra-contractual in nature. A third party claimant has no contract with the insurer or the insured, has not paid any premiums, has no legal relationship to the insurer or special relationship of trust with the insurer, and in short, has no basis upon which to expect or demand the benefit of the extra-contractual obligations imposed on insurers with regard to their insureds. Were we to extend to third party claimants the same duties insurers owe to their insureds, insurers would be faced with owing coextensive and conflicting duties. An insurer owes to its insured a duty to defend the insured against the claims asserted by a third party. Recognizing concomitant and coextensive duties to third party claimants, parties adverse to the insured, necessarily compromises the duties the insurer owes to its insured. In fact, the logical result of permitting a separate and direct cause of action in favor of third party claimants allows third parties to sue for unfair claim settlement practices even though the insured has no claim for an unfair claim settlement practice. As troublesome, it is conceivable that in attempting to settle claims pursuant to the demands of a third party claimant, insurers may be liable to the insured for settling too quickly. In refusing to provide a direct cause of action for third party claimants, the legislature may well have been aware of this potential for conflicting duties. This Court would not construe the Insurance Code or common law, absent explicit directive from the legislature, so as to compromise the insurer’s loyalties and obligations owed to the insured.
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