Articles Posted in Bad Faith Insurance

Texas insurance lawyers are always asking the above question when someone comes to see them about an insurance company doing them wrong.

To start with, as the contracting party, the insurance company can be liable based on the contract that exists between them and their customer.

There are also several statues, under which, the insurance company can be held liable.  For example, under Texas Insurance Code, Section 541.151, the statute states “any person” engaged in the business of insurance may be liable for unfair insurance practices.  Reading further, the Texas Insurance Code, Section 541.002(2), defines the term “person” to include various insuring entities.

Insurance lawyers need to know about this 2017 case from the Eastern District, Sherman Division.  It is styled, Hidden Cove Park and Marina et al v. Lexington Insurance Company, et al.  The case concerns the discovery of an insurance company’s loss reserves.

The Court held a telephonic conference regarding a discovery dispute a regarding redacted records.  The Court ordered Lexington to produce the un-redacted clam notes and to allow Hidden Cove to depose Lexington’s 30(b)(6) deponent, limited to the information included in the previously redacted claim notes.

After severe storms caused damage to properties insured under a policy issued by Lexington, Hidden Cove sued Lexington alleging failure to properly conduct an investigation into the cause of the loss, failure to issue timely payments, and wrongfully delaying or denying the claim, all pursuant to Chapter 542 of the Texas Insurance Code, and breach of contract and breach of common law duty of good faith and fair dealing.  The central issue is the parties’ interpretation of the “Flood” exclusion contained in the policy and its effect on the claim.

Bad Faith insurance lawyers got a favorable ruling in the Texas Supreme Court recently.  This is discussed in an article published by the Claims Journal.  It is titled, Texas High Court Establishes Clear Rules For Breach Of Contract, Bad Faith Suits Against Insurers.

In an effort to clear up confusion as a result of past decisions, the Texas Supreme Court announced five rules that “address the relationship between contract claims under an insurance policy and tort claims under the Insurance Code.”

The clarification was part of an opinion issued earlier this month.  The case is styled USAA Texas Lloyd’s Company v. Gail Menchaca.

For Texas insurance lawyers, here is a new opinion from the Texas Supreme Court.  It is styled, Menchaca v. Texas Lloyds.

This claim arises from an insured’s claim for losses sustained during Hurricane Ike.  The insured sued USAA for (1) breach of contract and for (2) Unfair Settlement Practices under the Texas Insurance Code.  As damages for both claims, the insured sought only policy benefits plus court costs and attorney’s fees.  In evaluating the bad faith claims brought by the insured against USAA, the Supreme Court acknowledges that some of its previous decisions have created uncertainty in the law.  As a result, this opinion is designed to put that uncertainty to rest as nearly as possible.

The primary issue is whether the insured can recover policy benefits based on jury findings that the insurer violation the Texas Insurance Code and that the violation resulted in the insured’s loss of benefits the insurer “should have paid” under the policy, even the jury also failed to find that the insurer failed to comply with its obligation under the policy.  USAA argued that because the jury found there was no breach of contract, Menchaca could not recover for “bad faith” or extra-contractual liability as a matter of law.  The Court disagreed with USAA and re-affirmed its holding in Vail v. Texas Farm Bureau Mut. Ins. Co., where the Court held that an insurer’s “unfair refusal to pay the insured’s claim causes damages as a matter of law in at least the amount of the policy benefits wrongfully withheld.”

Palo Pinto insurance lawyers know the above question can be difficult to answer.  Each situation is different.  The Stowers doctrine in the law is an example to look toward for some understanding.

The heart of a Stowers claims is the 1929 decision in G. A. Stowers Furniture Co. v. American Indemnity.

In Stowers, the insurance company refused to accept a third party’s offer to settle the asserted claim within policy limits and a judgment in excess of the policy limits resulted.  The court imposed a duty for an insurance company to handle settlement demands reasonably.

Dallas and Fort Wort insurance lawyers will commonly get calls from people who want to sue an insurance company because the insurance company was not treating them right in the claims process.  Many times these people will be third party claimants.  Third party claimants cannot sue the other guys insurance.  First party claimants are those people who are dealing with their own insurance company.  An insurance company does not owe any duty of good faith or fair dealing when dealing with a third party.  This is illustrated in a 1994, Texas Supreme Court opinion styled, Allstate Insurance Company v. Watson.

Watson was injured in a car accident.  Watson brought suit against the insured under an automobile liability policy issued by Allstate and also brought suit against Allstate alleging unfair claim settlement practices under Section 541.060 of the Texas Insurance Code and for failing to attempt in good faith to effectuate a prompt settlement where liability had become reasonably clear.  Watson also brought suit under the Texas Deceptive Trade Practices Act, breach of contract, and the common law duty of good faith and fair dealing.  The trial court granted Allstate’s Motion for Summary Judgment against Watson.  The Court of Appeals reversed and remanded the trial court, holding that Watson, as a third-party beneficiary, could bring action under the Insurance Code without first proceeding directly against the named insured of the policy.

This Texas Supreme Court held that the Texas Insurance Code does not confer upon third-party claimants a direct cause of action against an insurer for unfair claim settlement practices.  This section is an exclusive list of statutory unfair and deceptive acts or practices.  However, the section does not define unfair claim settlement practices to be an unfair or deceptive act or practice.  Section 541.151 provides a private cause of action for any practice defined by Section 17.46 of the DTPA as an unlawful deceptive trade practice.  However, unfair claim settlement practices is not among the enumerated items defined by Section 17.46.

It’s easy to say “bad faith.”  It’s not always easy to prove.  Insurance lawyers have to look hard and rarely will be successful.  A 1992, San Antonio Court of Appeals opinion helps explain why.  The case is styled, State Farm Lloyds v. Polasek.

A fire destroyed the Polasek’s video rental business.  State Farm denied insurance claim on ground of arson.  The Polasek’s filed suit for breach of contract and bad faith.  At trial, the jury found that the Polaseks had not committed arson and that State Farm had acted in bad faith because it did not have a reasonable basis for denying the claim.  The jury awarded $40,000.00 property damages, $200,000.00 mental anguish, and $500,000.00 exemplary damages.  State Farm appealed.  On appeal, the San Antonio Court of Appeals reversed the bad faith judgment.

A bad faith cause of action is not satisfied by proof that State Farm should have paid the claim or that State Farm acted unreasonably in denying the claim.  Instead, a bad faith cause of action requires proof of a negative: that no reasonable basis existed for denying or delaying payment of the insurance claim.  Under a bad faith cause of action, carriers still maintain the right to deny invalid or questionable claims and will not be subject to liability for an erroneous denial of a claim.  A bad faith cause of action requires a much different and more demanding proof than a suit for breach of the insurance policy.

Bad faith attorneys need to know when bad faith in insurance occurs and when it does not.  A 1995, Texas Supreme Court case is worth reading.  It is styled, Republic Insurance Co. v. Stoker.

The Stokers were involved in a chain reaction car wreck caused by an unidentified pickup truck which dropped a load of furniture causing a chain reaction.  The truck was not struck by any of the vehicles.  The Stokers had no collision insurance and therefore submitted a claim under their uninsured/underinsured coverage.  Republic originally denied the claim because it concluded that Mrs. Stoker, the driver, was more than fifty percent at fault in causing the accident.

The Stokers sued for breach of insurance contract, breach of good faith and fair dealing, of violations of the Deceptive Trade Practices Act, and violations of the Texas Insurance Code.  The Stokers alleged that Republic gave an invalid reason for denial of their claim.