Bad Faith Insurance

Failure To Pay Claim And Bad Faith

April 10, 2014 | Mark S. Humphreys

Most insurance lawyers can tell a new client that the fact an insurance company refuses to pay a claim it should have paid does not make the insurance company liable for a bad faith insurance claim. The 1998, Texas Supreme Court case, Provident American Inc. v. Castanden, helps explain this.

Denise Castaneda sought damages from Provident for alleged violations of the Insurance Code and the Deceptive Trade Practices Act arising out of the denial of her claim for benefits under a health insurance policy and the manner in which her claim was handled. Because the evidence was legally insufficient to support the jury’s verdict, this court reversed and rendered judgment that Castaneda take nothing.

Denise Castaneda’s father, Guillermo Castaneda, Sr., applied for medical insurance with Provident in May 1991. He sought a policy that would cover the entire family including his daughter Denise, who was twenty-one years old at the time, her sister, and their brother Guillermo, Jr. During the application process, Guillermo Castaneda, Sr. failed to disclose that just two days before he applied for the policy, Guillermo, Jr. had received medical attention from a physician for jaundice, anemia, and suspected hepatitis. Denise had received medical treatment for jaundice and hepatitis several years prior to the date her father applied for health insurance.

Bad Faith And The Common Law

April 8, 2014 | Mark S. Humphreys

Lawyers handling “bad faith” insurance cases need to understand how bad faith is treated by Texas common law.

This blog spends a lot of space dealing with the Texas Insurance Code and how violations of those statutes is bad faith insurance. Under Texas law, there is also a common law cause of action for breach of the duty of good faith and fair dealing in cases where an insurance company has no reasonable basis for denial or delay of payment or fails to reasonably investigate its basis for denying a claim. This has been explained by the 1987, Texas Supreme Court case styled, Arnold v. National County Mutual Fire Insurance Co. The precise meaning of phrases such as “liability becomes reasonably clear” and “reasonable basis for denial” are not yet clearly defined, but they are continually being litigated in an effort to formulate more exact definitions. There are a trio of Texas Supreme Court cases dealing with this subject. This trio of cases purport to redefine the breach of the duty of good faith and fair dealing, but Texas courts have treated these cases in much the same fashion as they have for years. Under the new standard for looking at bad faith cases an unpublished Dallas Court of Appeals case observed: “Under the new standard, the insured must show that the insurer denied the claim after liability became reasonably clear. To show that liability was reasonably clear, the insured must show that the insurer had no reasonable basis for denial. As noted by a majority of justices on the Supreme Court, the change is merely semantic.”

The above should be confusing to most people. This writer would suggest that the above being confusing is ok. The reason it is ok is that insurance lawyers now have the statutes in the Texas Insurance Code that are ample ammunition for fighting wrongs committed by insurance companies.

Is There Negligent Claim Handling?

March 15, 2014 | Mark S. Humphreys

Most Parker County attorneys who handle insurance claims know that there is not a claim for “negligent claim handling,” that the claim that probably exists has to fall under one of those listed in the Texas Insurance Code. A 1991, San Antonio Court of Appeals case styled, United Services Automobile Association v. Pennington, helps explain the difference between negligent claim handling and simple breach of contract.

Here is some of the relevant information.

Gary Lochte had a homeowner’s insurance policy from USAA . The policy excluded coverage for damages arising out of “business pursuits.” Lochte is a car salesman. He also ran a quarter horse breeding business with his father. Apart from the breeding business, he and Don Rowland, a co-worker at the car lot, purchased a quarter horse in order to experiment with a new training system to condition horses for racing competition. They placed an advertisement in the local newspaper to hire someone to ride the horse. Pennington answered the advertisement. During her interview with Lochte and Rowland she was asked to demonstrate her riding abilities by riding Viking Vanny. The horse reared while Pennington was mounted on her. Pennington slid off the back of the horse and the horse fell on top of her, crushing her pelvis.

What Happens When Insurance Company Will Not Settle Liability Claim

March 13, 2014 | Mark S. Humphreys

Insurance lawyers will tell you that insurance companies can expose themselves to risk by not settling liability claims that they should settle. This relates to what is called the “Stowers Doctrine.” But exposing themselves to risk and and suffering the risk are two different things. The 1960, Amarillo Court of Appeals case, Chancey v. New Amsterdam Casualty Company, is an example where the insurance company did not get in any trouble. Here is some information about the case.

The present case followed Amsterdam’s refusal to compromise and settle the claim of one Walter Van Luit against Chancey which resulted in a jury verdict and judgment against Chancey in the amount of $58,422.83. The policy limits under the liability policy issued to Chancey was $50,000. The record reflects Amsterdam paid Van Luit the amount of the policy limit of $50,000 plus interest and court costs. Chancey has paid the balance of $8,422.83 to Van Luit, and it is this amount Chancey is seeking over and against Amsterdam. The case was submitted to a jury and upon the finding of the jury the trial court entered a judgment that Chancey take nothing. From this judgment Chancey duly perfected this appeal.

Chancey complained of the trial court’s action in sustaining an exception to Chancey’s petition which alleged the failure of Amsterdam to ‘negotiate’ for a settlement of the case, and refusal of the trial court to submit issues based on the above allegation. It is Chancey’s contention that in as much as the policy gives the insurance coompany the right to ‘investigate, negotiate and settle’ any claim arising under the policy, this right is equally accompanied by the duty to negotiate as well as to settle. The landmark case in Texas on this question is the case of Stowers Furniture Co. v. American Indemnity Co., in which is found the following language:

Bad Faith Insurance – What Is Not

March 11, 2014 | Mark S. Humphreys

Knowing what is not “bad faith” insurance is as important as knowing what is bad faith insurance so that a client can be properly advised.

A 1994, Texas Supreme Court opinion helps to understand what is not bad faith. The style of the case is, Allstate v. Watson. Here is the relevant information from that case.

Kathleen Watson was injured in a car accident on March 31, 1989. The driver of the other car was M.D. Townley, an insured under an automobile liability policy issued by Allstate Insurance Company. Watson filed suit on June 28, 1989 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 Texas Insurance Code 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.

Adjuster Actions That Make Them Liable

February 23, 2014 | Mark S. Humphreys

Insurance attorneys in Grand Prairie know that making the adjuster part of a lawsuit increase the chances that the case will not removed to Federal Court. The United States District Court, McAllen Division issued and opinion in January 2014, wherein the Court remanded a case the insurance company had removed to Federal Court. The style of the case is Rocha v. Geovera Specialty Insurance Company, et al.

Rochas had filed in State Court making specific allegations against the adjuster, Alex Sanchez. Rochas file a motion to remand the case to State Court.

Federal Courts do not have subject matter jurisdiction under 28 U.S.C. § 1332 unless the parties are completely diverse and the amount in controversy exceeds $75,000. In light of the conjunctive requirements of the statute, failure to satisfy the diversity requirement is fatal to subject matter jurisdiction and, therefore, to a successful removal.

Claims Against Adjusters

February 22, 2014 | Mark S. Humphreys

Dallas County insurance attorneys know to make an adjuster part of a lawsuit whenever it is possible to do so. One reason is to make sure the case is fought in Federal Court rather than State Court.

The United States District Court, McAllen Division, issued an opinion recently in the case styled Garza v. Geovera Specialty Insurance Company. Here, Geovera had the case removed to Federal Court. Garza was successful in getting the case remanded to State Court by pointing to specific violations of the Texas Insurance Code committed by the adjuster who is named Kenneth Allen DeMaster.

In the petition filed by Garza, Garza pointed to these actions on the part of DeMaster asserting DeMaster conducted a substandard inspection of Garzas’ property. For example, DeMaster spent a mere forty-five minutes inspecting Garzas’ entire property for hail storm and/or windstorm damages. Furthermore, DeMaster told Garza that, because he believed their damages were low, they would not have insurance coverage if they continued with their claim. DeMaster was neither qualified nor authorized to make coverage determinations. The inadequacy of DeMaster’s inspection is further evidenced by his report, which failed to include all of Garzas’ hail storm and/or windstorm damages noted upon inspection. Moreover, the damages that DeMaster actually included in his report were grossly undervalued. DeMaster also improperly withheld material sales tax and a contractors’ overhead and profit from his estimate, in total contravention of applicable Texas Department of Insurance directives. Ultimately, DeMaster’s estimate did not allow adequate funds to cover the cost of repairs to all the damages sustained. DeMaster’s inadequate investigation was relied upon by GeoVera in this action and resulted in Garzas’ claim being undervalued and underpaid.

The Other Person’s Insurance And Bad Faith

January 21, 2014 | Mark S. Humphreys

Texas insurance attorneys already know that bad faith claims in Texas only apply to 1st party claims, not 3rd party claims.

The 1994, Texas Supreme Court case styled, Allstate Insurance Company v. Watson, explains how Bad Faith claims apply to 1st party claims. Here is the relevant information from that case.

Kathleen Watson was injured in a car accident. The driver of the other car was M.D. Townley, an insured under an automobile liability policy issued by Allstate Insurance Company. 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 art. 21.21, section 16, 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 alleged that Allstate’s conduct violated 28 Tex.Admin.Code § 21.3 and section 17.46 of the Texas Deceptive Trade Practices–Consumer Protection Act (DTPA). In addition to her claim under art. 21.21, 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.

Insurance Agent Misrepresentations

January 5, 2014 | Mark S. Humphreys

Dallas insurance lawyers know the ways insurance agents can be held liable for the misrepresentations they make to insureds. A 1994, El Paso Court of Appeals case is good to review. It is styled Hart v. Berko. Here is some of the relevant information.

This is a suit brought under provisions of the Texas Deceptive Trade Practices Act and the Texas Insurance Code by the policy owner against its insurance agent for damages arising out of a dispute over alleged representations concerning the amount of fire insurance coverage in effect at the time of a substantial fire loss.

In January of 1990, Berko, Inc. d/b/a El Encanto (Berko), through its Vice President, Sara Blaugrund (Blaugrund), requested that Phil Hart (Hart), employed by D.J. Enterprises, Inc. d/b/a Associated Insurance Agency (D.J.), increase the amount of insurance coverage on its building from $242,000 to $650,000. According to Blaugrund, Hart represented to her that he had obtained fire coverage of $600,000 on the building. On February 27, 1990, the building was completely destroyed by a fire. On the day after the fire, Hart notified Blaugrund that the building had only $242,000 coverage.

Insurance Company “Knowing” Conduct And Mental Anguish Damages

January 4, 2014 | Mark S. Humphreys

Fort Worth insurance lawyers need to have an understanding how the courts look at mental anguish damages as compensation for insurance code violations.

The 1995, Texas Supreme Court case, State Farm Life Ins. Co. v. Beaston case is a reference point. Here is some of the relevant information from that case.

Terri and David Beaston bought life insurance policies from State Farm. The Beastons failed to pay the premium on David’s policy due. His policy lapsed and the thirty-one day grace period expired. Three days after the expiration of the grace period, David died in an automobile accident. State Farm refused to pay the benefits under his life insurance policy, claiming that coverage had expired before his death.