Bad Faith Insurance

Penalties And Punishments For Texas Insurance Companies Who Do Wrong

October 7, 2009 | Mark S. Humphreys

Texas insurance companies are regulated by the Texas Department of Insurance. The written laws for most insurance companies are found in the Texas Insurance Code. These laws and regulations apply to all insurance companies in Texas. So whether the company is located or does business in Dallas, Fort Worth, Arlington, Irving, Grand Prairie, Carrollton, Mesquite, Weatherford, Granbury, or anywhere else in the State of Texas the same laws and regulations apply to the insurance company.

The worst acts of insurance companies may be criminal in nature, but the majority are violations of civil laws and statutes, and what are being addressed in this writing. Violations of these civil laws and statutes may result in fines to the companies and issuance of cease and desist orders, and revocation of licenses or suspensions of insurance licenses. Most of the penalties just mentioned are enforced through the Texas Department of Insurance or the Texas Attorney Generals Office.

The recourse for insureds against their own insurance companies for violations to them personally, are addressed in different parts of the Insurance Code and depend on exactly which statute the insurance company violated. Punishment for violations of Insurance Code, Chapter 541 are found in Section 541.152. Here, the plaintiff who prevails in their cause of action may obtain: 1) the amount of actual damages to the plaintiff, plus court costs and reasonable and necessary attorney’s fees, and 2) any other relief the court determines is proper. What is important here and in other statutes that allow for the recovery of attorneys fees, is that if your cause is just and right, that at the end of your case, you can recover your court costs and attorneys fees. This is also why it is important to seek an experienced Insurance Law Attorney so that they can inform you whether you have a case worth pursueing.

What If A Texas Insurance Company Does You Wrong

October 5, 2009 | Mark S. Humphreys

The recourse that a Texas insurance policy holder has against their insurance company depends on exactly what it is that the insurance company does that is wrong or illegal. The types of wrong that can be committed by insurance companies are too numerous to mention all of them here. However, there are a few wrongs committed by insurance companies that policy holders should be aware of when dealing with their insurance agent or the insurance company.

Again, keep in mind that there are many wrongs that can be committed by an insurance company. The most wrongs that can be found without reading all the laws related to insurance can be found in the Texas Insurance Code Section 541.051, Section 541.060 and Section 542.003.

These Sections are appropriately found in Subtitle C of the Texas Insurance Code which is titled “Deceptive, Unfair, And Prohibited Practices”. Section 541.051 is in Chapter 541 and titled “Unfair Methods Of Competition And Unfair Or Deceptive Acts or Practices”.

Texas Bad Faith Insurance Law / Duty Of Good Faith And Fair Dealing

October 4, 2009 | Mark S. Humphreys

An insurance company in Texas has a duty or responsibility to people who purchase insurance. When dealing with one its customers / insureds it has a duty to that person. This is referred to as the “duty of good faith and fair dealing”. When an insurance company violates its duty of good faith and fair dealing it is call “bad faith”.

There are laws in the Texas Insurance Code that set out acts that insurance companies cannot legally do. In addition to setting out prohibited acts and practices there are punishments the insurance companies face for violations of their duties to their insureds. The punishments will vary depending on the degree of culpability or wrong that is committed.

A 2008 case discussing some of the above is Texas Mutual Ins. Co. v. Ruttiger. This is a case that occurred in Galveston, Texas and was decided by a Houston Court of Appeals. The same law would apply whether it happened there, or in Dallas, Fort Worth, Arlington, Grand Prairie, Weatherford, or anywhere else in Texas.

How Do I Know When My Texas Insurance Company Is Not Doing Its Job

September 30, 2009 | Mark S. Humphreys

It is easy to say “you know when you know”. Most people will sense something isn’t right. Often times the insurance company sends you a letter saying your claim for benefits is being denied and state as a reason, something you absolutely know is wrong.

Let’s look at what the Texas Insurance Code says. Section 542.055 is titled “Receipt of Notice of Claim”. This section gives guidance to the first actions an insurance company is suppose to take when a claim is filed. It says that not later than the 15th day after the date they receive notice of a claim that they shall, (1) acknowledge receipt of the claim, (2) begin their investigation of the claim, and (3) request from the person making the claim all statements, and forms that the insurance company believes it will need to evaluate the claim. It then says that the insurance company may make additional requests for information if during the investigation of the claim the additional requests are necessary. Also, they are suppose to acknowledge the claim in writing or make a written record of how the acknowledgement was made.

Section 542.056 is titled “Notice of Acceptance or Rejection of Claim”. This section is a little complicated and varies depending on the type of claim made, but does have deadlines for when the insurance company is suppose to make their determination. Also it is in these actions required of the insurance that they are most likely to be making mistakes. If the claim is one they should be paying, a letter from an Insurance Law Attorney at this point usually gets them acting properly in a hurry. If they are not sure whether they should be paying the claim or not, the requirements of this section and a letter from an Insurance Law Attorney makes the insurance company take a stand or be in further violations of these sections or others in the Insurance Code. The Insurance Law Attorney wants the insurance company to make that stand rather than continuing to string out the matter.

Texas Bad Faith Insurance Laws / Deceptive Trade Practices Act

September 29, 2009 | Mark S. Humphreys

The Texas Department of Insurance has the authority to punish insurance companies and agents who commit wrongs. The punishment can be fines or in some cases “cease and desist” orders are issued.

When an insurance company or one of their agents commits a violation of the Texas Insurance Code, the person who sustains actual damages may bring an action for those damages caused by the person or company engaging in the wrongful action. Section 541.151 of the Texas Insurance Code allows for this private cause of action. Any violation of Subchapter B, defined to be an unfair method of competition or unfair or deceptive act or practice in the business of insurance, or Section 17.46(b) of the Texas Business & Commerce Code, may bring this private cause of action against the insurance company or its agent.

A person who prevails in their claim against the insurance company or its agent may obtain the amount of actual damages plus court costs and reasonable and necessary attorneys’ fees, plus any other relief the court determines is proper. If the insurance company is found to have knowingly committed the act complained of, the judge or jury may award an amount up to three times the amount of actual damages.

Life Insurance Policies, Interpretation, and ERISA

September 11, 2009 | Mark S. Humphreys

A United States Federal District Court in Texas recently discussed the above in a case. The life insurance policy was for $200,000. The policy was provided through a voluntary plan the beneficiary of the policy had with his employer and was an ERISA plan. ERISA stands for Employee Retirement Income Security Act. The case was Carmichael Khan v American International Group, Inc.

Like many people in Dallas, Fort Worth, and surrounding cities and counties Khan was a voluntary participant in a plan provided by his employer. The facts and issues in the case centered around Khans’ employment terminating around April 7, 2006 and his wife having died in a car wreck on April 20, 2006. There were issues about termination paperwork Khan had filled out prior to his termination and his intent to covert coverage he had through his employer to continuing coverage once he left American. Also, there were issues about deductions from Khans last pay check for coverage. The fact pattern is long and the legal battle is also long and complicated. In the end the Federal Court ordered the case back to the Plan Administrator for further determinations to be made by the Plan Administrator. This case will likely continue over the next several months and possibly years unless a settlement is reached among the parties involved.

One of many things to be drawn from this case is that when a life insurance policy is in an ERISA plan, there is an administrative process that has to be exhausted before an appeal to a Federal Court can be fully litigated. All ERISA disputes are fought out in Federal Courts rather than State Court because ERISA issues are a matter of Federal Jurisdiction. Insurance companies prefer Federal Court for fighting their battles whereas attorneys who represent claimants prefer State Courts.
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Determining Coverage In Texas Insurance Policy

September 10, 2009 | Mark S. Humphreys

An accident happens. A loss is incurred. A lawsuit is filed. You say “no problem I got insurance to protect me”. Well, do you?

The Texas Court of Appeals in Houston recently discussed this question in the case, Accufleet, Inc. v. Hartford Fire Insurance Company. This case involved a discussion of the definition of “auto”. Accufleet is an aviation support business. In January 2003, a ground tug, transporting luggage, rear ended another vehicle causing injuries. When a lawsuit was filed, Hartford denied coverage arguing that the ground tug was not an auto.

The Court in this case, got into a discussion of how to determine whether or not the language of the insurance policy requires the insurance company to defend its insured in a lawsuit and pay on a claim or whether it can get away with refusing to do so. The court draws two distinctions. One, is what does the policy language say as far as its duty to pay, if liable. Two, how is this different from the duty to defend in a lawsuit.

The plain language of an insurance policy, like that of any other contract, must be given effect when the parties’ intent may be discerned from the plain language used in the policy. If the policy language has only one reasonable interpretation, then it is not ambiguous and the court decides it as a matter of law. If the contract is susceptible to two or more reasonable interpretations, then it is ambiguous and the uncertainty is resolved by adopting a reading that favors the insured as long as that construction is not unreasonable.

The duty to defend is distinct from, and broader than, the duty to pay. An insurance company must defend its customer if the lawsuits factual allegations “potentially” support a covered claim. So even though the facts may not play out in such a way as to require payment on the claim, the allegations themselves are what trigger whether or not the insurance company must hire attorneys and defend the claim.

The previous two paragraphs are what is known as the “eight corners rule”. The first four corners are the pages of the contract or policy and the language with-in the four corners of that document. The second four corners are the pleading used in the lawsuit. Do the allegations used as the facts made the basis of the lawsuit, give notice that if the lawsuit is successful, the claim will have to be paid by the insurance company. If the answer is yes, then the duty to defend the lawsuit is placed on the insurance company. The general rule being that the insurance company is obligated to defend the lawsuit if there is, potentially, a case under the complaint within the coverage of the policy.
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Duty To Cooperate Under Texas Insurance Law

September 4, 2009 | Mark S. Humphreys

Before discussing the topic of this writing, a little side note. When suing insurance companies, they of course do not want to be sued, but when that happens they prefer to fight their battles in Federal Court rather than State Court. The Plaintiffs, who are the people usually suing the insurance companies would prefer to be in State Court. There are many reasons for this but what is important to know is, one, only an experienced Insurance Law Attorney fully understand what was just said and, two, only an experienced Insurance Law Attorney knows ways of preventing an insurance lawsuit from being removed to Federal Court, if it can be done.

Texas Insurance Law requires that the insured person cooperate with their insurance company when the company is investigating a claim. This is true whether the claim is being made by the insured person against their insurance company for benefits or the claim is being made against the insured person by a third party. The reasoning for this is not difficult. The insurance company needs to know what happened so that they can evaluate the claim being made. An obvious example of the insurance refusing to pay on a claim is found in a recent Federal Court case, State Farm Lloyds vs. Tony Ray Brown.

In Brown, the insured, Brown, had shot another person in the face. Brown would not cooperate with his insurance company in any way when he was sued for the shooting. He did not turn the lawsuit papers over to his insurance company, he did not cooperate with their investigation as to the shooting being an accident or deliberate, he did not cooperate with the insurance company’s efforts to determine if the victim had done anything wrong in causing or contributing to the shooting. Brown simply did nothing. The only thing the insurance company knew about the incident was what the victim and the victims lawyers said. This case was a blatant “lack of cooperation” and thus the Court voided the insurance coverage.

Texas Insurance Law On How Claims Are Paid

August 22, 2009 | Mark S. Humphreys

In 1929, a case was decided that has had deep effects on the claims handling process in Texas. The case was G. A. Stowers Furniture Company vs American Indemnity Company. The case arose out of a situation in Galveston, Texas, but applies to any place in Texas including Dallas, Fort Worth, Arlington, Grand Prairie, Irving, Weatherford, or any other city or town in the State.

In this case, Stowers had a $5,000 insurance policy with American. A claim was made against Stowers wherein the claimant was willing to settle the claim for $4,000. The claim was potentially worth much more. American decided to deny the claim. American’s thinking was that the worst that could happen to them was that if the case were tried and lost that American would be out $5,000 which was the top limit on the policy. So instead of settling the case for $4,000 the case went to trial and a judgment was taken against Stowers for over $14,000. American paid the policy limits of $5,000 and walked away leaving Stowers to make up the difference.

Stowers sued American saying American refused to act as a reasonable and prudent insurer would have acted and thus cost Stowers money. Stowers said it was unreasonable for American to have not settled the case for $4,000, when they could have, rather than expose Stowers to a judgment in excess of the policy limits. The court agreed with Stowers.

This law, now known as the “Stowers Doctrine” in Texas says that if an insurance company is given the opportunity to settle a case for an amount less than or equal to the policy limits and refuses to do so, then the insurance company and not its insured is responsible for any judgment in excess of the policy limits. The test is, would a reasonable and prudent insurance company go ahead and settle the case, given the facts of the case, rather than expose its policy holder to the risk of a judgment in excess of the policy limits.

There have been several adjustments to this law over the years that involve issues of liens and subrogation interests. Plus the exact language of any offer to settle for an amount equal to or less than the policy limits is scrutinized closely by the courts to see if the offer properly invokes the “Stowers Doctrine”. If this “Stowers Doctrine” is properly taken into account and the claim is not paid by the insurance company then the policy holder has a claim against its insurance company for its conduct in the matter.
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