Insurance Claims Alleging Knowingly

Dallas insurance attorneys look for cases where they can be a “knowing” violation has been committed by an insurance agent or adjuster. A 1998, Texas Supreme Court opinion helps an attorney understand some of the ways courts look at “knowingly” allegations. The style of the case is, St. Paul Surplus Lines Insurance v. Dal-Worth Tank Co. Here is some of the relevant information.
Mission Butane Gas Co., a customer of Dal-Worth, notified Dal-Worth that it intended to sue Dal-Worth for several thousand dollars in damages caused when trucks it had bought from Dal-Worth had rolled over. Dal-Worth sent this notice to St. Paul and St. Paul opened a claim file. Mission’s insurer also contacted Dal-Worth. St. Paul concluded that Dal-Worth was not liable and refused to pay. Mission sued Dal-Worth. Evidence showed these lawsuit papers were forwarded to St. Paul. St. Paul heard conflicting accounts about the lawsuit papers from Missions insurer.
Dal-Worth did not answer Mission’s lawsuit and Mission obtained a default judgment in the amount of $794,100. Dal-Worth received a copy of the judgment but did not realize it’s significance and did not sent it to St. Paul. St. Paul did not hear of the judgment until 78 days after it was signed. Mission would have settled the claim at this point for $17,000, but no settlement offers were made. Four weeks later, St. Paul denied coverage, but offered to pay an attorney to handle an appeal for Dal-Worth, which Dal-Worth accepted. St. Paul refused to supersede the judgment and Dal-Worth was forced into bankruptcy.
Dal-Worth sued St. Paul and two insurance agents involved in the sale of the insurance. Dal-Worth settled with Mission for dismissal of the appeal, $50,000 in cash, $25,000 credit, 90% of up to $2,000,000 of any recovery by Dal-Worth against St. Paul, and 50% of an recovery over $2,000,000. During this time, Dal-Worth and Mission also settled with one of the agents for about $500,000 to be repaid out of any recovery against St. Paul.
At trial, the judge rendered judgment in favor of Dal-Worth and Mission finding liability under the Texas DTPA, the Texas Insurance Code, and negligence. The judgment awarded Dal-Worth and Mission $331,750 past lost profits, $2,160,000 future lost profits, $25,000 bankruptcy attorney’s fees, $507,000 increased business costs, $500,000 lost credit reputation, $607,921 pre-judgment interest, $1,117,219 on the Mission judgment, $2,000,000 statutory damages under the DTPA, $10,497,781 statutory damages under the Insurance Code, and $11,500,000 punitive damages for gross negligence. The judgment also awarded 40% of the total judgment as attorney’s fees on the statutory claims but not on the negligence claim. Dal-Worth elected to recover under the Insurance Code. St. Paul appealed and the appeals court reversed award of future lost profits but affirmed the rest.
The Texas Supreme Court said there was no evidence to support an award of lost of Dal-Worth’s credit reputation because there was no evidence Dal-Worth needed to use the credit and never tried to use the credit.
The court said there was no evidence that St. Paul acted “knowingly.” The DTPA defines this term as “actual awareness of the falsity, deception or unfairness of the conduct in question. Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness.” Actual awareness does not mean merely that a person knows that what he is doing; rather, it means that a person knows that what he is doing is false, deceptive or unfair. In other words, a person must think to himself at some point, “Yes, I know this is false, deceptive or unfair to him, but I’m going to do it anyway.” Although there was evidence that St. Paul acted negligently and in violation of the DTPA and Insurance Code, there was no evidence that St. Paul was actually aware that its action towards Dal-Worth were false, deceptive or unfair. St. Paul did not do all it should have done to determine whether Dal-Worth had been sued. But, this is only evidence of negligence, not evidence that it knew it was harming Dal-Worth.