Dallas Fort Worth Insurance Lawyer Blog

18% Penalty – What Does It Apply To?

November 2, 2019 | Mark S. Humphreys

The Texas Prompt Payment of Claims Act is found in the Texas Insurance Code, Section 542.051. Under Section 542.060, a violation of the Prompt Payment of Claims Act allows recovery of an 18 percent interest on damages. The question then becomes does the 18 percent apply when there is trebling of damages?

Texas Insurance Code, Section 541.152(b), allows recovery of actual damages caused by the unfair practices of an insurance company and then allows trebling of those damages if the conduct was committed “knowingly.” The same facts may establish a violation of chapter 542 and a violation of chapter 541, but one is not a per se violation of the other. Thus, an insured has to show actual damages caused by the unfair insurance practice. It is unlikely that the 18 percent award could be shown to be damages caused by the unfair insurance practice. The violation does not cause the 18 percent damages; it just causes the insurance company to be liable for those damages. As a result, it seems unlikely the 18 percent damages ever would be subject to trebling.

The answer to how to apply the 18 percent damages would depend on whether the 18 percent is viewed as “damages,” “interest,” or a “penalty.”

Prompt Payment Of Claims And Trebling Of 18% Penalty

October 30, 2019 | Mark S. Humphreys

When an insurance company makes an unjustified delay in paying a claim the Texas Prompt Payment of Claims Act allows interest on the amount of the claim at the rate of 18 percent a year as damages. This statute is found in the Texas Insurance Code, Section 542.060(a). But the statute does not say which amount is subject to this penalty. Is it the amount of the claim submitted by the claimant, or is it the amount of the claim paid by the insurer, or is it the amount of the claim as ultimately determined by the trier of fact? This is important to know because the insured may “claim” too much, the “claim” paid by the insurance company may be too small, and often no one knows the amount the notice of the “claim” is first given.

This issue is discussed in the 2004, Texas Supreme Court opinion styled, Republic Underwriters Insurance Co. v. Mex-Tex, Inc. The court concluded that the “claim” is “the amount ultimately determined to be owed, which of course would be net of any partial payments made prior to that determination.” The court felt this would encourage insurance companies to pay the undisputed portion of a claim early, which was consistent with the statute’s purpose to obtain prompt payment of claims.

The court also held that the 18 percent would be assessed on the entire amount of the claim in the insurer’s tender of partial payment was not unconditional. Otherwise, the court reasoned, the insurance company could delay payment by insisting on a release to which it was not entitled.

Interpreting An Insurance Policy – Uninsured Motorist Coverage

October 27, 2019 | Mark S. Humphreys

Here is a 1974, opinion from the 14th Court of Appeals that is still good law today. The opinion is styled, Janice Sue Milton v. Preferred Risk Insurance Company et al.

This is a lawsuit to recover benefits under the uninsured motorist provisions of an automobile policy. The question for the Court is, at what point in time must the insured forward suit papers concerning a claim against an uninsured motorist, if the negligent party was insured at the time of the accident, but later became “uninsured” as that term is legally defined.

The Facts of this case are a little confusing and will not be discussed here. The relevant Fact is that the insured, Milton, sued Preferred seeking benefits under her uninsured motorist provisions of her insurance policy with Preferred.

One Way Of Staying Out Of Federal Court

October 26, 2019 | Mark S. Humphreys

Insurance lawyers can generally get better out-comes for their clients when a case is litigated in a State or County Court versus in Federal Court. There are ways of staying out of Federal Court but the way tried in this September 2019, opinion from the Southern District of Texas, Houston Division, seems unusual. The opinion is styled, Phan VM Holding, LLC v. Evanston Insurance Company.

Phan sued Evanston in County Court and Evanston removed the case to Federal Court citing 28 U.S.C., Section 1332(a)(1), i.e., that the parties were diverse and that the amount in controversy exceeds $75,000, exclusive or interest and costs. Phan filed a motion to remand arguing that the amount in controversy does not exceed $75,000. When a defendant can show the amount in controversy exceeds the jurisdictional amount, then the burden is on the plaintiff to show that, as a matter of law, it is certain that he will not be able to recover more than the damages for which he has prayed. This can be shown by Phan filing a binding stipulation or affidavit with the complaint that limits recovery to an amount below the jurisdictional threshold. The law is clear that any ambiguities are construed against removal because the removal statute should be strictly construed in favor or remand.

In this case, Evanston claims the actual amount in controversy is Phan’s estimate of $848,972.11 which Phan seeks to be determined by appraisal. Evanston says that Phan’s binding stipulation is misleading because Phan’s pleadings do not bar an appraisal award within the constraints of the stipulation. The Court points out that a statement in the that Phan and counsel will neither seek nor accept more than $75,000 in state court after remand establishes to a legal certainty that Phan will not be able to recover more than $75,000. In this case, Phan’s stipulation contains both such provisions. Thus, Phan’s binding stipulation contains both such provisions and the case was remanded.

Insurance Company Counter-Sues

October 23, 2019 | Mark S. Humphreys

Lawyers who handle lawsuits against insurance companies know that it is not uncommon for an insurance company to file a counter-suit for their court costs and attorney fees. So, the question is, if an loses his lawsuit against the insurance company, will the insurance company win in its counter-claim against its customer. This issue was addressed in a Northern District of Texas, Dallas Division, opinion in September, 2019. The opinion is styled, Arizpe v. Principal Life Insurance Company.

In this case, Arizpe had sued his insurance company for benefits. Principal filed a counter-claim for attorney fees. Principal filed a motion for summary judgment on Arizpe’s claims which the court granted in favor of Principal. The Court next addressed the issue of whether or not Principal was entitled to be awarded court costs and attorney fees on its counter-claim.

Principal argued that pursuant to Texas Insurance Code, Section 541.153, that they are entitled to recover its reasonable and necessary attorney’s fees and court costs since the claims of Arizpe were groundless and brought in bad faith or for the purpose of harassment. Also, Principal points out that Section 17.50(c) of the Texas Deceptive Trade Practices Act (DTPA) allows recovery of these expenses.

Proper Notice Letter Against Insurer Is Required

October 20, 2019 | Mark S. Humphreys

Sending a proper notice letter is the first step in a legal process against an insurance company when an insured believes the insurer has improperly handled a claim. This is even more relevant under the new section of the Insurance Code, Section 542A.003. This is also required in Section 541.154. This requirement was the subject of a recent Southern District of Texas, Corpus Christi opinion styled, Libardo Taboada, et al v. State Farm Lloyds, et al.

In this case, Taboada had five opportunities to comply with the substantive requirements of notice letters. First, he could have complied when he gave the original pre-suit notice on August 21, 2018.

Second, he could have complied after State Farm filed its verified plea in abatement as required by Section 542A.005(c). But, Taboada did nothing. His failure to file an affidavit in response made abatement pending the service of a new letter automatic under that Section.

Agent Sells The Wrong Policy Or Misrepresents The Policy

October 19, 2019 | Mark S. Humphreys

Insurance agents who do not sell the insurance policy that was requested by their customer can be held liable for selling the wrong policy or misrepresenting the policy. This is illustrated in the Northern District of Texas, Dallas Division, opinion styled, Steve and Ellen Malone v. Blue Cross and Blue Shield of Texas and Garrison & Associates.

Negligent procurement of an insurance policy is recognized as a legally cognizable claim against an insurance agent. The Texas Supreme Court held that an insurance agent “owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so.” In this case the Malones allege they informed the Agent of Steve Malone’s specific cancer diagnosis and his ongoing care and treatment. More explicitly, the Malones allege they made known to that their health insurance policy under Humana, which was being discontinued covered Steve Malone’s ongoing cancer treatments and they “specifically requested” the insurance Agent furnish them with a health insurance policy that would “provide the same or better coverage as Humana, especially as it relates to Steve Malone’s cancer treatments.” The insurance Agent allegedly agreed to procure the specific coverage requested and, thereafter, provided the Blue Cross Blue Shield (BCBS) Policy. The Agent allegedly told Malones the BCBS Policy would provide the requested insurance coverage, specifically including Steve Malone’s ongoing cancer treatments and the Rituxan therapy. The Agent also allegedly represented to Malones that “the BCBS Policy was as good as or better than the Humana plan, and would provide the same or better coverage.” The Malones then enrolled in the BCBS Policy. However, shortly thereafter, the Malones’ claim submitted for Steve Malone’s ongoing Rituxan therapy “was denied on the basis that the BCBS Policy does not provide coverage for the needed medical care.” The repeated denial of coverage for this cancer treatment claim spanned six months. The Malones allege they were irreparably harmed because Steve Malone was taken out of the Rituxan therapy during this time period and prevented from re-entering, and any benefits he had received from it were nullified.

The Court stated this pleading is consistent with causes of action related to the Texas Insurance Code, Section 541.051 and the Texas Deceptive Trade Practices Act.

Delay In Reporting A Claim

October 16, 2019 | Mark S. Humphreys

Insurance policies are of two types of it relates to the coverage of a claim. One is called an “occurrence” policy. An occurrence policy covers losses that occur during the policy period. The other type of coverage is a “claims made” policy. A claims made policy covers claims that are made only while the policy is effective irregardless of when the event/claim actually occurred.

This distinction was discussed in 2019, Amarillo Court of Appeals opinion styled, In Re Landmark American Insurance Company. This is a mandamus case.

Landmark, the insurer, petitioned the appeals courts seeking an Order for the Judge in the underlying case to vacate his Order allowing a deposition of a Landmark representative. This appeals courts conditionally granted the writ.

ERISA And The Claims File

October 13, 2019 | Mark S. Humphreys

In an ERISA case, the plan administrator, upon request, is required to give a copy of the claims file to the insured. The most common way this occurs is when a claim is denied, the plan administrator informs the insured of the denial in a written letter and in the letter the insured is informed of their right to an appeal and a copy of the claims file. The insured should then request a copy of that file.

In a recent case out of the Southern District of Texas, Houston Division, the insured claimed they did not timely receive a copy of the claims file and thus, argued that the statute of limitations on their claim was tolled until such time that she received the claims file. This case is styled, Cynthia Sternberg v. Metlife Insurance Company.

In this case, the insured has clearly let the statute of limitations pass for her appeal. These limitations were made clear in the policy. So, the insured made arguments regarding the tolling of the limitations period.

ERISA And Limitations

October 12, 2019 | Mark S. Humphreys

Statute of Limitations issues are not usually seen in ERISA cases, but here is one. This is a 2019, opinion from the Southern District of Texas, Houston Division. It is styled, Cynthia Sternberg v. Metlife Insurance Company.

This case is currently before the Court on a Rule 12(b)(6) Motion to Dismiss filed by Metlife. The Court granted the motion.

Sternberg filed for short term disability (STD) benefits from her employers claims administrator. The STD benefits were granted. Metlife is the claim administrator and it issued the group policy that funds the benefits under the Plan. Sternberg later, filed for long term disability (LTD) benefits. The claim for LTD was denied.