This may come as a surprise to many but here goes, — There is no such thing as “negligent claims handling” recognized by Texas courts.
This is re-stated by the U.S. District Court, Western District, Austin Division, in the case styled, Thomas G. Kezar and Sylvia Kezar v. State Farm Lloyds.
The Kezars home was damaged in a fire and they made a claim with their insurer, State Farm. A lawsuit was eventually filed as a result of the claim.
The 5th Circuit Court of Appeals issued an opinion regarding commercial policies that would be of interest to some businesses. The case is styled, Sierra Equipment, Incorporated v. Lexington Insurance Company.
Lexington insured LWL Management for construction equipment leased from Sierra. Sierra argues that, even though it was not a party to the insurance policy, it has standing to sue Lexington for coverage pursuant to Texas’s equitable lien doctrine. Because the lease agreement between LWL and Sierra did not require LWL to obtain insurance with loss payable to Sierra, this Court determined that the equitable lien doctrine does not apply and thus, Sierra lacks standing to sue Lexington for coverage under Texas law.
The lease agreement between Sierra and LWL required LWL to insure the leased equipment, deliver a copy of the insurance policy to Sierra , and obtain a policy in form, in terms, in amount, and with insurance carriers reasonably believe satisfactory to Sierra. The agreement did not require that the policy list Sierra as an additional insured or contain a loss payable clause listing Sierra.
Insurance cases involving umpire’s are a little different. The Amarillo Court of Appeals issued an opinion on May 14, 2018, styled, Mahmoud Abdalla v. Farmers Insurance Exchange. The case deals with, among other issues, when an umpire’s appraisal award can be challenged.
This case is an appeal by Abdalla from a summary judgment in favor of Farmers. Abdalla sued Farmers over an insurance dispute resulting from water damage. The extent of the damage and insurance proceeds payable was ultimately submitted to appraisers in accordance with policy terms. An umpire appointed by the trial court eventually (1) found the appraisal developed by Farmer’s appraiser (Albright) to be the “more sound and well supported appraisal” ad (2) designated the actual cash value of the loss at $345,664.21. Farmer’s timely paid the umpire’s decision.
Abdalla filed motions to set aside the decision based on the umpire’s decision being a mistake and to appoint a new umpire.
Here are a few articles for insurance lawyers handling commercial policy cases.
Commercial auto policies often contain business use exclusions that exclude coverage when a scheduled auto is used “in the business” of a lessee. A policy containing such a provision is effectively know as a “bobtail” or “non-trucking use” policy. The business use exclusion is often contained within an endorsement and is intended to exclude coverage from the auto owner’s commercial auto policy when a party with whom the truck owner has entered into an exclusive lease hauling agreement has agreed to provide coverage for that auto. Consequently, when the auto is being operated on behalf of the lessee, the lessee’s liability insurance should be on the risk. Inclusion of the business use exclusion results in the owner’s insurer owing no duties if an accident occurs while the auto is being operated in furtherance of the lessee’s business.
Under the business use analysis, the driver is almost always an independent contractor and the relevant determination usually is whether he or she is “in the business” of the lessee while “bobtailing” or “deadheading.” “Bobtailing” means without trailer, while “deadheading” means operation of the vehicle with an empty trailer. Though similar, a course and scope of employment analysis is not used to determine whether the driver was an employee. Nonetheless, course and scope analyses such as the “coming and going” and “special mission” doctrines are sometimes used to inform a court’s decision. Analyzing coverage in almost any factual scenario pertaining to this exclusion is a sliding scale on which the balance can be tipped by a specific, minute fact.
Lawyers who handle Employee Retirement Income Security Act (ERISA) claims will tell that insurance claims made on an individual policy and claims made on an ERISA plan are remarkably different. ERISA requires that the insurer or third-party claims administrator engage in a dialogue with the claimant about the claim and the reasons for denial, allowing the claimant an opportunity to rebut the reasons for denial and compelling a fiduciary review of a denied claim. The downside of that review is that if the claimant asks for judicial review of a denied appeal, the federal court will probably have to defer to the claim fiduciary’s decision and the evidence will be limited to the contents of the claim file.
There is no monetary remedy within ERISA for a violation of claims procedures nor does ERISA allow for consequential damages. The remedies for claims violations are potentially (1) a remand to the claims fiduciary for another try, or (2) forfeiture of deference, i.e. a change in the standard of review from abuse of discretion to a preponderance of the evidence. The 5th Circuit had never awarded an ERISA claimant a change in the standard of review as a result of claims handling violations.
The collective policy of Texas and other states is that deference is harmful because it impairs the rights of insured. The 5th Circuit takes a different view, believing that ERISA deference provides a lubricant to a federal court system. According to the 5th Circuit and many other federal courts, any harm to individual claimants is outweighed by the harm requiring de novo review of each ERISA benefit claim would bring to the court system. The 5th Circuit is also at odds with the Department of Labor (DOL), as the DOL considers deference to be forfeited if the claims procedures are not followed.
Discretionary Clauses in Employee Retirement Income Security Act (ERISA) policies — In protecting deference in the face of substantial claims procedure violations, the United States 5th Circuit’s position not only conflict with other United States Circuits but with the Texas Department of Insurance and other state insurance commissioners regarding what is fair to an insured. In the balance between an individual insured’s rights and the efficiency of the federal court system, the 5th Circuit has found the latter to be more important, perceiving de novo review to be a threat to the court’s efficiency. The Texas Department of Insurance and Texas legislators perceive deference to be a greater threat.
In 2010, the Texas Commissioner of Insurance wrote as follows regarding discretionary clauses in policies that are meant to bind a court to deferential standard of review:
The United States 5th Circuit Court of Appeals has never found sufficient claims procedure abuse to warrant a change in the standard of review from abuse of discretion to a preponderance of the evidence in an Employee Retirement Income Security Act (ERISA) case. In that regard, the court has noted that “this circuit has rejected arguments to alter the standard of review based upon procedural irregularities in ERISA benefit determinations, such as delays in making the determination …. Absent potential wholesale or fragrant violations that evidence an utter disregard of the underlying purpose of the plan, this court does not heighten the standard of review from abuse of discretion to de novo.
Oddly, the 5th Circuit has protected deference to the factual determinations of the claims fiduciary even when the claims fiduciary did not make any factual determinations. This resulted from the 5th Circuit’s overriding concern that allowing de novo review of ERISA benefit claims will clot the veins of the federal court system. Regarding this, this court has held as follows:
Lawyers handling Employee Retirement Income Act (ERISA) cases will tell you that the answer to the above question is … nothing happens.
Generally, the United States Supreme Court has not allowed any remedy that is not clearly expressed within ERISA’s provision 29 U.S.C. Section 1132. Section 1132 allows for injunctive relief and the monetary remedies limited to (1) up to $100 per day for a plan administrator’s failure to provide certain documents to a plan participant within 30 days of a proper written request, and (2) benefits that should have been paid under the plan pursuant to Section 1132(a)(1)(B).
A narrow opportunity for an additional monetary remedy is created by allowance of “other appropriate equitable relief” under Section 1132(a)(3). The Supreme Court’s decision in CIGNA Corp. v. Amana opened the door to a potential monetary remedy under paragraph (a)(3), reviving the term “surcharge” relief from decisions by the equity courts during the days of the divided bench. Surcharge relief is available for certain consequential damages that might result from violations of ERISA. In SIGNA, the claimants alleged violations of ERISA due to improper notice of modifications to the Cigna pension plan that resulted in financial harm to some pensioners. The court allowed that monetary relief might be available to some plan participants as a “surcharge” remedy.
The Employee Retirement Income Security Act (ERISA) is governed by federal statutes.
The claims procedures originate from 29 U.S.C., Section 1133 and 1135. Section 1133(1) requires that a carrier or claims administrator provide adequate notice of the reasons for denial that can be readily understood by the claimant. Section 1133(2) requires ERISA plans to afford claimants a full and fair review, usually called an appeal, of a denied claim by a claim fiduciary. The full and fair review is usually conducted by the same entity that issued the denial, typically an insurance carrier or third-party administrator, but must be conducted by someone other than the adjuster who denied the claim.
Section 1135 grants the power to the Secretary of the U.S. Department of Labor (DOL) to establish claims regulations that comply with ERISA.
Employee Retirement Income Security Act (ERISA) issues can be more onerous than most people can imagine.
Most people who get their insurance from work do not think about it except the the extent of how much it costs, the extent of coverage, and which providers are in the network. Rarely will anybody consider the differences in litigating a denied claim between one type of coverage and another type of coverage. When a plan is not an ERISA plan, the insured stills retains their rights under the Texas Insurance Code. And the insurer suffers penalties if a trier of fact determines the insurer took advantage of the insured or was slow about paying the insured’s claims.
The Texas Insurance Code levels the playing field between the insurer and the insured. As the Texas Supreme Court has stated:
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