A DEFENDANT'S PERSPECTIVE ON BAD FAITH IN INSURANCE CASES IN THE STATE OF TEXAS

Transcription

1 A DEFENDANT'S PERSPECTIVE ON BAD FAITH IN INSURANCE CASES IN THE STATE OF TEXAS TODD A. HUNTER HUNTER & HANDEL, P.C. 555 NORTH CARANCAHUA TOWER 11, SUITE 1600 CORPUS CHRISTI, TEXAS TELEPHONE: 361/ F ACSIMILE: toddhhunterhande1.eom State Bar of Texas TRYING A CONSTRUCTION DEFECT AND WATER DAMAGE CASE IN TEXAS August 22, 2006 Via Webcast

2 I. INTRODUCTION There has been a rise of conshuction defect lawsuits in Texas, specifically in South Texas. Sometimes the Plaintiffs' claims are against third parties such as contractors or subcontractors and sometimes the claims are direct actions against the insurer. Plaintiffs have alleged bad faith violations, extra contractual violations and violations of the Texas Deceptive Trade Practices Act and violations of the Texas Insurance Code pursuant to Articles and 21.21'. The following is a legal analysis that a Defendant may use in rebutting the legal consequences of said claims and allegations raised in these type of matters. 11. THE REMEDIES A. "21.55" Article establishes certain procedural benchmarks as to the handling of an insurance claim. To prevail under Article 21.55, the insured must establish i) a claim was made under an insurance policy; ii) the insurer is liable to make a payment for the claim; and iii) the insurer has not complied with one or more applicable sections of Article with respect to the claim. Article (a)(3) refers to the insurer making requests for information. Article (a)(3) does require that requests for information have to be in writing. Article (a) refers to an insurer notifying a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the "insurer receives all items, statements, and forms required by the insurer in order to secure a proof of loss." The "all items" element of Article (a) is based on the information the insurer requires in a particular claim situation, not on what the insured asserts is sufficient. Former Article is now codified in Subchapter B, Chapter 542 of the Texas Insurance Code, et seq Former Anicle is now codified in Chapter 541 of the Texas insurance Code, er seq. The DTP.4 found is at TEX. BUS. & COI\~M. CODE et req. 2

3 Article tj l(4) has a detailed definition of "insurer." An independent adjuster does not fall within the Article l(4) definition of "insurer." For purposes of measuring when an insurer receives "all items" under Article tj 3(a), the measurement is based on when the insurer, not an independent adjuster, receives "all items" of information. When the insurer "accepts or rejects" the claim after receiving "all items" of information, the insurer must state the reasons for the acceptance or rejection in writing. Article (a). Article (f) provides that if the insurer delays payment of a claim for more than 60 days after receipt of "all items" of information, the insurer shall pay damages as provided in Article 21.55s 6. If the insurer has no liability to make a payment to the insured under the insurance contract, the insured cannot obtain a recovery under Article It is the insured's burden to establish each element needed to obtain an Article remedy against an insurer. Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423 (Tex. 2004). If an applicable Article provision has not been complied with by the insurer, an insured may recover 18 % interest and reasonable attorney fees. Article Assuming arguendo that a violation of Article has occurred, the measure of the Article remedy is a fact question. If delay in the claims process was caused by the actions of the insured, those periods may be disregarded in calculating the Article remedy. Allison %I. Fire Ins. Exc., 98 S.W.3d 227 (Tex. App.-Austin 2002, no writ). B. "21.21" Article is the Texas Unfair Competition and Unfair Practices Act. Article 21.21s 4 lists a wide variety of unfair methods of competition and unfair practices. There is a listing of

4 "Unfair Settlement Practices" relating to insurance at Article (10). Article (a) provides that any person who has sustained actual damages caused by another's engaging in af~ act or practice declared to be unfair in Article may maintain a private cause of action. The touchstone of Article is reasonableness. An insurance company's obligation to investigate is not unlimited. The scope of an appropriate investigation will vary with a1 insurance claim's nature and the value and the complexity of the factual issues involved. State Farm v. Simmons, 963 SW2d 42 (1998). In evaluating the insurance company's obligation to investigate a particular claim the Texas rule of concurrent causation should be considered: the insured has the burden of segregating damages among covered and non-covered causes. Wallis v. United States Auto Ass'n, 2 S.W.3d 300, (Tex. App.-San Antonio 1999) If an insured establishes that there has been a violation of Article , the insured may recover actual damages, plus court costs, and reasonable and necessary attorneys fees. Article (h)(l). If the trier of fact finds that the defendant "knowingly" violated Article , the trier of fact may award not more than three times the amount of actual damages. Article ijl6@)(l). Under the related DTPA statute "knowingly" means "actual awareness of the falsity, unfairness, or deception of the conduct in question." TEX. BUS. & COMM. CODE ij 17.45(9). The "Relief' provision of Article contains a cross reference to DTPA The "Relief' provision in iihcle states that for a person to mainrain an action (under Article 21.21) for a deceptive act or practice enumerated in DTPA 17.46jbj the person must show that the person has relied on the prohibited act or practice to the person's detriment.

5 C. Deceptive Trade Practices Act. The DTPA may apply to an insurance claim. DTPA (b) lists numerous deceptive practices. The "Relief for Consumers" provision of the DTPA incorporates the use or employment of an act or practice that violates Insurance Code Chapter 541. DTPA (ai(4) A Plaintiff bears the burden to prove all elements of a DTPA claim. The elements of a DTPA claim are: (I) the plaintiff is a consumer (a person who seeks or acquires goods or services by purchase or lease; (2) the defendant engaged in a false, misleading, or deceptive act. Amstadt v. U. S. Brass Corp., 919 S.W.2d 644,649 (Tex. 1996). A policyholder cannot maintain a DTPA claim based on the failure to pay an insurance claim or the policyholder's misunderstanding as to the coverage. Southstar Corp. v. St. Paul Surplus Lines Ins. Co., 42 S.W.3d 187 (Tex. App.---Corpus Christi 2001, no pet.). An insured who proves a DTPA violation may obtain economic damages and court costs and reasonable and necessary attorney fees. DTPA (b)(l) and DTPA (d). If the defendant committed the DTPA violation knowingly, the consumer may recovery damages for mental anguish and not more than three times the amount of economic damages. DTPA 5 D. Common Law Bad Faith To establish a claim for common law bad faith in Texas, an insured must prove that the insurer denied or delayed payment when the insurer knew that liability for the claim mas "reasonably clear." Uiziverse Lije Itzs. Co. 11. Giles, 950 S.W.2d 48,55 (Tex. 1997).

6 Under Texas law, punitive damages can be awarded for breach of the common law duty of good faith and fair dealing only when: 1. accompanied by malicious, intentional, or grossly negligent conduct; and 2. the insured must prove the insurer was actually aware that its actions involved extreme risk - that is, a high probability of serious harm, such as death, grievous physical injury or financial ruin. Unrverse Llfe Ins. Co. v. Gzles, 950 S.W.2d 48, 54 (Tex. 1997). Courts have held that if an insured's common law bad faith claim fails, statutory claims based on the wrongful denial of policy benefits automatically fail as well. See, Douglus v. State Farm Lloyds, 37 F. Supp. 2d 532 (S.D. Tex. 1999) (when insured joins Texas Insurance Code and DTPA claims with bad faith claim all asserting wrongful denial of policy benefits, if there is no merit to bad faith claim, no liability exists for either statutory claim) CONCLUSION When a Plaintiff brings an action against a Defendant insurer, insured for third party in Texas, many times the Plaintiffs allegations andlor claims include bad faith allegations, Texas Insurance Code violations as well as Texas Deceptive Trade Practices Act violations. This analysis has provided a proposed Defendant's response as well as perspective to rebut such allegations. TODD A. HUNTER HUNTER & HANDEL, P.C. 555 NORTH CARANCAHUA TO\%ER 11, SUITE 1600 CORPUS CHRISTI, TEXAS TELEPHONE: FACSIMILE: todd@hunterhandel.com