Dallas Fort Worth Insurance Lawyer Blog

Regular people in Weatherford, Aledo, Millsap, Willow Park, Hudson Oaks, Azle, Springtown, Mineral Wells, Brock, and other places in Parker County are going to have a hard time reading and understanding the wording in an insurance policy. It is also safe to say that experienced Insurance Law Attorneys will sometimes differ over the proper interpretation of the words in a policy.
The United States Fifth Circuit issued an opinion in a case in 1999, where the parties were arguing over the correct interpretation of a portion of an insurance policy. The style of the case is, Matador Petroleum Corp. v. St. Paul Surplus Lines Insurance Company. Here are some of the facts.
St. Paul provided Matador with insurance coverage pursuant to an oil and gas commercial general liability policy. The policy contained an absolute pollution exclusion clause. However, an endorsement provided a narrow exception stating that the pollution exclusion would not apply in the event of a "covered pollution incident." A covered incident was a discharge, release, etc., that begins and ends within 72 hours, does not result from a well out-of-control, is known to you (Matador) or your operating partner within 7 days of its beginning and is reported to the company within 30 days of its beginning. In March 1994, a drilling bit collapsed in a well owned in part by Matador. The collapse caused a discharge of pollutants that fed onto adjacent property and waterways. Matador reported the incident to St. Paul's agent 38 days after the incident occurred and requested coverage under the policy for damages claimed by landowners. After investigating the claim, St. Paul declined the request for coverage and informed Matador that St. Paul would not provide a defense or indemnity.
Matador filed suit in Texas state court for damages and expenses incurred in defending against the claims. St. Paul removed the case to federal district court based on diversity. St. Paul argued that it properly denied coverage because Matador failed to report the pollution incident within 30 days as required by the endorsement. The district court agreed and granted summary judgment. Matador appealed.
Here is what the court said;
Judgment in favor of carrier is affirmed. The provision requiring that the incident be reported within 30 days is not ambiguous. The phrase "the company" did not mean Matador, it meant the carrier. When interpreted with the other phrase, "is known to you or your operating partner within 7 days ...". is clear that notice had to be given to St. Paul within 30 days. Read as a whole, the policy unambiguously shows that Matador and St. Paul intended "the company" to mean the insurer and not the insured.
The requirement that notice be given within 30 days does not require a demonstration that St. Paul suffered a prejudice as a result of Matador's untimely notice. The Fifth Circuit analyzed the distinctions between "occurrence" and "claims made" policies and the notice requirements in each type of policy. In the case of an "occurrence" policy, any notice requirement is subsidiary to the event that triggers the coverage. In that case, the company may not deny coverage on the basis of untimely notice unless the company shows actual prejudice from the delay. In the case of a "claims made" policy, however, notice itself constitutes the event that triggers the coverage. Courts strictly interpret notice provisions in a "claims made" policy. Prejudice is not required. In this case, this policy has characteristics of both an "occurrence" and a "claims made" policy. However, the basic insurance policy between Matador and St. Paul did not include coverage for pollution. The Court noted that an extension of the notice period would expand the coverage and expose St. Paul to broader risks that originally envisioned. In addition, both St. Paul and Matador were sophisticated commercial parties with comparable bargaining power. Therefore, there is no reason to apply the prejudice requirement.
- The lesson taken from this case is noting the difference between "occurrence" policies and "claims made" policies.
Also, to be sure and get an experienced Insurance Law Attorney to look at the policy and be informed of the facts of the claim. Then a thoughtful opinion can be given as to the possible outcome of the case.

People living in Grand Prairie, Arlington, Mansfield, Fort Worth, Hurst, Euless, Bedford, and other places in Texas who are named beneficiaries under a life insurance policy might find this next case unusual. Here is some background.
This is a United States Northern District case decided in 1999. The style of the case is Benbow v. All American Life Insurance Company.
All American Life Insurance Company and General American Life Insurance Company each insured Daniel Benbow under whole life insurance policies that provided coverage of $100,000. Approximately seven months before Daniel's death, letters were sent to both carriers requesting cancellation of the policies and further requesting that the carriers remit any accumulated cash value of the policies. Both carriers honored the request and issued checks to Daniel for the current value of the policies. After Daniel's death, Diana Benbow contacted the carriers and notified them that Daniel suffered from a bipolar disorder, and she requested that the carriers deem the cancellation of the policies to be invalid. The carriers contended that the policies had been surrendered, and refused to pay the claim for benefits. Diana then sued both carriers in state court alleging breach of contract, violations of the Texas Insurance Code and violations of the Texas Deceptive Trade Practices Act (DTPA). The carriers removed the case to federal district court. Thereafter, the carriers moved for summary judgment on all causes of action.
In making a ruling the court stated that the motions for summary judgment are granted. With regard to the cause of action on the Texas Insurance Code, late payment of claims alleged violation, both insurance carriers established that they timely acknowledged the claim for benefits.
With regard to the breach of contract claim, the carriers had introduced an affidavit of Linda Collins, a document examiner, in support of their motions. Collins testifies in the affidavit that based on her examination of the cancellation request letters, it is her opinion that Diana was the author of Daniel's signature on the letters. Diana has not offered any competent controverting evidence. Diana's testimony that she does not recall signing the letters does not create a fact issue. Since the evidence shows that Diana signed the letters requesting cancellation of the policies, she is now estopped from asserting that the surrenders should be voided. She has also waived any right to make any claim under the policies.
The cause of action for violations of the Insurance Code and the DTPA are based upon the carriers' failure to pay benefits under the terms of the policies. To the extent the extra-contractual claims are based upon the denial of the claim, the Court found that the carriers had a reasonable basis for rejecting the claim for the reasons stated herein. Therefore, those causes of action fail as a matter of law.
Diana also claims that the carriers made misrepresentations to her concerning the claim for benefits. However, since the alleged misrepresentations were made after Daniel had died, the misrepresentations could not, as a matter of law, be the cause of the damages now claimed by Diana.
This a strange case. It appears that Diana was trying to cash in on the money that was built up in the life insurance policies and then when Daniel died, she wished she hadn't done so and tried to get it reversed. It does not appear that Diana or her attorney were able to find a handwriting expert to say the signatures were not Diana's.
This case should not be read to show that had things occurred as Diana alleges that she would have been successful. But without knowing more facts, it would not be fair to say one way or the other.

People in Weatherford, Aledo, Brock, Millsap, Mineral Wells, Springtown, Willow Park, Hudson Oaks, and other places in Parker County need to understand that the ways they fill out an insurance application can be important.
Here is a case where the insurance company lost the argument that the information in the policy application was incorrect. The style of the case is Fredonia State Bank v. General Life Insurance Company. The opinion in the case was issued in 1994 by the Texas Supreme Court. Here are the facts of the case.
The insured person died as the result of a gunshot wound to the head. Prior to his death, he had purchased two life insurance policies, each in the amount of $250,000 issued by General American Life Insurance Company. General American denied the beneficiary's claims for benefits. Fredonia State Bank, an assignee of one of the two policies and executor of the insured's estate, sued to collect the proceeds of the policy.
General American asserted as defenses that the insured committed suicide and that the insured had made misrepresentations regarding his medical history, which were material to the risk assumed by General American.
The Bank argued that the insured's application did not contain misrepresentations and that even if it did, the misrepresentations would not constitute a defense since the application was not attached to the policies when they were issued.
The jury found that (1) the insured did not commit suicide, (2) the medical portion of his application was not attached to the insurance policies, and (3) the insured did not misrepresent his medical history in order to obtain insurance. The trial court granted summary judgment for the Bank. The Appellate Court reversed the trial court's judgment finding that the great weight and preponderance of the evidence was contrary to the jury's finding and that the insured had made misrepresentations in order to obtain insurance.
The Texas Supreme Court granted writ and ultimately reversed the appellate court's decision. According to the Court, the Insurance Code precludes an insurance carrier from relying on misrepresentations contained in an application as a basis for denying claims, unless the application is attached to the insurance policy.
This requirement is intended to enable the insured to have the material terms of the contract at hand, so that he may correct any misrepresentations which may have been the basis of the insurance coverage. In so holding, the Texas Supreme Court disapproved of the Fifth Circuit's holding in Wise v. Mutual Life Insurance Company of New York, which was decided in 1990, in which the Fifth Circuit concluded that the Insurance Code did not apply to life insurance policies prior to its amendment in 1989, when the work "life" was added to the statute. According to the Texas Supreme Court, even prior to the 1989 amendment, the Texas Insurance Code statute applied to life insurance policies and, therefore, representations in an application not attached to the policy could not be the basis of a misrepresentation defense against a policy.
The Insurance Code provisions discussed above are currently found at Section 1101.003 which reads, "A life insurance policy must provide that the policy or the policy and the application for the policy constitute the entire contract between the parties. And Section 1201.273 which reads, "An insured may not be bound by a statement made in an application for an individual accident and health insurance policy unless a copy of the application is attached to or endorsed on the policy as a part of the policy issued.
Any time a claim for benefits under a life insurance policy is denied by the insurance company, an experienced Insurance Law Attorney needs to be consulted.

Policy holders in Grand Prairie, Fort Worth, Benbrook, Hurst, Euless, Bedford, Saginaw, Newark, Roanoke, Keller, Grapevine, and other places in Texas might wonder about how premium payments affect coverage. Here are two cases dealing with premium payments and both might seem kind of strange but for these folks they were real and had to be dealt with.
The first case is a Dallas Court of Appeals case decided in 2004. The style of the case is Royal Maccabees Life Insurance Company v. James. Here are some of the facts.
Royal Maccabees Life Insurance Company was sued by the surviving spouse of a police officer seeking an additional $50,000 in life insurance proceeds after the insurer paid the basic $50,000 upon the officer's death. It was undisputed that the insured applied for the additional $50,000 in coverage. It was also undisputed, however, that the insurer never sent a letter to the insured approving the disputed benefits as required by the insurance policy. The insurer denied the additional $50,000 in coverage and refunded the premiums paid for this coverage. The trial court entered judgment on the jury finding that the insurer breached the contract, committed fraud, and violated the Deceptive Trade Practices Act, the Texas Insurance Code and the duty of good faith and fair dealing. The judgment included mental anguish damages, punitive damages, attorney's fees and pre-judgment interest. An appeal was filed.
The Dallas Court of Appeals reversed and rendered judgment in favor of the insurer on the breach of contract, bad faith and Insurance Code claims and remanded for a new trial. The appellate court concluded that an insurer's acceptance of premiums for additional life insurance coverage for more than four years prior to the insured's death did not waive a policy provision that written approval from the insurer was required before the employee would be entitled to additional life insurance benefits. The court began its analysis by reviewing the breach of contract claim and recognizing well established principles of Texas insurance law holding that waiver and estoppel cannot be used to create insurance coverage. The court reviewed policy language that the insured alleged was conflicting, ambiguous and supported a finding of coverage. Applying equally well settled principles of Texas insurance law holding that jurists should attempt to harmonize two allegedly conflicting provisions, the court found that one of the provisions applied to the first $50,000 of coverage which did not require the insurer's written approval, while the other provision required written approval for amounts above $50,000.
The second case is also a Dallas Court of Appeals case. It was decided in 1997 and is styled Philadelphia Life Insurance Company v. Means. Here some of the facts in this case.
The plaintiffs brought suit against Philadelphia Life for breach of contract and other theories. Plaintiffs asserted that Philadelphia Life breached the insurance contract by increasing the premiums. The insured stopped paying the premiums and the policy lapsed. The Court of Appeals found that the Philadelphia Life policy was unambiguous and that the policy stated that the policy's premiums were not fixed, but were flexible, several places in the policy. Therefore, Philadelphia Life did not breach its contract with the insured.
However, the insureds could assert a fraudulent inducement claim against the agent. To prove fraudulent inducement, the insureds had to show (1) a material misrepresentation, (2) the representation was false, (3) the agent knew the representation was false when he made it or he made it recklessly without any knowledge of the truth and as a positive assertion, (4) the agent made the representation intending that the insureds should act upon it, (5) the insured relied upon the misrepresentation, and (6) the insureds suffered injury due to their reliance.
The Court of Appeals indicated that the insureds had alleged that the agent told them that the policy was a fixed premium term life insurance policy and assured them that the premiums would not increase. Therefore, they could assert a claim for fraudulent inducement. The claims for fraudulent inducement were remanded to the trial court for proceedings.
Life insurance companies are going to look for every possible way to keep from paying policy benefits. When a life insurance claim is denied - it is very important that the person being denied benefits seek the advice of an experienced Insurance Law Attorney. Most of the reasons a life insurance company uses for denying a claim can be defeated.

Fort Worth residents and insureds in Grand Prairie, Weatherford, Arlington, Dallas, Saginaw, Grapevine, Aledo, and other places in Texas would want to have some knowledge about what constitutes a "lapse" in their life insurance policy. Here is a case that gives some insight.
This is a 2000, case decided by the San Antonio Court of Appeals. The style of the case is MacIntire v. Armed Forces Benefits Association. Here are some facts.
Linda and Scott MacIntire submitted a joint application for term life insurance to the Armed Forces Benefit Association (AFBA) in April 1996. The payments were to be made automatically via a computerized bank deposit scheme, but for unknown reasons, the payments were never made. The few payments that the MacIntires did make were not enough to keep the policy in force and it lapsed on March 31, 1998 according to AFBA. Scott MacIntire died from a terminal illness in August of 1998 and Linda inquired regarding the policy in September of that year. Upon discovery of the failed automatic deposit setup, Linda tried to pay delinquent payments directly to AFBA, but AFBA denied the payments and coverage, stating that Scott's policy had already been canceled. Linda sued AFBA, alleging violation of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices Act (DTPA), breach of contract, negligence, breach of duty of good faith and fair dealing, breach of implied warranty, and ambiguity of contract, seeking to recover the death benefits and additional damages. The trial court granted AFBA's motion for summary judgment on the basis that no genuine issue of material fact existed. Linda appealed, claiming that genuine issue of material fact existed in her claims for breach of contract, breach of implied warrant and ambiguity of contract, DTPA violations, Texas Insurance Code, Section 541.060, breach of duty of good faith and fair dealing, and negligence.
On appeal, the summary judgment in favor of AFBA was upheld. The appeals court held that AFBA had no duty to advise the MacIntires of a cancellation of policy due to nonpayment. The appeals court held that the insurance contract was not ambiguous and the breach could not occur since the contract was no longer in force. Regarding implied warranty, the Court held that "implied warranty for good workmanlike performance" was applicable to tangible goods and products, and no precedent existed for applying the doctrine to insurance companies. Regarding the issue of good faith and good dealing, the Court examined the two prong test used by the Texas Supreme Court: (1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim. The Court ruled that AFBA had a reasonable basis for denying the claim. MacIntire also asserted claims under the Deceptive Trade Practices Act and the Texas Insurance Code, to which the Court stated that, if an insurer had a reasonable basis for denial of a claim - however erroneous - that the insurer "enjoys immunity from statutory bad faith under the Texas Insurance Code and the Texas Deceptive Trade Practices Act.
There are many reasons a life insurance company uses for denying life insurance claims. There are also many ways of defeating these excuses. An experienced Insurance Law Attorney needs to be consulted on any and all life insurance claim denials.

Insured people in Weatherford, Fort Worth, Grand Prairie, Mineral Wells, Springtown, Azle, Aledo, and other places in Tarrant and Parker Counties might understand a little more about misrepresentation after reading about the case here.
The case is styled, Tellez v. Encompass Insurance Company of America.
This opinion was issued by the United States Federal District Court, Eastern District, in 2004. Here are some of the facts.
On December 25, 2000, an ice storm damaged Scott and Johnece Tellezs' home. On December 28, 2000, they filed a claim for damage to a chain link fence, boat, and vehicle due to damage from fallen trees. Additionally, the Tellezs filed a claim for food spoilage and water damage due to leakage from a water pipe. At the time of the loss, the Tellezs' home was insured by Encompass under a policy period of July 16, 2000 to July 16, 2001. Encompass paid these initial claims.
On June 17, 2002, the Tellezs filed a new claim alleging that they had discovered mold damage to their home due to the December 2000 ice storm. Encompass initially denied the claim based on the Tellezs late notice and the mold and surface water exclusions in the policy. Encompass also disputed whether the mold was caused by the 2000 ice storm. Subsequent to Encompass' denial of the claim, the Tellezs brought suit alleging violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Act. In an amended complaint, the Tellezs alleged six other counts of violations under the Texas Insurance Code. Encompass filed a motion for summary judgment and the court granted the motion.
The court held that the Tellezs misrepresentation causes of action failed because they were unable to identify any action that would constitute misrepresentation. Their contention was that Encompass's misrepresentation was hiring a second expert after Encompass' first expert agreed with the Tellezs' that damming had caused the mold damage. Encompass pointed out that the Tellezs were unable to identify any misrepresentation and their only complaint was that the claim was not paid. The court granted summary judgment on the misrepresentation claims holding that mere nonperformance of a contract is not actionable under the Texas Deceptive Trade Practices Act. Further, misrepresentation of the terms of a contract itself does not create a claim under the DTPA. In order to have a claim under the DTPA, the misrepresentation must be material.
The court granted the remainder of Encompass' motion for summary judgment on the basis that the Tellezs did not make their claim for mold damage until more than a year and a half had elapsed since the storm. The policy issued by Encompass required prompt notice. Tellezs contended that the claim was prompt because the mold damage did not manifest until then and thus it would have been impossible to file a claim before this date. Encompass countered this argument by noting that even if this allegation were true, then the claim arose after the period of coverage had expired thus warranting summary judgment under either of the Tellezs theories.
The court held that the injury occurs at the time of manifestation. The court looked to the Fifth Circuit's opinion in American Home Assurance Company v. Unitramp Ltd., a 1998 case, in which the Fifth Circuit held that the time of occurrence is when the damage occurs, not when a wrongful act is committed. The court noted that while the Texas Supreme Court has never ruled on this issue there were two Texas Courts of Appeals cases holding the same as American Home and that the Fifth Circuit has specifically relied on one of those cases.
As a result of the holding that the injury occurs at the time of manifestation, the court held that the Tellezs injury manifested outside of the policy period and granted Encompass' motion for summary judgment. The court also held that the failure of the breach of contract claims necessitated the same ruling on the other extra-contractual claims brought by the Tellezs.

When someone in Grand Prairie, Weatherford, Fort Worth, or anywhere else in the north Texas area suffers an insured loss, how long do they have to report the claim to their insurance company? The answer is a lawyers answer: It Depends.
The Fifth Circuit Court of Appeals dealt with this issue in an opinion it issued in 2005. The style of the case is Ridglea Estate Condominium Association v. Lexington Insurance Company. Here are some of the facts.
In July 2001, after receiving notice from a roofing inspector that its building in Fort Worth, Texas has suffered hail damage, Ridglea filed an insurance claim with its carrier Chubb Custom Insurance. Upon its inspection, however, Chubb informed Ridglea that the damage was not caused by the more recent storm but rather by a storm that occurred on May 5, 1995. Ridglea did so and filed the claim with the 1995 carrier, Lexington Insurance Company. Lexington's inspection revealed that the damage did not exceed the deductible and that there was not sufficient evidence that the damage occurred in 1995 and denied the claim. After about a year's worth of negotiations involving Ridglea and all its insurers, Ridglea made a final demand. Lexington again denied the claim and brought a declaratory judgment action seeking a ruling that it was not liable for the damage. Both parties moved for summary judgment and the trial court granted summary judgment in favor of Lexington holding that Ridglea had failed to comply with the notice requirements contained in the policy. Ridglea appealed to the U.S. Court of Appeals for the Fifth Circuit.
The Fifth Circuit affirmed the trial court's finding that a delay of six years before filing a claim was unreasonable, but reversed and remanded the case for a determination of whether Lexington was prejudiced by Ridglea's delay. The Court noted that Ridglea's own expert testified that the damage caused by the 1995 hail storm was severe enough that it required replacing the roof and that the damage would have been evident then. Further, Ridglea's expert also testified that the 1995 storm broke windows, chipped shutters, and even damaged automobiles in the area of Ridglea's property. As a result, the Fifth Circuit held that the damage was sufficient evidence in May 1995 that Ridglea's delay in notifying its carrier was not reasonable.
The court rejected Ridglea's argument that the policy's notice requirements violated public policy. Ridglea attempted to argue that because of Section 16.071 of the Texas Civil Practice & Remedies Code that prohibits any contractual requirement requiring less than 90 days. The Court rejected this argument. The Court further distinguished between notice of a claim and notice of an occurrence that may or may not result in liability. The Court also rejected Ridglea's argument that the policy provision was ambiguous and should be construed against Lexington noting that Texas courts have always interpreted prompt notice within a reasonable period of time.
The Court did, however, accept Ridglea's argument that even if its notice was unreasonable, Texas law required Lexington to show prejudice in order to raise the notice defense. This is in accordance with a Texas Department of Insurance Order No. 23080 requiring an additional endorsement that states that the notice requirement will not bar coverage unless the insurer is prejudiced by the delay. Further, the Texas Supreme Court has held that an insured's violation of the settlement without notice provisions do not bar recovery unless the insurer can show prejudice. As a result, the court remanded the case to the trial court to determine whether Ridglea had raised issues of fact on whether Lexington was prejudiced so as to preclude the granting of a summary judgment motion.

Insured people in Grand Prairie, Fort Worth, Arlington, Dallas, and other places in the Dallas and Fort Worth metroplex would probably not understand how to hold an insurance company responsible for a knowing violation of the Texas Insurance Code. Here is a case where the lawyer had success in this area of the law.
The style of the case is, State Farm Lloyds v. Johns. The case was decided by the Dallas Court of Appeals in 1998. Here are the facts.
Ms. Johns' house was built in 1964. Johns moved in to her house in 1972. In the summer of 1990, Johns noticed evidence of extensive foundation problems including door mis-allignment, significant cracks in the interior walls and a slope to the floor. Repairmen later discovered two plumbing leaks under the house. Johns made a claim for foundation damage alleging that the plumbing leaks caused the soil underneath the house to expand resulting in an upheaval of the foundation, thereby damaging the structure. State Farm hired a foundation expert, Mr. Betting, who concluded that Johns' foundation problems were not caused by the plumbing leaks, but rather asserted that the damage occurred from natural soil movement common to north Texas. State Farm's homeowners policy excluded damage caused by ordinary settlement. Based on the exclusion State Farm denied the claim.
Johns filed suit against State Farm alleging wrongful denial of her claim and allegations that the conduct of State Farm was committed "knowingly" as that term is defined in the Texas Insurance Code.
In this courts ruling, the court said that the evidence was legally and factually sufficient to support a finding of a "knowing" violation. "Knowingly" means "actual awareness of the falsity, unfairness or deception of the act or practice made the basis of the claim for damages." In St. Paul Surplus Lines Insurance Company v. Dal-Worth Tank Co., the Texas Supreme Court stated that "actual awareness" does not mean merely that a person knows what his is doing; rather, it means that a person knows 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 am going to do it anyway." In this case, the adjuster testified that he knew that State Farm had no procedures for resolving disputes between experts, that he had no expertise to evaluate engineer reports, but yet he chose to believe Mr. Bitting's reports. In addition, the adjuster erroneously testified that the policy did not provide any coverage for foundation damage (despite claiming familiarity with the policy), that he knew that he did not investigate Mr. Bitting's qualifications, that he was also aware that Mr. Bitting usually concluded foundation damage occurred from settlement rather than from plumbing leaks, and that he was aware that Johns claimed to have discovered a second plumbing leak, did not request that Mr. Bitting or any other engineer re-inspect the house. The jury could have concluded that State Farm knew it had no reasonable basis for denying the claim and knowingly designed to "paper" the file to justify denying the claim.
Additionally, State Farms' conduct must be viewed from the information available to it at the time it denied the claim. Although State Farm retained a second expert for litigation, State Farm did not obtain his opinion before it denied the claim and it could not have relied on the second expert's opinion in denying the claim.
Even when it can be proved that an insurance company was wrong in it's denial of a claim, it is especially hard to prove a "knowing" violation. And of course, this is why an experienced Insurance Law Attorney should be consulted.

Someone in Weatherford, Fort Worth, Aledo, and other places in Tarrant and Parker County might have a hard time understanding what is "bad faith" in most insurance situations. Here is a case that gives some insight into how it works.
The case is State Farm Lloyd's v. Johns and was decided by the Dallas Court of Appeals in 1998. Here are some of the background facts.
Johns' house was built in 1964. Johns moved in to her house in 1972. In the summer of 1990, Johns noticed evidence of extensive foundation problems including door misalignment, significant cracks in the interior walls and a slope to the floor. Repairmen later discovered two plumbing leaks under the house. Johns made a claim for foundation damage alleging that the plumbing leaks caused the soil underneath the house to expand resulting in an upheaval of the foundation, thereby damaging the structure. State Farm concluded that Johns' foundation problems were not caused by the plumbing leaks, but rather asserted that the damage was caused by ordinary settlement. Based on the exclusion, State Farm denied the claim.
Johns filed suit against State Farm alleging wrongful denial of her claim and violations of the Texas Insurance Code among other violations. She won at trial and State Farm filed this appeal.
BAD FAITH
In Universal Life Ins. Co. v Giles, the Texas Supreme Court held that a bad faith claimant had the burden of proving that the insurer knew or should have known it was reasonably clear that the claim was covered.
State Farm attorneys argued that it had a reasonable basis for denying the claim based on a report prepared by a professional engineer, Mr. Bitting. Mr. Bitting concluded Johns' foundation problems were caused by ordinary, long term settlement rather than plumbing leaks. However, in State Farm Lloyds v. Nicolau, the Supreme Court held that the report in denying a claim does not automatically foreclose bad faith recovery as a matter of law, it there is evidence that the report was not objectively prepared or the insurer's reliance on the report was unreasonable. In this case, the following evidence was presented:
* Mr. Bitting believed that foundation problems rarely occurred because of plumbing leaks.
* Mr. Bitting's work came from State Farm and other insurance companies.
* Mr. Bitting's firm had received increasing amounts of business from State Farm over the previous years.
* Johns was present during Mr. Bitting's inspection and she felt that she was not getting a "fair shake" from State Farm.
* Johns had the plumbing system inspected again and a second leak was found.
* The location of the second leak was in the bath in the master bedroom where the most severe distress was found.
* Johns hired her own expert who concluded that the foundation stress was caused by plumbing leaks, swelling the soil under the slab foundation causing the foundation to "heave" upward creating a dome shape.
* Johns forwarded her expert's report to State Farm. Mr. Bitting's report doubted any leaks existed. Mr. Bitting did not attempt to confirm them in his inspection.
* State Farm's adjuster testified that State Farm had no procedure for resolving opposing or conflicting expert opinions on the cause of foundation damage.
Based on the evidence, this court concluded that State Farm's reliance on Mr. Bitting's report was unreasonable and State Farm denied the claim after it knew or should have known that it was reasonably clear that the claim was covered. The evidence showed that when confronted with the report from a geo-technical engineer contradicting Mr. Bitting's opinion, State Farm continued to insist that Mr. Bitting's opinion was correct, did not seek a third opinion, did not require Mr. Bitting to re-inspect the house, did not require soil testing, and did not interview the engineer which Johns had retained. Furthermore, State Farm assigned the claim to an adjuster who did not understand that the policy unambiguously covered foundation damage resulting from a plumbing leak and thought the claim should be denied.
This case is an example where a finding of "bad faith" was successful.

Someone in Grand Prairie, Arlington, Fort Worth, Dallas, or anywhere else in Texas may wonder how "mental anguish" works as a claim. Here is some insight into that how it works in Texas.
The Texas Supreme Court issued an opinion in 1997, in the case styled "The City of Tyler v. Adeline Likes." Attorneys for the City of Tyler and attorneys for Likes made arguments for their respective clients. Here is some background.
The primary issue was whether Likes could recover for mental anguish resulting from a flood. There were other issues in the case that will not be addressed.
In April 1986, heavy rains flooded a watershed in Tyler. An open drainage channel ran across Like's property directed through two drainage culverts. Floodwaters overflowed the channel, sending a neighbor's landscape timber crashing through a window in Like's home. Three and a half feet of water and debris entered the house.
Likes discovered the flooding when she went downstairs in the morning to get the paper. There was considerable damage to property and personal items, including family photos and keepsakes.
Likes sued the City of Tyler for negligently constructing and maintaining the culverts. Her attorney later amended the lawsuit to include mental anguish damages.
The City attorneys moved for summary judgment on the basis that mental anguish is not a "personal injury" under the Tort Claims Act.
The City argued that "personal injury" is a term of art that cannot include mental anguish derived from property damage, unaccompanied by physical injury.
In discussing this case, the court said that although mental anguish is a real and serious harm, there are two principle reasons why courts are not willing to recognize it as a compensable element of damages in every case. First, it is difficult to predict. The invasion of the same legal right may lead to extreme anguish in one person while causing essentially no emotional damage to another. Because of this variability in human nature, it is difficult for the law to distinguish between those instances when mental anguish is reasonably foreseeable from particular conduct and those when it is so remote that the law should impose no duty to prevent it. For this reason, Texas courts at one time categorized mental anguish in most types of cases as too remote or speculative to be compensable as actual damages, holding the emotional consequences of the tort relevant only to exemplary damages.
Second, even in circumstances where mental anguish is a foreseeable result of wrongful conduct, its existence is inherently difficult to verify. For years the fear of false claims led courts to require objective bodily symptoms of anguish in most types of cases. The courts eliminated this "physical manifestation" requirement after concluding that physical symptoms are not an accurate indicator of genuine mental anguish. Yet even in those cases where a defendant has breached the type of duty for which mental anguish is recoverable, the courts frequently demand "direct evidence of the nature, duration, and severity of the mental anguish, establishing a substantial disruption in the plaintiffs' daily routine. The court said that while they recognized that such artificial evidentiary barriers may merely encourage exaggeration and penalize those who deal constructively with life's vicissitudes, they continue to insist on such safeguards because the law has not yet discovered a satisfactory empirical test for what is by definition a subjective injury.
Texas has authorized recovery of mental anguish damages in virtually all personal injury actions. Where serious bodily injury is inflicted, the courts know some degree of physical and mental suffering is the necessary result. Similarly, when the defendant's negligence causes a mental shock which produces a serious bodily injury, the defendant is liable for that injury provided it was foreseeable.
In this case, Likes had not claimed damages for bodily injury, however, and the minor symptoms she described, such as difficulty sleeping, are not serious bodily injuries that can form the basis for recovering mental anguish damages.
The court then said that "mental anguish based solely on negligent property damage is not compensable as a matter of law."
What is important to realize from this case, is that while the law says no mental anguish damages are recoverable based solely on negligent property damage is that there are other ways of recovering mental anguish damages. An experienced Insurance Law Attorney can discuss these other ways of recovering mental anguish damages and discuss whether or not the particular facts of your case allow such recovery.

Business owners in Weatherford, Mineral Wells, Aledo, Azle, Springtown, Millsap, Brock, Hudson Oaks, Willow Park, and other areas of Parker County need to have a good understanding of the coverage provided in their policies.
The United States District Court, Southern District, Houston Division, issued an opinion on December 20, 2011, that dealt with the interpretation of a commercial insurance policy. The style of the case is, H & H Hospitality LLC v. Discover Specialty Insurance Company. The attorney for the business owner had to argue with the attorney for the insurance company as to the correct interpretation of the policy language related to the "business cessation" clause in the policy.
Here is some background.
This was a Hurricane Ike insurance dispute. H & H was, at the time of Hurricane Ike struck Houston in September 2008, the named insured on a commercial insurance policy issued by Discover. H & H owns and operates a Super 8 Motel located in Spring, Texas. Strong winds from Hurricane Ike "caused damage to the Hotel, including the loss of part of the roof on one of the buildings to the Hotel. Approximately 40 hotel rooms were rendered un-rentable by the storm, mostly in Building 2 where part of the roof blew off, but some of the rooms in Building 1 were also damaged. In spite of the damages sustained, H & H had some undamaged, rentable rooms available in both buildings and kept the property open continuously after the storm. Among its other losses, H & H claimed business interruption losses of $293,191, of which Discover has paid only $51,971.02.
Discover moved for partial summary judgment on the business interruption claim, contending that it does not apply because H & H never closed the Property and therefore had no "necessary suspension of operations" to trigger coverage under the business interruption provision.
Under Texas law, insurance policies are subject to the same rules of construction as other contracts. When construing a policy, the Court's primary concern is to give effect to the written expression of the parties' intent. The policy must be considered as a whole, giving effect to each part, and the terms used in the policy must be given their ordinary and generally accepted meaning, unless the policy shows the words were meant in a technical or different sense.
The Policy provides:
BUILDING AND PERSONAL PROPERTY COVERAGE FORMS
A. COVERAGES
1. Property at Your Premises
a. We will pay for direct physical loss of or damage to Covered Property:
*3 (1) If caused by or resulting from any of the Covered Causes of Loss ....
J. DEFINITIONS
2. "Covered premises" means premises described in the Declarations or in a Schedule of Locations form attached to this Coverage Part.
...
8. "Operations" means:
a. Your business activities occurring at "covered premises"; and
b. The tenantability of the "insured locations."
...
BUSINESS INCOME COVERAGE FORM
BUSINESS INCOME
1. We will pay the actual loss of Business Income that you sustain during the "period of restoration" because of the necessary suspension of your "operations." The suspension must be caused by or result from direct physical loss of or damage to property at or within 1000 feet of "insured locations."
Discover attorneys contended that "necessary suspension of your 'operations'" means a complete cessation or stoppage of business activities at the covered premises. H & H attorneys countered that the Court should consider "the nature of the premises at issue" in determining what constitutes a "necessary suspension of operations." H & H argues that, as a hotel with rooms to rent, the business interruption provision should be construed to provide coverage because some of its rooms were damaged by the storm and as to those rooms, "their use as a revenue generating good was ... 'suspended' as a result of Hurricane Ike."
While the Policy does not define "necessary suspension of your operations," courts have interpreted language identical or similar to the clause in this policy to cover the risk of a complete cessation of business activities at the covered premises, which in this case are identified solely as a Super 8 Motel.
In contrast, courts have construed policy provisions that state "necessary or potential suspension" of business operations or "necessary interruption of business, whether total or partial" to allow coverage for a partial cessation of business without requiring a total business shut down.
Here, the Property sustained damage to a portion of its available rental units but remained open continuously; there was therefore no cessation of operations within the meaning of the Policy such as to trigger the business interruption clause.
Moreover, H & H did not present evidence to raise a fact issue that it was unable to meet customer demand for rooms. H & H did not claim, nor did it submit evidence to show, that it could not fulfill its customers' demand with the inventory of rooms for rent that it had available, or that it ever once had to turn customers away. H & H's "Listing of Occupancy Stats," which is uncontroverted, supported an inference that H & H did in fact have a supply of rooms sufficient to meet the demand; there was no month when H & H had an occupancy rate of over 80% for its available rooms, and during most months it hovered around 60%. Hence, although H & H may have sustained a business slowdown, the uncontroverted summary judgment evidence is that it did not suffer a "necessary suspension of operations" such as to trigger coverage under the business interruption clause of the Policy.

Someone in Weatherford, Mineral Wells, Aledo, Hudson Oaks, Springtown, Azle, Brock, Millsap, Cool, Willow Park, or anywhere else in Parker County would have a hard time understanding the coverages in their insurance policy. Most policies cover an insured when they are sued but that is not always the case.
The United States Court of Appeals for the 5th Circuit issued an opinion in a case in 1994, that says the insurance company did not have to defend a case where the insured was sued for "emotional distress." The style of the case is Travelers Indemnity Company v. Holloway. Here is some background and facts.
This was a declaratory judgment action wherein the insurance carrier, Travelers Indemnity Company of Rhode Island, contended that it had no duty to defend its insured, Wanda Holloway, against a lawsuit for intentional infliction of emotional distress, since this claim was not covered by the policy. Holloway, the mother of a junior high school student competing for a cheerleader position, allegedly plotted to kill Heath, the mother of one of her daughter's competitors. The mother of the competitor brought suit against Holloway alleging "outrageous conduct causing severe emotional distress" or "intentional infliction of emotional distress." Holloway sought a defense from Travelers. Travelers argued that Holloway was not entitled to a defense and that there was no coverage, since (1) the conduct did not constitute an "occurrence" under the policy, (2) the conduct was excluded from coverage as intentional conduct, and (3) the conduct was not alleged to have caused "bodily injury" as defined by the policy.
In its holding in this case, the Fifth Circuit affirmed the District Court's opinion that there was no duty to defend or coverage since there was no allegation or evidence of a bodily injury.
In so holding, the Fifth Circuit relied upon the following definition of bodily injury in the policy:
The term 'bodily injury' means bodily injury, sickness or disease, including death resulting therefrom, sustained by any person.
The Court acknowledged that in order to determine whether Travelers had a duty to defend, the facts alleged in the complaint must be examined to see whether they fall within the language of the policy. The Second Amended Complaint in the Heath suit contained only allegations of "extreme pain, suffering, emotional anguish, and emotional trauma" and allegations that Holloway "infringed" on the Heath's "rights" and they suffered "severe emotional distress."
Noting that Texas law had not yet decided the issue of whether "bodily injury" as defined by insurance policies refers to emotional injury in such situations, the Court held that the policy's definition of "bodily injury" unambiguously excluded the types of nonphysical injuries asserted by the Heaths. The Court then noted that this holding comports with the "overwhelming weight of authority from other states."
The relevance of this case is pointing out how Travelers was able to avoid, not only possibly paying on this claim, but also even having to defend the claim. This meant that (1) Holloway had to pay and defend the claim at her own expense and (2) that Holoway would be responsible for any judgment obtained by Heath.
There are a number of ways that an experienced Insurance Law Attorney could have been helpful in this case. Here is one of those ways that may have been helpful.
The Heath's primary concern would usually be to make a financial recovery in the case. In order to have success in making a financial recovery, one of the things the Heath attorneys would want to do is to get Holloway's insurance company involved in the claim. This would be done best by crafting the pleading in the lawsuit in such a way as to force Travelers to defend and possibly pay on the claim. The attorneys for Travelers would not have any incentive for doing this. A private attorney working on behalf of Holloway would make contact with the Heath attorneys and work with them to craft appropriate pleading to accomplish ends that would be beneficial to both of them.
The way to appropriately craft the pleading would have been to allege a "physical manifestation" of the emotional distress. Ways of doing this are many. One example is as simple as alleging that the emotional distress caused Heath to "throw up."

When someone in Grand Prairie, Arlington, Fort Worth, Saginaw, Roanoke, Keller, Rhome, Colleyville, and other places in Tarrant County and Texas purchase something on credit or take out a loan, they will often times have the option of purchasing some sort of credit life and disability insurance. Here is a case dealing with what happened in one situation where this was done.
The style of the case is Norman v. League City National Bank and Life of America Insurance Company. This is a 1998, Houston Court of Appeals (1st Dist) case. Here is some background.
Mr. Norman applied for and obtained two loans from the Bank. In connection with the loans, he applied for and obtained credit life insurance from Life of America Insurance Company. Mr. Norman died before making any payments on either loan. The Bank submitted a claim to Life of America, but the claim was denied. The Bank then filed suit against Life of America for payment under the insurance policies. The bank also filed suit in probate court against Mr. Norman's estate and Mrs. Norman for payment of the loans. Mrs. Norman then filed suit against the Bank and Life of America asserting claims under the Texas Insurance Code, the Texas, (DTPA) and for breach of warranty. All actions by all parties were consolidated in the probate court.
The Bank and Life of America eventually settled their claims without notifying or involving Mrs. Norman. As a result of the settlement, the Bank charged off the full balance of the two loans without receiving any payments from Mrs. Norman or the estate. The Bank and Life of America then non-suited each other, and each filed a motion for summary judgment against Mrs. Norman. The trial court granted the motions for summary judgment in part, holding that the claims asserted by Mrs. Norman were without merit as a matter of law, but the court also found Mrs. Norman was a "prevailing party" under the DTPA and was therefore entitled to recover reasonable attorney's fees. All parties involved in this case appealed.
This appeals court affirmed the trial court decision in part and reversed in part. The summary judgment in favor of the Bank and Life of America was proper because Mrs. Norman failed to present any evidence regarding damages that she suffered independent of having to pay the notes. She did not have to pay the notes because of the settlement between the Bank and Life of America. Mrs. Norman's argument that she is entitled to recover mental anguish damages associated with her DTPA claim had no merit because it was raised for the first time on appeal and because she presented no evidence and requested no finding of a culpable mental state as required by the DTPA for recovery of mental anguish damages.
The Texas Insurance Code and the Texas DTPA both, only allow a prevailing party to recover attorney's fees. Although Mrs. Norman prevailed on her defense of the Bank's suit, in the sense that the bank non-suited it's case against her, she did not prevail on the basis of any affirmative relief she sought. Therefore, she is not a prevailing party and is not entitled to recover attorney's fees.
There are not a lot of cases on credit life insurance claims. But the theories of law for filing such suits are under the Texas Insurance Code and the Texas Deceptive Trade Practices Act. It is usually a good idea to get an experienced Insurance Law Attorney involved in this type of case or any type of case involving insurance issues or where an insurance company is being sued or where the insurance company is suing one of its insureds.

If you are in Grand Prairie, Arlington, Fort Worth, Roanoke, Keller, Colleyville, Saginaw, or some other place in Tarrant County or Texas and find yourself in some financial trouble, it may be that you find yourself letting your homeowners insurance lapse. If that happens the mortgage lender on your home will buy what is called a force-placed insurance policy and charge you with the premium. There are a bunch of problems when this happens. Two of these problems are real important to you.
First, is that force-placed insurance is very expensive and you are responsible for paying it.
Second, is that a force-place policy covers the mortgage holder not you. In other words, none of your personal property or the contents of the house is covered in the event of a fire loss. Further, if you are sued by someone, the insurance does not cover you. If you get burglarized, you are not covered.
The New York Times published an article on January 21, 2011. The author is Gretchen Morgenson. The title of the article is "Hazard Insurance With Its Own Perils."
Here is some of what the article tell us.
One of the richest and most secretive sources of profit in the mortgage business is coming under scrutiny.
Investigators into this industry are looking into these force-placed insurance policies.
Benjamin Lawsky, the superintendent of the New York State Department of Financial Services, is investigating institutions that underwrite and sell force-placed insurance. Last fall, his office began sending subpoenas to insurance agents and brokers. Requests for information also went out to insurance companies that write such policies.
Recently, new subpoenas went out to loan servicers that imposed force-placed insurance on borrowers, as well as to insurers affiliated with those services.
Subpoena receivers included Morgan Stanley Mortgage Capital Holdings and CitiMortgage. Affiliates that received requests for information include BancOne Insurance and Alpine Indemnity.
Force-placed insurance appears to be the dirty little secret of the mortgage industry. It is a silent killer harming both consumers and investors while enriching the banks and their affiliates.
A spokesman for Citigroup said, "CitiMortgage does not sell homeowner's insurance to consumers. If a homeowner does not provide an insurance policy, CitiMortgage secures a policy to protect the interest of the investor. Whenever the homeowner submits proof they have obtained insurance on their own, the lender placed insurance is cancelled."
Force-placed insurance has exploded during the foreclosure crisis. Whereas it use to generate $1 billion a year, it is now a $6 billion a year business. Much of this growth is on the backs of homeowners.
When homeowners run into financial trouble, they often let their hazard insurance lapse. Because lenders require homeowners to be insured against damage or total loss policies are then forced on the borrowers and added to their monthly mortgage payments.
For those selling force-placed insurance, it is a great game. The policies typically cost at least three times as much as ordinary property insurance. Some borrowers have been charged as much as ten times the prevailing rate.
And as stated in the beginning, force-placed policies do not protect homeowners from loss. Only lenders are covered.
Some borrowers have complained of being forced to buy high-priced insurance even when it is unnecessary. Back in 2007, a borrower with a mortgage serviced by Countrywide Financial described how the lender automatically signed her up for flood insurance even though she had proved that such insurance was unnecessary. Not being able to meet the extra payments, she fell behind on her mortgage. Countrywide then began foreclosure proceedings.
All in all, force-placed insurance represents a major profit center for mortgage servicers and the companies that write the policies. In many cases the mortgage service company and the insurer are affiliated. This sets up the potential for conflicts of interest among mortgage service companies that are suppose to represent investors owning mortgage loans bundled into securities.
A more consumer friendly way to deal with insurance lapses would be for service companies to advance money to the borrower's existing carrier to keep the policy current. Then, the service company could bill the borrower for coverage.
There are other gimmicks and / or games that go on with these force-placed policies. The bottom line is - know that these are not worth while for the borrower.

No one in Grand Prairie, Weatherford, Fort Worth, Dallas, or anywhere else in the North Texas area would want to be in a situation where their spouse deliberately sets the house on fire. This is something that might happen in a divorce setting or maybe it is just the result of a really bad fight. So what happens as it relates to insurance?
A San Antonio Court of Appeals opinion issued in 1996, sheds some light on this question. Here is some background. The style of the case is Sanders v. Commonwealth Lloyd's Insurance Company.
Jan and Dan Saunders' house was completely burned down by a fire. The insurance company investigated the claim and concluded that Dan was responsible for setting the fire. Dan was convicted of a felony of conspiring to burn down the house which was later reversed and he was acquitted. In the meantime, the insurance company, Commonwealth Lloyd's, denied the claim.
The innocent spouse, Jan Sanders, filed suit for breach of contract and bad faith against Commonwealth. In the trial of a breach of contract claim brought by Jan, the jury found that Dan was responsible for the arson fire that destroyed the house. Although Commonwealth treated Jan as an innocent spouse, it refused to pay any part of the claim because the house was community property. At the time of the claim denial, current law supported Commonwealth's decision not to pay Jan any proceeds under the insurance policy. Later in 1993, when case law changed, Commonwealth agreed to pay Jan one-half of the available insurance proceeds, plus interest.
In the lawsuit where Jan sued for bad faith, Commonwealth filed a Motion for Summary Judgment which the trial court granted. Jan appealed.
In this case, this appeals court upheld the decision of the trial court rendering summary judgment for Commonwealth. In its holding, this court said that an insurance company that can prove that it possessed a reasonable basis for denying or delaying a claim for payment even if that basis is eventually determined to be erroneous enjoys immunity from statutory bad faith under the Texas Deceptive Trade Practices Act and under the Texas Insurance Code. In this case, Commonwealth had a reasonable basis to deny Jan's claim as a matter of law. At the time of the claim, there was a United States Fifth Circuit case applying Texas law directly on point specifically holding that an innocent spouse could not recover insurance proceeds for her interest in the community property of the house destroyed by a fire that was intentionally set by or at the direction of the culpable spouse. Therefore, the insurance company, Commonwealth, possessed a reasonable basis for denying payment.
There are a couple of things relevant about this case.
One, is that the law changed while this case was pending. The law had been that if the fire was intentionally set by one of the insureds, then neither could recover under the policy of insurance. That law changed. The change allowed an innocent spouse to recover her portion of the proceeds. An example of how this would work is like this; if the house and contents are owned fifty / fifty by the husband and wife, then the innocent spouse would be entitled to the proceeds covering half the property.
Second, is that when the insurance company has a reasonable basis for denying or delaying payment of a claim, then they cannot be successfully sued for acting in bad faith in violation of the DTPA or the Insurance Code.
Last, is that an experienced Insurance Law Attorney needs to be consulted in these matters.

Most people in Weatherford, Mineral Wells, Aledo, Azle, Willow Park, Hudson Oaks, and other places in Parker County would have a hard time understanding what constitutes "bad faith" in insurance. But most would believe that being late in paying a claim is bad faith. That does not appear to be the case.
The United States 5th Circuit made a ruling in a case in 1997, that addresses this issue. The style of the case is Higginbotham v. State Farm Mutual Automobile Insurance Company. Here are some of the background facts.
Higgnbotham's Porsche was stolen on June 8, 1993, from an unsecured parking lot next to his residence. The car was later recovered that day but it had been stripped of its top, seats, interior and exterior trim but was not damaged or destroyed with regard to mechanical connections, wiring harnesses or the engine. Higginbotham reported the theft to State Farm on June 9, 1993. State Farm denied his claim five months later on November 19, 1993.
Higginbotham sued for breach of contract, violations of the Texas DTPA, violations of the Texas Insurance Code, negligence, breach of duty of good faith and fair dealing, and violation of Section 542.051 of the Insurance Code which imposes an 18% penalty on the carrier under certain circumstances. At trial, the jury returned a verdict in favor of Higginbotham for $30,000, the amount of his coverage, but the Court directed a verdict in favor of State Farm on the bad faith and extra-contractual claims under the DTPA and Insurance Code. Higginbotham appealed.
This appeals court said the trial court's judgment in favor of State Farm on the bad faith, DTPA and Insurance Code violations are affirmed. But the trial court's judgment with regard to the Prompt Payment of Claims Act for penalty for delay in notification of denial was reversed.
In a bad faith claim, the insured must establish the absence of a reasonable basis for denying or delaying payment of the claim and that the insurer knew or should have known that there was no reasonable basis. A bona fide controversy is sufficient reason for failure of an insurer to make prompt payment of a loss claim. In this case, State Farm's investigation found a number of suspicious circumstances. Higginbotham was associated with Tommy Vander, the owner of Luxury Auto Unlimited. Vander had pled guilty in 1991 to felony theft of a stolen Porsche. Higginbotham began parking the Porsche in the unsecured parking lot two weeks before it was stolen. His girlfriend allegedly reported it stolen to the apartment complex four days before the alleged theft. Higginbotham's Porsche was recovered 25 miles from his residence but only 1.6 miles from Vander's shop. The car was stripped in a manner so as not to destroy mechanical connections, wiring harnesses or the engine. Based on these facts, State Farm had a reasonable basis to dispute the validity of the claim and, as a matter of law, State Farm did not act in bad faith.
Extra-contractual claims under the DTPA and the Insurance Code require the same predicate for recovery of bad faith causes of action. An insurer will not be faced with a tort suit for challenging a claim if there was any reasonable basis for denial of that coverage. The Prompt Payment of Claims Act provides that if an insurer delays payment of a claim for more than sixty days, the insurer shall pay, among other damages, 18% per annum as a penalty. In this case, State Farm delayed rejection of the claim for five months. An insurance company's good faith assertion of a defense does not relieve the insurer of liability for penalties for tardy payment as long as the insurer is finally judged liable. In this case, State Farm was judged liable on the coverage claim. State Farm did not notify Higginbotham of its rejection for five months. Therefore, it must pay the 18% penalty.
The Prompt Payment of Claims Act has to be read carefully to understand when it has been violated. The time period for acceptance or rejection of the claim varies depending on the type of insurance company involved in the claim and on the type of claim being asserted. An experienced Insurance Law Attorney can apply the particular facts of a case to the statute and advise accordingly.