Insurance lawyers should understand the interaction between the Texas Insurance Code and the Texas Deceptive Trade Practices Act (DTPA).

Texas Insurance Code, Section 541.151(2) cross references and prohibits conduct defined in Section 17.46(b) of the DTPA.  The DTPA statute applies to all types of consumer transactions, not just insurance, so many of the provisions are not directly relevant.  The most relevant subsections prohibit:

DTPA, Section 17.46(b)(2) –  causing confusion or misunderstanding as to the source , sponsorship, approval, or certification of goods or services,

What are examples of misrepresentations made by insurance companies that they can be held liable for making?

Different types of misrepresentation are prohibited by the Texas Insurance Code.  Misrepresentations are also unlawful under the incorporated DTPA, Section 17.46(a).  These misrepresentations also include non-disclosure.

Section 541.051 broadly prohibits making any statement misrepresenting the terms of a policy, or the benefits, advantages, or dividends of a policy, making misrepresentations about the financial condition of an insurer, misrepresenting the true nature of any policy or class of policies, or making any misrepresentation to a policy holder for the purpose of inducing or intending to induce the policy holder to allow an existing policy holder to lapse, forfeit, or surrender his insurance.  This provision is sometimes referred to as the “anti-twisting” provision, because the latter portion is aimed at preventing one insurer stealing away the insureds of another insurer by making misrepresentations.

In an answer to the above question, one attorney said, “It’s hard to define but I know it when I see it.”  That response is fine but what a regular insured person thinks is clearly “bad faith,” the Courts look at differently.

The Texas Insurance Code, Section 541.060, sets forth specific acts that can be considered bad faith in context of settling a claim.  The statute prohibits engaging in any of the following unfair settlement practices with respect to a claim by an insured or beneficiary:

  1. misrepresenting to a claimant a material fact or policy provision relating to coverage at issue;

Let’s list some of the conduct that is actionable against an insurance company.

The Texas Insurance Code, Chapter 541, defines and prohibits unfair and deceptive insurance practices.  The Sections include Sections 541.001 to 541.061, 541.151 to 541.162, and 541.453.  Prior to April 1, 2005, the statute appeared as Article 21.21, so most authorities cite that version of the statute.

Section 541.151 allows a private cause of action by any person who has sustained actual damages caused by another’s engaging in any act or practice that is defined as an unfair method of compensation or unfair or deceptive practice in the business of insurance, or defined as an unlawful deceptive trade practice.  The definitions of unfair and deceptive practices are found in two places.  Those two places are the Texas Insurance Code, Sections 541.051 to 541.061 and the Texas Business & Commerce Code, Section 17.46(b).

Insurance lawyers will often get a call from a potential new client and this potential new client describes a pretty good case against the insurance company.  But as the discussion progresses the attorney learns the event the potential new client is describing or relating to the attorney happened many years ago.  The problem is that there are statutes of limitations that apply to almost every wrong a person or business commits.

According to the Texas Civil Practices & Remedies Code, Section 16.051, the statute of limitations in insurance breach of contract lawsuits is four years, the same as other breach of contract suits.  Even worse than that, insurance companies have begun to use endorsements intended to reduce the period in which an insured may bring suit against the insurance company.  Some companies for example, have begun using a “Suit Against Us Endorsement,” which provides that “an action against us must be made within two years and one day after the cause of action accrues.”  Sometimes the period is for three years.  Insureds should be aware of these contractual limitations periods.

The reason for the two years and one day is that the laws of Texas do not allow a breach of contract claim to be less than two years.  This law is found in the Texas Civil Practices & Remedies Code, Section 16.070.  It clearly says that regarding contractual limitations periods, any period of time shorter than two years is made void.  This includes stipulations, contracts, or agreements.  When the period is made shorter than the two years and thus void, the normal four year limitations period will apply instead.  This has been made clear in the 1984, 14th Court of Appeals opinion styled, Duster v. Aetna Insurance Company.

So, who has the burden of proof in an insurance case, the insurance company or the insured.  Like most issues in the law, it depends.

According to the 1994, San Antonio Court of Appeals opinion styled, Telepak v. United Service Automobile Association, the insured has the initial burden to prove damages are covered by the policy.  According to the 1943, Texas Supreme Court opinion styled, Trevino v. American National Insurance Company, the insured may make a prima facie case by showing that the policy was in force when the loss occurred.

On the flip side, a 2003, opinion by the Fort Worth Court of Appeals styled, Venture Encoding Service, Inc. v. Atlantic Mutual Insurance Company, the insurance company bears the burden of proving the applicability of an exclusion that permits it to deny coverage.

There is a part of the claims handling process that insureds need to be wary about.  That part is when an insurance company asks the person making a claim to submit to an Examination Under Oath (EUO).

If the insurance contract provides for it, the insurance company may require an EUO as a condition to a suit on the policy.  The purpose of such EUO clauses has been described this way:

The insured agrees agrees, at reasonable ties and places, as often as required , to submit to examination by an agent of the insurance company, and to submit all relevant books of account, invoices, vouchers, etc.  If is clear that the chief purpose of this privilege to the insurance company is the ascertainment and adjustment of the loss which has already occurred.  The insurance company, in its policy, evidences in many ways its desire to avoid the necessity of litigation in the settlement of its losses.  It reserves the right to have the benefit of the examination provided for before suit can be sustained.

Most life insurance policies have a section / rider that allows for an acceleration of the life insurance benefits.  It is also a source of litigation because the life insurance companies have a strong tendency to deny claims made for these benefits. published an article on this subject in September 2019.  The article is titled, Accelerated Benefit Riders: How Your Life Insurance Can Help You While You’re Still Alive.

The article tells us , as life expectancy creeps to 80 years old, more Americans are turning to life insurance to help them while they’re still alive.  One example is an accelerated benefits rider (ABR).

Most property insurance policies contain appraisal clauses.  These clauses define a process for appraising the value of the damaged property, if the parties cannot agree.  Common provisions call for each party to choose an appraiser.  Those appraisers then choose a neutral third appraiser, called the umpire.  If the parties or their appraisers cannot agree on an umpire, either party may petition a court to appoint one.  Once the appraisers and umpire are chosen, they value the loss.  If all do not agree on the value, the decision of any two will control.  A 1938, Waco Court of Appeals opinion describes the process saying the intent is to give the insurer and insured a simple, speedy, and fair means of deciding disputed value.  This opinion is styled, Fire Association of Philadelphia v. Ballard.

The San Antonio Court of Appeals in a 1994 opinion styled, Providence Lloyds Insurance Company v. Crystal City, says that when the two appraisers do not agree, the umpire does not simply choose between them.  It is the duty of the umpire to ascertain and determine, in the exercise of his own judgment and as the result of his own investigation, the values of the disputed items.

The 14th Court of Appeals tells us in a 1974 opinion styled, Standard Fire Insurance Co. v. Smith, that either party may seek specific enforcement of the appraisal clause, and the court will abate any pending lawsuit and compel the parties to submit to the appraisal process.  In 1979, the same court said in, Standard Fire Insurance Co. v. Fraiman, that in addition, an insured may recover consequential damages sustained as a result of the insurer’s failure to comply with the appraisal clause.

Here is another one of those cases where an insured sues the insurance company and the adjuster in State Court for various violations of the Texas Insurance Code.  The insurance company a adjuster then remove the case to Federal Court alleging that the adjuster has not been properly sued.

This case is from the Eastern District of Texas, Sherman Division, and is styled, Angelina’s Restaurant v. Allied Insurance Company Of America And Mary Keefer.

Angelina’s property sustained wind and hail damage.  Allied insured the property and Keefer was assigned to adjust the claim.  Angelina eventually sued Allied and Keefer for various violations of the Texas Insurance Code.  The case was filed in State Court and then removed to Federal Court by the Defendants.  Angelina then filed a motion to remand, which is the subject of this opinion.

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