Standing As It Relates To Intended Third Party Beneficiaries In Texas

How does someone living in Grand Prairie, Arlington, Fort Worth, Dallas, or Weatherford know whether or not they are entitled to benefits under an insurance policy? Let’s see if this helps.
In the case, Palma v. Verex Assurance, Inc., a 5th Federal Circuit case, the court stated that an intended third party beneficiary may sue under the Texas Insurance Code statutes. This Federal Court reviewed Texas cases and other Fifth Circuit cases and concluded that “if the Texas Supreme Court were presented with the question before us it would hold that standing under Article 21.21 (now Chapter 541.001) is satisfied by not only those who can establish privity of contract or reliance on a representation of the insurer, but also by those who can establish that they were an intended third party beneficiary of the insurance contract.” In this case the court set out the standards under Texas law for third-party beneficiary status:
1) the claimant was not privy to the written agreement between the insured and insurer;
2) the contract was made at least in part for the claimant’s benefit; and 3) the contracting parties intended for the claimant to benefit by the written agreement.
Using these standards, the Texas Appeals Court in San Antonio in the case, Benefit Trust Life Insurance Company v. Littles, stated in its 1994 decision, that a mortgagor-borrower was entitled to sue under the statute as a third party beneficiary of a private mortgage insurance contract.
The previous cite would be in contrast to the 1994, Texas Supreme Court decision in, Allstate Insurance Company v. Watson, where it was held that an injured driver was not an intended beneficiary of the other driver’s liability policy, even though liability insurance is statutorily required for the benefit of non-negligent, injured drivers.
In 2000, the Texas Supreme Court held that an insurance agent has standing to sue the insurance company it represents under the Texas Insurance Code when the insurance company conduct causes the agent damages. This case is, Crown Life Insurance Company v. Casteel.
A distinction needs to be drawn in the above, Allstate v. Watson case. The reasoning is based atleast in part on the court’s concern that creating a duty owed by the insurance company to the injured third party would conflict with the duties owed by the insurance company to their insured. As a result of the holding in the Watson case, the Texas Legislature changed the law in 1995. Texas Insurance Code, Section 541.060(b), now specifically states that it “does not provide a cause of action to a third party asserting one or more claims against an insured covered under a liability insurance policy.”
All of this can be confusing, even to an experienced Insurance Law Attorney. It also illustrates yet another example of why an attorney should be consulted when someone finds themelves in a position where there is a potential for claims to made against an insurance company for benefits under a policy of insurance.