Sueing The Insurance Company

If someone in Grand Prairie, Arlington, Fort Worth, Dallas, Irving, Hurst, Euless, Bedford, Dalworthington Gardens, Crowley, or some where else in Texas gets mis-led by an insurance company, can they sue them? The answer is a definite yes if the company is that person’s insurance company but is probably a no if it is the other person’s insurance company.
The 1989 case, Hermann Hospital v. National Standard Insurance Company and American Fire & Casualty Company, decided by the Houston Court of Appeals, 1st District, is a good case for an example where you can sue the other person’s insurance for a misrepresentation.
On June 17, 1978, Jose Carreon was stabbed by a fellow worker while working for his employer. He was taken to, and treated at, Memorial Hospital. In September 1978, Memorial sought to transfer Carreon to Hermann for further care and treatment. The insurance company paid Memorial. Three months after Carreon was injured, on September 18 and 20, 1978, and prior to accepting the transfer of Carreon, Hermann verified coverge with the insurers for its care and treatment of Carreon. On September 20, 1978, after verifying coverage, Hermann accepted the transfer of Carreon. Coverge was again verified on October 16, 1978. Thereafter, later in October 1978, the insurers denied that there was insurance coverage for the injury sustained by Carreon and refused to pay Hermann for the expenses incurred. Hermann asserted in the lawsuit it filed that it relied on the representation of coverage in accepting the transfer of Carreon and that it incurred expenses of $217,444.90 in its care and treatment of Carreon.
The first issue the court had to decide in this case was whether or not Hermann had standing as a third party to sue the insurers for their misrepresentations. Hermann alleged these misrepresentations were in violation of what is now Texas Insurance Code, Section 541.060. The insurers claimed that Hermann did not have the right to sue under this Insurance Code law.
This court discussed where there is a long line of cases disallowing a third party to sue an insurance company directly for the misreresentations of that insurance company. As the court stated, this is not a normal case that is before them.
Here, Hermann is not sueing on an insurance policy or for the wrongful denial of payment under the policy at issue. It is sueing for the damages it suffered by relying on the representations of coverge allegedly made by the insurers. The Texas Supreme Court has held that misrepresentations as to coverage and benefits are precisely the sort of conduct that give rise to a cause of action under the Insurance Code.
This court then said, “We find that as a practical matter, the relationship between insurance companies and providers of health care is a direct one, with the health care provider acting in reliance on the representations of representations of coverage in making their decisions regarding admission of potential patients. If insurance coverage and benefits can be verified, the hospital will usually accept an assignment of benefits to insure it is paid for any services rendered. If insurance coverage and benefits cannot be verified, or if no coverage exists, the medical provider can then make alternative financial arrangements. To insulate the insurance carriers from liability leaves the medical care provider without recourse against the party causing its damage, if it acts in reliance on the representation of coverage. Had the insurance carrier not falsely or negligently provided information, Hermann could have sought alternative means to ensure that it received payment for services before rendering them.
This case serves as one of the few exceptions to the general rule that a third party cannot sue an insurer directly.