Insurance Payment Delays

If you have insurance in Grand Prairie, Arlington, Fort Worth, Mansfield, Dallas, Irving, Mesquite, Garland, or anywhere else in Texas, you would like to think that when you make a claim against your insurance company, that they are going to pay your claim and they are going to pay it promptly. The following is a case where they, first refused to pay then later decided to pay, but by that time it was a late payment.
This is a 1996, Texarkana Court of Appeals case styled, Southland Lloyd’s Insurance Co. and James D. Webb, III v. Charles W. Tomberlain, individually and d/b/a Charles Tomberlain Insurance Agency and Charles M. Tomberlain. The case is somewhat complicated and deals with other issues besides the prompt payment of the claim but the facts are kinda interesting to follow and the law regarding prompt payment is discussed enough to educate.
Southland and Webb were appealing a judgment entered in a lawsuit by Charles M. Tomberlain for delayed payment of an insurance claim. The court reversed the judgment and remanded for a new trial due to errors regarding the jury charge, exclusion of expert testimony, and the granting of a directed verdict.
Here is the background:
Charles W. Tomberlain was an independent insurance agent who owned Charles Tomberlain Insurance Agency. His son, Chuck, was an agent with the agency. Chuck also owned and managed numerous properties. In 1988, Chuck purchased a small house, on Myrle Street, in Longview, Texas, from the United States Department of Housing and Urban Development in a discount auction for $13,200. Chuck then spent about $500 – $1,000 improving the house. On september 9, 1988, Chuck executed a contract for sale of the house to Trennis Willis for $20,000, to be paid in monthly installments over ten years at twelve percent interest. Willis immediately occupied the house. Chuck, acting as agent for the agency, issued a policy on the house with Republic Insurance Company in August 1988. On August 15, 1991, the Republic insurance policy on the house expired. Chuck did not renew the policy at that time because his father’s agency had stopped writing policies with Republic.
On October 11, 1991, again acting as his own agent, Chuck completed, signed, and submitted an application for a $25,000 fire insurance policy on the house with Southland. Southland thereafter approved the policy, but reduced the coverage amount to $20,000. Sometime before October 16, Willis vacated the house without notifying Chuck. Chuck immediately began cleaning and repairing the house, and arranged for a new tenant to move in December 1.
In the early morning hours of November 20, 1991, a fire started and burned substantial portions of the house’s interior before being extinguished. Damage was estimated by the fire department at $20,000. A fire department investigation concluded that the fire was of suspicious origin and was started with the aid of accelerants.
Chuck telephoned Southland on November 20, the day of the fire, to notify them of the loss and on November 21, faxed them a completed claim form, along with a copy of the fire marshal’s report. Over the next two months, Chuck called Southland periodically to check on the status of the claim. He was told that an investigation was being conducted. The first written response that he received in regard to his claim was a letter from Webb dated January 24, 1992. The letter stated that Southland had determined that the fire was the result of arson and that the company had requested further investigation. Chuck’s attorney sent a demand letter to Southland on February 4, requesting that it pay in full.
Southland responded by way of two letters dated February 7, 1992. One letter, addressed to Charles W. Tomberlain, announced that Southland was immediately canceling its agency agreement with the Tomberlain Agency and notified the agency that Southland intended to seek damages against it for its misrepresentations on the Myrtle Street property application. The other letter was written to Chuck’s attorney. In the letter, Webb stated that Southland was investigating Chuck’s claim as a potential arson incident and that Southland felt it had been “duped” by misrepresentations on the insurance application. The letter demanded that Chuck produce all records and documents of any kind pertaining to the property and to his employment history with the Tomberlain Insurance Agency.
On February 7, 1992, the same date as the two letters, Chuck sued Southland and Webb. Southland ended up paying Chuck $20,900 to settle the claim, with the intention of pursuing its third-party action against the agency for indemnification. Chuck refused to drop his suit, opting instead to seek additional damages against Southland.
One cause of action that Chuck sued on was for breach of the duty of good faith and fair dealing based on Southland’s delay or denial of a claim payment. For an insured to prevail, or for Chuck to prevail, he must proved two independent facts: (1) that the insurer (Southland) had no reasonable basis for denying or delaying payment of the claim, and (2) that the insurer (Southland) knew, or should have known, that it had no such basis. The is the statutory law and the standard set out by the Texas Supreme Court in a case in 1994.
One thing interesting in this case is that Southland did pay the original claim for the $20,000, but instead of Chuck taking that money and going on, he continued his claim against Southland for bad faith and the additional damages available to him including court costs, attorney fees, and exemplary damages. Many times a person gets paid the amount they should have been paid in the beginning and make a choice to drop the rest of the matter. Chuck did not.