Prompt Payment Of Claims And Attorney Fees

Fort Worth insurance attorneys need to have an understanding of how the Texas Prompt Payment of Claims Act works. Here is a case that explains how it works in relation to attorney fees. It is a 2013, United States 5th Circuit Court of Appeals case styled, The City of College Station, Texas v. Star Insurance Company. Here is some of the relevant information.
Star Insurance Company (“SIC”) refused to defend or indemnify its insured, the City of College Station (“the City”), in a lawsuit brought by Weingarten Realty Investors (“WRI”), a real-estate investment trust not party to this appeal. The City settled the underlying litigation with WRI and sued SIC to recover defense costs, indemnification, and statutory penalty interest. Applying Texas law, the district court concluded that SIC had no duty to defend or indemnify the City in the litigation with WRI and, consequently, no penalty liability for late payment. This appeals court reversed the trial court and remanded for further proceedings consistent with their ruling.
The actual facts of the case are not important. What is important is that the court ruled in favor of the insurance company and that on appeal this appeals court ruled that not only should the insurance company paid for a defense in the case, but their failure to do so results in the insurance company having to pay for violations of the Prompt Payment of Claims Act on those attorney fees.
Here are the words used in the opinion:
The third issue on appeal is whether SIC’s failure to furnish the City with defense benefits or indemnity entitles the City to statutory penalty interest under § 542.058 of the Texas Insurance Code. Under § 542.058, otherwise known as the “prompt-payment rule,” an insurer who fails to pay defense costs or indemnity within the statutorily specified time-frame is liable not only for the costs or indemnification but also for an 18% per annum penalty interest rate. Here, the district court concluded that SIC could not be liable for the statutory penalty rate, as it had no duty to defend or indemnify. But SIC did have a duty to defend and may have a duty to indemnify, pulling the rug out from under the district court’s reasoning. On remand, the district court shall assess § 542.058 penalty interest in a manner consistent with our reasoning in this opinion.
Further, this court reasoned that attorneys fees should have been awarded for breach of contract. Here, are the words they used in this ruling:
The final question before us is whether SIC is liable for the City’s attorney’s fees in this litigation (not in the underlying litigation with WRI) under § 38.001 of the Texas Civil Practice and Remedies Code. Section 38.001 provides that “a person may recover reasonable attorney’s fees” in an action for breach of contract. The Texas Supreme Court has clarified that § 38.001 attorney’s fees are awarded on a claim-by-claim basis, and that a party must prevail on a claim in order to receive fees on that claim. Here, the district court concluded that SIC was not liable for any of the City’s attorney’s fees, as the City had not established breach of the insurance contract. Again, the district court’s reasoning is undermined by the fact that SIC did breach its duty to defend and may have also breached its duty to indemnify. However, as it is not yet clear whether the City will prevail on its indemnity claim, or how much of the City’s attorney’s fees are attributable to litigating the indemnity claim, we leave to the district court the determination of any § 38.001 fee award.