Insurance lawyers need to be aware of the Prompt Payment of Claims Act

Insurance lawyers need to be aware of the Prompt Payment of Claims Act found in Texas Insurance Code, Section 542.051. When suing for violation of this Act, an attorney must know that at the same time, he must sue for breach of contract. This is illustrated in the 2005, Waco Court of Appeals opinion styled, United States Fire insurance Company v. Tammy Fugate.
Fugate and her family were injured in a motor vehicle collision with a vehicle operated by William Heintz. After filing suit against Heintz, Fugate settled with him for his remaining policy limits of $15,200.
Fugate had an automobile insurance policy with US Fire, and that policy provided underinsured and uninsured motorist (UIM) coverage for her.
Fugate filed suit (the First Suit) against US Fire for UIM benefits under her US Fire policy. Fugate did not assert an Prompt Payment claim against US Fire in the First Suit. After a jury trial, the trial court in the First Suit entered a judgment on March 22, 2002 in favor of Fugate on her claim for UIM benefits in the amount of $209,677.69 plus court costs of $1,021.50. US Fire paid this judgment.
Fugate sued US Fire a second time (the Second Suit) on January 21, 2003, asserting a claim under Prompt Pay and seeking its statutory penalty of 18% of the amount of her UIM claim and attorney’s fees. US Fire filed a motion for summary judgment, asserting that Fugate’s claim in the Second Suit for Prompt Pay damages was barred by res judicata because that claim could have been litigated in the First Suit. Fugate also moved for summary judgment in the Second Suit, asserting that, because US Fire did not timely acknowledge her UIM claim, she was entitled to damages under Prompt Pay.
The trial court granted Fugate’s motion for summary judgment and entered a judgment awarding her the statutory 18% per year penalty of $119,119.74 and attorney’s fees of $39,935.37.
The doctrine of res judicata precludes relitigation of claims that have been finally adjudicated or litigation of claims that arise out of the same subject matter and could have been litigated in a prior action. The policies behind the doctrine reflect the need to bring all litigation to an end, prevent vexatious litigation, maintain stability of court decisions, promote judicial economy, and prevent double recovery.
The successful application of res judicata requires proof that (1) a prior judgment on the merits was issued by a court of competent jurisdiction; (2) the parties in the first suit are the same as those in the second suit or are in privity with them; and (3) the second suit is based on the same claims as those that were raised or that could have been raised in the first suit. A subsequent suit will be barred if it arises out of the same subject matter of a previous suit and which through the exercise of diligence, could have been litigated in a prior suit.
The third element is the only element at issue here. In the First Suit, Fugate alleged only a claim for UIM benefits under her US Fire policy. Her UIM claim was a breach-of-contract claim.
Plainly, Fugate’s Prompt Pay claim for untimely acknowledgment of her UIM claim relates to the same subject matter as her breach-of-contract claim for UIM benefits, and similarly situated plaintiffs routinely assert both claims in the same suit. Additionally, a judicial determination of the amount of UIM damages is not a condition precedent to a UIM breach-of-contract claim, much less a Prompt Pay claim.
Because Fugate could have raised her Prompt Pay claim in the First Suit, res judicata bars her from asserting it in the Second Suit. The trial court erred in granting Fugate’s motion for summary judgment, and US Fire was entitled to summary judgment on its res judicata defense.