Pre-Suit Demands In Insurance

Mineral Wells insurance lawyers know that when making a pre-suit demand on an insurance company that making an excessive demand can be more harm than good.  This is discussed in a Houston Court of Appeals [1st Dist.] opinion released in August 2016.  The case is styled, United Services Automobile Association v. Hayes.  The opinion is over 50 pages long and discusses various issues on appeal but one of those issues deals with excessive pre-suit demands.

Texas law holds that a creditor who make an excessive demand upon a debtor is not entitled to attorney’s fees for subsequent litigation required to recover the debt, even if it prevails in its suit.  A demand is not excessive simply because it is greater than the amount eventually awarded by the fact finder.  However, a claim for an amount greater than that which a jury later determines is actually due may indeed be some evidence of an excessive demand.  Nevertheless, it cannot be the only criterion for determination, especially where the amount due is un-liquidated.

The dispositive question in determining whether a demand is excessive is whether the claimant acted unreasonably or in bad faith.  Further, application of the excessive demand doctrine is limited to situations in which a creditor has refused a tender of the amount actually due or has clearly indicated to the debtor that such a tender would be refused.

Under Texas Insurance Code, Section 541.154, a person seeking damages in an action against another person must provide written notice to the other person not later than the 61st day before the date the action is filed.  The notice must advise the recipient of the specific complaint and the amount of actual damages and expenses, including attorney’s fees reasonably incurred in asserting the claim against the other person.  The purpose of the notice requirement is to discourage litigation and encourage settlements of consumer complaints.  Pre-suit notice provides the defendant insurance company an opportunity to make a settlement offer.  If a plaintiff fails to comply with the 60 day notice requirement prior to filing suit, abatement of the action for the statutory notice period is more consistent with the purpose of notice.

The important lesson here is that for a party to be able to recover attorney fees when an insurance company has wrongfully denied a claim (1) a pre-suit 60 day notice letter has to be sent, and (2) the demand within the notice letter must not be excessive.  If is found to be excessive, the attorney fees that are otherwise reasonable will not be awarded.