Insurance – Breach Of Contract – Other Recovery

Information for Palo Pinto County Insurance Lawyers –

The Texas Supreme Court, in 1996, issued an opinion in a case styled, Liberty National Fire Insurance Co. v. Akin, that said:  “Insurance coverage claims and bad faith claims are by their nature independent but, in most circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer breached the contract.”

In 1998, the same court, in an opinion styled, Vail v. Texas Farm Bureau Mutual Insurance Co. said that contractual liability is not essential to establish extra-contractual liability, but it helps.  The example in that case is an insurer that owed policy benefits under the contract may also be found to have acted unfairly in refusing to pay those benefits.

On the other hand, the absence of contractual liability may disprove liability under other theories.  For example, if the insurer successfully defends a contract claim by proving the insured committed arson, the insurer would not be liable for failing to act in good faith to settle, because the contract defense also gives the insurer a good faith basis for denying the claim.

Sometimes, the insurer is liable precisely because the insurance contract does not provide coverage.  For example, the insurer’s agent may have represented that the policy contains benefits that it does not have, as was seen in Royal Globe Insurance Co. v. Bar Consultants, Inc., a 1979, Texas Supreme Court opinion.

Contract defenses also may have no effect at all on the insurer’s liability.  For example, as was seen in Viles v. Security National Insurance Co., when an insurer had already denied the claim, the insured’s failure to file a proof of loss as required by the contract did not excuse the insurer from liability for breach of its duty of good faith and fair dealing.  Likewise, the 5th Circuit, in the 1992 opinion, First Texas Savings Association v. Reliance Insurance Co. said that an insurer may be liable for statutorily prohibited unfair insurance practices even in the absence of policy coverage.