Bad Faith – Texas Insurance Code

Bad Faith or Texas Insurance Code violations are alleged is the vast majority of situations where an insurance company denies a claim.  So, how do the courts look at these case.  Here is a 2023 case from the Southern District of Texas, Brownsville Division.  It is styled, Maria Alcala v. Allstate Vehicle and Property Insurance Company.
Plaintiff Maria Alcala filed this action in Texas state court against Defendant Allstate Vehicle and Property Insurance, alleging violations of the Texas Insurance Code and the state’s Deceptive Trade Practices Act.  Alcala also alleged that Allstate breached their contract and breached the common law duty of good faith and fair dealing.  Allstate removed the case to federal court, and Alcala initially filed an Amended Complaint and later a Second Amended Complaint.
Allstate filed a Rule 12(b)(6) motion to dismiss.  The Court granted part of the motion and denied part of the motion.
First, Allstate requests dismissal of Alcala’s claim under the Texas Insurance Code for “failure to promptly provide . . . a reasonable explanation . . . for the insurer’s denial of a claim”.  Allstate argues that the Court should dismiss this cause of action because Alcala did not allege reliance or how any allegedly unreasonable explanation contributed to her damages.  As to the initial point, neither Section 541.060(a)(3) nor the caselaw on which Allstate relies indicates that a plaintiff must plead reliance as part of a Section 541.060(a)(3) claim.  Other authorities recognize that a Section 541.060(a)(3) claim “does not involve reliance on material misrepresentations”.  As to damages, Alcala alleges that “because Allstate’s adjuster failed to properly inspect and account for the covered losses, Defendant issued no payment to Plaintiff for the extensive damage to her property.”  These allegations suffice to support the cause of action at this stage of the proceedings.  As a result, the Court finds both of Allstate’s arguments to dismiss this claim unavailing.
Second, Allstate argues for dismissal of Alcala’s claim under Section 541.060(a)(1) of the Texas Insurance Code, which prohibits insurance companies from “misrepresenting to a claimant a material fact or policy provision relating to coverage at issue”.   Allstate contends that Alcala “does not allege a misstatement about a term or policy provision”, and fails to allege sufficient facts to demonstrate that she relied on any misrepresentation.  As to the initial argument, courts appear to diverge regarding whether Section 541.060(a)(1) encompasses misrepresentations unrelated to “the details of the policy”, with some authority permitting claims for misrepresentation of “a material fact to a claimant, such as representing that certain damage was not covered by the policy when it was in fact caused by a covered peril.”  The Court need not reach this argument, however, as Allstate correctly notes that Alcala fails to allege facts that could support the reliance element for her Section 541.060(a)(1) claim.  As Texas courts have recognized, a “misrepresentation claim under the Texas Insurance Code requires reliance on the misrepresentation to the plaintiff’s detriment.”  Reading the allegations in the light most favorable to Alcala, she appears to allege that Allstate made certain misrepresentations by attributing some of the property damage to excluded losses under the policy.  But even if true, Alcala includes no allegations regarding what the alleged misrepresentations led her do to, or to not do, to her detriment.  She alleges that Allstate denied coverage because of the alleged misrepresentations, but such an allegation does not demonstrate reliance on the part of Alcala.  As a result, Alcala does not allege a viable claim under Section 541.060(a)(1).
The Court Ordered that Plaintiff Maria Alcala’s claims against Defendant Allstate Vehicle and Property Insurance under Sections 541.061, 541.061(a)(1), and 541.152(b) of the Texas Insurance Code and under Sections 17.50(a)(3) and 17.50(b)(1) of the Texas Business and Commerce Code are Dismissed With Prejudice.
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