Can I Sue The Other Guys Insurance Company?

Anybody in Weatherford, Mineral Wells, Millsap, Aledo, Azle, Springtown, Peaster, Brock, Lipan, Hudson Oaks, Annetta, Poolville, Whitt, or other places in Texas would wonder if they can sue the insurance company. Especially when they feel as if though they are being jerked around and treated in a disrespectful or improper manner. Well the answer to the question is yes, you can sue them. The bigger question is, can you win. Here is a case to think about.
The Texas Supreme Court, in 1994, decided a case styled, Allstate Insurance Company v. Kathleen G. Watson. The issue in the case was whether the state legislature allowed a third party claimant to directly sue the other guy’s insurance company for violation of what is now Section 541.060 of the Texas Insurance Code. The holding by the court was no, it is not allowed in Texas.
Here are some facts in the case:
Watson was injured in a car accident. The driver of the other car was Townley, an insured under an automobile liability policy issued by Allstate Insurance Company. Watson filed suit against Townley alleging Townley was negligent and that his negligence was a proximate cause of the accident and her injuries. At the same time, Watson also sued Allstate under what is now the above statute. More specifically, Section 541.060(2)(A), which says, “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear…” She sued for other reasons also that are not relevant here.
In discussing this case the court said that to have a cause of action for alleged unfair claim settlement practices, such practices must be declared unfair or deceptive acts or practices in the business of insurance. This is per Section 541.003. Or the act must be defined as unlawful deceptive trade practices in Section 17.46, Texas Business & Commerce Code. This per Section 541.151, Texas Insurance Code.
Section 541.151 says:
A person who sustains actual damages may bring as action against another person for those damages caused by the other person engaging in an act or practice: (1) defined to be an … unfair or deceptive act or practice in the business of insurance; …
The Texas Department of Insurance has adopted rules similar to the rules in the Texas Insurance Code and the Texas Business & Commerce Code.
Through these rules and orders, Watson claimed she was entitled to sue Allstate for unfair claim settlement practices.
The court then discussed the legislative history of the laws and the purpose of the laws under which Watson was sueing Allstate. The court pointed out that these laws were for the purpose of persons being able to sue their own insurance company for their own insurance company’s misrepresentations and illegal treatment, not for third parties such as Watson. When a person makes a claim against their own insurance company, that is called a “first party claim.” Claims made against someone else’s insurance company are “third party claims.”
After discussing this the court said, “Watson, however, is not an insured. Rather, she asserts her claims against Allstate as a third party to the contract between Allstate and its insured. The obligations imposed by … of the Insurance Code … are engrafted onto the contract between the insurer and insured and are extra-contractual in nature. A third party claimant has no contract with the insurer, and in short, has no basis upon which to expect or demand the benefit of the extra-contractual obligations imposed on insurers under (the insurance code) with regard to their insureds.”
The court went on to say that extending to third party claimants the same duties duties insurers owe to their insureds, insurers would be faced with owing coextensive and conflicting duties. These duties would be adverse to the insured, necessarily compromising the duties the insurer owes to its insured. In fact, the logical result of permitting a separate and direct cause of action in favor of third party claimants allows third parties to sue for unfair claim settlement practices even though the insured has no claim for an unfair claim settlement practice. As troublesome, it is conceivable that in attempting to settle claims pursuant to the demands of a third party claimant, insurers may be liable to the insured for settling to quickly.
The reading of this case may sound more confusing than it actually is. Bottom line is that, with a few exceptions, a third party may not sue an insurance company that treats them improperly. But, as a first party the person can sue the insurance company. A second bottom line would be, talk to an experienced Insurance Law Attorney to make sure your rights are not being violated.