Who Can Properly Sue An Insurance Company For Bad Faith

Dallas and Fort Wort insurance lawyers will commonly get calls from people who want to sue an insurance company because the insurance company was not treating them right in the claims process.  Many times these people will be third party claimants.  Third party claimants cannot sue the other guys insurance.  First party claimants are those people who are dealing with their own insurance company.  An insurance company does not owe any duty of good faith or fair dealing when dealing with a third party.  This is illustrated in a 1994, Texas Supreme Court opinion styled, Allstate Insurance Company v. Watson.

Watson was injured in a car accident.  Watson brought suit against the insured under an automobile liability policy issued by Allstate and also brought suit against Allstate alleging unfair claim settlement practices under Section 541.060 of the Texas Insurance Code and for failing to attempt in good faith to effectuate a prompt settlement where liability had become reasonably clear.  Watson also brought suit under the Texas Deceptive Trade Practices Act, breach of contract, and the common law duty of good faith and fair dealing.  The trial court granted Allstate’s Motion for Summary Judgment against Watson.  The Court of Appeals reversed and remanded the trial court, holding that Watson, as a third-party beneficiary, could bring action under the Insurance Code without first proceeding directly against the named insured of the policy.

This Texas Supreme Court held that the Texas Insurance Code does not confer upon third-party claimants a direct cause of action against an insurer for unfair claim settlement practices.  This section is an exclusive list of statutory unfair and deceptive acts or practices.  However, the section does not define unfair claim settlement practices to be an unfair or deceptive act or practice.  Section 541.151 provides a private cause of action for any practice defined by Section 17.46 of the DTPA as an unlawful deceptive trade practice.  However, unfair claim settlement practices is not among the enumerated items defined by Section 17.46.

Finally, the duty of good faith and fair dealing is not expanded to third-party claimants.  This duty is premised upon the special relationship between the insured and the insurer (which does not exist with a third-party claimant).  More importantly, expanding the duty to third-party claimants would undermine the duties insurers owe to their insureds.  The insurer would be faced with co-extensive and conflicting duties.  This would necessarily compromise the duties which the insurer owes to its insured.

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