Articles Posted in Bad Faith Insurance

One very important aspect of suing an insurance company for bad faith in their claims handling process is that first, with extremely rare exception, you have to prove a breach of the insurance contract.

Insurance policies are contracts, and as such are subject to rules applicable to contracts generally.

A plaintiff seeking to recover on an insurance contract must prove that the contract was in force at the time of the loss.  Also, a party who claims under a policy is required to produce the insurance contract upon which he sues or to prove its terms.  This was made clear in the 1975, Tyler Court of Appeals opinion, Hartford Acc. & Indem. Co. v. Spain.  And, as illustrated in the 1992, Dallas Court of Appeals opinion, St. Paul Ins. Co. v. Rakkar, to prove a breach of contract, the insured has to establish:

Here is something almost any insurance law attorney can tell you:

One of the most common bases for an insurance dispute is the complaint that someone misrepresented something.  After a claim arises, the insured may feel that the coverage accepted by the insurer is less than the coverage promised at the time of sale.  Depending on the facts of the case, a representation by the insurer or its agent may lead to liability for breach of contract, unfair insurance practices, deceptive trade practices, negligence, or fraud.

In the 2003, 14th Court of Appeals opinion, Vecellio Insurance Agency, Inc. v. Vanguard Underwriters Ins. Co., an insurer had an indemnity cause of action against one of its agents if the agent’s conduct resulted in vicarious liability for the insurer.  Further, in the 2002, 14th Court of Appeals opinion, Omni Metals, Inc. v. Poe & Brown of Texas, Inc., it was found by the court that an agent may be held liable for misrepresentation in the case of a bailee liability policy even where the insured failed to read the coverage, where the jury could find that the insurer and the agent misrepresented the extent of coverage under the policy.  The 2003, Austin Court of Appeals opinion, New York Life Ins. Co. v. Miller, sets out what constitutes negligent misrepresentation.

The general rule in first party insurance cases is that in order to recover for bad faith insurance causes of action and insured must first prove a breach of the insurance contract.  There is an exception to this rule.  The exception is discussed in this July, 2018, opinion from the United States 5th Circuit.  The opinion is styled, Glen Moore v. Allstate Texas Lloyd’s.

This case is an appeal from a summary judgment granted in favor of Allstate.  The case resulted from a lawsuit filed in State Court and the removed to Federal Court by Allstate.  This court sustained the ruling in favor of Allstate.

Moore alleged his property “suffered incredible damage due to storm related conditions.”  Moore alleged there were a “laundry list of perils, which Allstate would not cover under the claim.”

The United States District Court, Eastern District, Marshall Division, issued an opinion on June 27, 2018, that discusses the law regarding the above title.  The opinion is styled, Medallion Transport & Logistics, LLC v. AIG Claims, Inc., Granite State Insurance Co., and Jay Carman.

The facts of the case will not be discussed here but can be read in the opinion.  It deals with the refusal of an insurer to pay a Stowers demand.  The opinion is a good read for it’s discussion of Texas Insurance Code, Section 541.060(a).  The allegation was that the defendants in the case failed to effectuate a prompt, fair, and equitable settlement of a claim for which the insurer’s liability had become reasonably clear.  Also, part of the claim dealt with Texas Insurance Code, Section 541.060(a)(7) wherein the defendants were accused of refusing to pay a claim without conducting a reasonable investigation of the claim.

The Texas Supreme Court has held that liability under the language of Section 541.060(a)(2)(A) requires the insured the show “that (1) the policy covers the claim, (2) the insured’s liability is reasonably clear, (3) the claimant has made a proper settlement demand within policy limits, and (4) the demand’s terms are such that an ordinary prudent insurer would accept it.”  Unlike a Stowers claim, the statute requires a bad-faith component.  The statute defines the foregoing failure to act in good faith as an unfair or deceptive act.  That means in the context of resisting a “no evidence” motion for summary judgment, the plaintiff must show some evidence that the insurer had no reasonable basis for denying or delaying payment or settlement of a claim.

Bad faith is hard to prove in Texas.  The standards for getting a bad faith judgment are high standards.  But it can be done.  It just depends on the circumstances of the case.

The Telegraph, a Macon Georgia, newspaper published the results of a bad faith case involving Geico insurance.  The article is titled, Federal Jury Finds Geico Acted In Bad Faith, Awards Smiths Station Cyclist $2.763 Million.

Here is what the article tells us.

This may come as a surprise to many but here goes, — There is no such thing as “negligent claims handling” recognized by Texas courts.

This is re-stated by the U.S. District Court, Western District, Austin Division, in the case styled, Thomas G. Kezar and Sylvia Kezar v. State Farm Lloyds.

The Kezars home was damaged in a fire and they made a claim with their insurer, State Farm.  A lawsuit was eventually filed as a result of the claim.

Texas insurance lawyers are always asking the above question when someone comes to see them about an insurance company doing them wrong.

To start with, as the contracting party, the insurance company can be liable based on the contract that exists between them and their customer.

There are also several statues, under which, the insurance company can be held liable.  For example, under Texas Insurance Code, Section 541.151, the statute states “any person” engaged in the business of insurance may be liable for unfair insurance practices.  Reading further, the Texas Insurance Code, Section 541.002(2), defines the term “person” to include various insuring entities.

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.

Insurance lawyers need to know about this 2017 case from the Eastern District, Sherman Division.  It is styled, Hidden Cove Park and Marina et al v. Lexington Insurance Company, et al.  The case concerns the discovery of an insurance company’s loss reserves.

The Court held a telephonic conference regarding a discovery dispute a regarding redacted records.  The Court ordered Lexington to produce the un-redacted clam notes and to allow Hidden Cove to depose Lexington’s 30(b)(6) deponent, limited to the information included in the previously redacted claim notes.

After severe storms caused damage to properties insured under a policy issued by Lexington, Hidden Cove sued Lexington alleging failure to properly conduct an investigation into the cause of the loss, failure to issue timely payments, and wrongfully delaying or denying the claim, all pursuant to Chapter 542 of the Texas Insurance Code, and breach of contract and breach of common law duty of good faith and fair dealing.  The central issue is the parties’ interpretation of the “Flood” exclusion contained in the policy and its effect on the claim.

Bad Faith insurance lawyers got a favorable ruling in the Texas Supreme Court recently.  This is discussed in an article published by the Claims Journal.  It is titled, Texas High Court Establishes Clear Rules For Breach Of Contract, Bad Faith Suits Against Insurers.

In an effort to clear up confusion as a result of past decisions, the Texas Supreme Court announced five rules that “address the relationship between contract claims under an insurance policy and tort claims under the Insurance Code.”

The clarification was part of an opinion issued earlier this month.  The case is styled USAA Texas Lloyd’s Company v. Gail Menchaca.