Articles Posted in Bad Faith Insurance

What is “bad faith” in the context of insurance?  There is a lot of material on this subject.  Here is a little to know about.

In the 1997, Texas Supreme Court opinion styled, Universe Life Ins. Co. v. Giles, adopted the standard that an insurer breaches its duty of good faith and fair dealing by “failing to attempt in good faith to effect a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.”  The current statutory version of this is Texas Insurance Code, Section 541.060(a)(2)(A).

The statutory standard adopted in Giles takes the place of the common-law standard for unreasonably denying a claim or unreasonably delaying payment.  The court’s analysis in Giles also supports adopting the statutory standard for failing to conduct a reasonable investigation.  That standard is found at Texas Insurance Code, Section 541.060(a)(7), which prohibits “refusing to pay a claim without conducting a reasonable investigation with respect to the claim.”

Allegations of fraud against an insurance company must be specific when a case is in Federal Court.  This is illustrated in a recent case from the Western District of Texas, San Antonio Division.  The case is styled, Maria Quintero v. Allstate Vehicle And Property Insurance Company.

The claim against Allstate arises from a hail and windstorm that is alleged to have caused property damage to Maria.  The assertion is that Allstate breached the insurance contract, misrepresentation, and fraud arising under the Texas Insurance Code.

Allstate filed a motion to dismiss based on Maria’s failure to satisfy the heightened pleadings standards under Rule 9(b) and the general pleading standards under Rule 8.

The standard for recovery of bad faith or extra-contractual damages is discussed in this 2019, Northern District of Texas Dallas Division opinion styled, Carolyn Kee v. Safeco Insurance Company of Indiana.

Kee sued her homeowner insurer, Safeco, for improperly adjusting her claim for damages.  Safeco’s adjuster adjusted the claim saying the amount of damages did not exceed the deductible under Kee’s policy.  Kee filed suit against Safeco and then Safeco invoked the appraisal clause in the insurance contract.

After the appraisal came back in favor of Kee, Safeco paid the appraisal amount and filed a motion for summary judgement on Kee’s claims.  The court refused the motion as it relates to the alleged Prompt Payment of Claims cause of action but on the claim for extra-contractual damages, the motion was granted.  In discussing the case the court stated as follows.

Bad Faith insurance claims often involve allegations of some sort of fraud by the insurance company and / or the adjuster handling the claim.  The Southern District of Texas, McAllen Division, issued an opinion recently dealing with allegations of fraud against an insurance company.  The opinion is styled, Cesarea Trevino v. Allstate Vehicle And Property Insurance Company.

After a hail/windstorm event, Trevino filed a claim with Allstate for alleged property damage.  Trevino sued for Texas Insurance Code violations regarding misrepresentation, among other things, and in response, Allstate filed a partial motion to dismiss the misrepresentation claims.

In reviewing Allstate’s motion to dismiss, the Court pointed out that Federal Rule of Civil Procedure, Rule 9(b) imposes a heightened set of pleading requirements when the claim in question is grounded in fraud. The Fifth Circuit Court of Appeals has ruled that Rule 9(b) requires “specificity as to the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation why they are fraudulent.”  Rule 9(b) applies by its plain language to all averments of fraud, whether they are part of a claim of fraud or not and therefore applies to statutory claims which are based on allegations of fraud.  Claims alleging violations of the Texas Insurance Code are subject to the requirement of 9(b).

When suing an insurance company for insurance fraud, especially in Federal Court, the insured needs to plead with specificity.  This is illustrated in a 2019, opinion from the Southern District of Texas, Laredo Division.  The opinion is styled, Salvador Aviles v. Allstate Fire and Casualty Insurance Company.

Aviles had a homeowners policy with Allstate when he sustained severe wind and/or hailstorm damage.  A disagreement arose as to the extent and amount of damages.

Aviles filed suit in State Court alleging fraud under the Texas Insurance Code, among other causes of action.  Allstate removed the case to Federal Court and thereafter filed a motion for partial dismissal of the fraud claims citing Federal Rules of Civil Procedure, 12(b)(6) and Rule 9(b).

Claiming an insurance company has committed fraud, as in all fraud claims, it must be stated who communicated the fraud, what was said, when it was said, where it was said, and how the statement was fraud.  All of this is particularly true when the lawsuit is in Federal Court where the pleading requirements are much more stringent.

This is illustrated in the case discussed in an earlier blog styled, Nancy Roberson v. Allstate Vehicle and Property Insurance Company.  The case is from the Southern District of Texas, Houston Division.

This case arises from a tree falling on the home of Roberson, who was insured by Allstate.  Roberson made a claim and the adjuster assigned by Allstate came back with a repair estimate that was far below what Roberson believed was needed to compensate her for her loss.  Roberson filed a lawsuit alleging many causes of action against Allstate but the one discussed here is her allegation of common-law fraud.

Here is a situation where the insured won at the trial level of the case but ended up losing on appeal.  The case is from the Amarillo Court of Appeals and is styled, State Farm Lloyds v. Robert MacKeen and Rebecca MacKeen.

The facts in the case are not particularly long or confusing but there were certain aspects of the case wherein State Farm admittedly did not handle the claim properly and as a result State Farm paid the damages incurred plus penalty pursuant to the Texas Insurance Code, Prompt Payment of Claims Act.

However, there were other parts of the claim that were still in dispute and the resulting lawsuit went to trial.  The jury in the MacKeen’s case found in the MacKeen’s favor and this appeal followed.

Demand letters to an insurance company can be used as evidence to make even a small case subject to federal jurisdiction.  This is illustrated in a case from the Western District of Texas, San Antonio Division.  It is styled, Veronica Horton v. Allstate Vehicle and Property Insurance Company, Pilot Catastrophe Services, John Suther.

In this case Horton made a claim with Allstate for property damage to her home after a storm.  Allstate hired Pilot and Suther to adjust the claim.  It was alleged that Suther and Pilot did not know what they were doing and made mistakes that can be found in the opinion, and that Allstate accepted their report and ignored Horton’s report.  That this was done intentionally.

Horton sent a demand letter to Allstate requesting payment of $28,384.28 in damages, calculated as follows: (1) $18,554.34 for repairs, (2) $4,629.94 in interest pursuant to the Texas Prompt Payment Act and $1,200 in attorney fees, both incurred up to the date of the letter.  The letter expressed to Allstate that they should pay the offer or risk exposure to a judgment of $100,000 to well over $1 million.

For an insurance attorney to know the insurance adjuster did something wrong when it comes to a lawsuit is not good enough.  When filing a lawsuit, the allegations of wrongdoing by the adjuster must be properly alleged in the lawsuit papers.  This is illustrated in the Southern District, Corpus Christi Division, opinion styled, Esteban Cruz v. State Farm Lloyds.

This case was filed against State Farm in State Court and State Farm caused the case to be removed to Federal Court based on diversity jurisdiction.

State Farm seeks dismissal of the extra-contractual claims for “failure to state a claim upon which relief can be granted” pursuant to Rule 12(b)(6)Rule 8(a)(2) requires a short and plain statement of the claim showing that the pleader is entitled to relief.  This includes sufficient factual allegations to indicate that the claim is plausible.

A 1994, Texas Supreme Court opinion styled, Chicago Title Ins. Co. v. McDaniel, is a case that says title insurance is different than your normal insurance.

This is a summary judgment case in favor of the insurer.  This Court affirmed the finding in favor of Chicago Title.

In September 1983, the McDaniel’s purchased on home from Couch Mortgage Company and at closing the McDaniel’s also purchased a title policy from Chicago Title.  In relevant part the title policy reads, that Chicago Title “for value does hereby guarantee to the Insured … that as of the date hereof, the Insured has good and indefeasible title to the estate or interest in the land described or referred to in this policy.”

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