Articles Posted in Bad Faith Insurance

Here is an opinion from the Northern District of Texas, Dallas Division, that discusses the pleadings in a lawsuit where in the property owner claims to have suffered hail damage and the insurer denied the claim.  The opinion is styled, Valtex Properties LLC v. Central Mutual Insurance Company.

The insured, ValTex, sued Central for various violations of the Texas Insurance Code.  The allegations are that Central violated sections, 541.060(a)(1), 541.051, 541.052, and 541.061.  In response, Central filed a Rule 12(b)(6) motion to dismiss.  This blog will deal with only Section 541.060(a)(1).  However, the case is a good read on how the Court dealt with remaining Insurance Code sections.

To survive a motion to dismiss, a plaintiff must plead enough facts to state a claim to relief that is plausible on its face.  Thread bare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.  A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.  The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.  When well-pleaded facts fail to achieve this plausibility standard, the complaint has alleged—but it has not shown—that the pleader is entitled to relief.

When an insurance claim gets denied and a lawsuit results, the resulting legal battle needs to be dealt with properly.  This can be challenging.  An illustration of this can be found in a 2020, opinion from the Eastern District, Sherman Division, in an opinion styled, Oscar Bermudez and SA Polo, Inc., v. Indemnity Insurance Company of North America and Tin Top Insurance Agency, LLC.

This case was originally filed in State Court by Plaintiffs and Defendants promptly removed the case to Federal Court.  The case needs to be read to get further background information on some of the procedural steps but ultimately the Court denied Plaintiffs Motion For Remand and Plaintiffs filed a Motion for Reconsideration or Clarification, which is the issue presented here.

Even though the Motion to Reconsider is found nowhere in the Federal Rules of Civil Procedure, it is one of the more popular indoor courthouse sports at the district court level.  Motions to reconsider serve the very limited purpose permitting a party to correct manifest errors of law or fact, or to present newly discovered evidence.  Granting a motion to reconsider is an extraordinary remedy that should be used sparingly.

Who can sue insurance companies is sometimes obvious to much people but just in case it is not obvious, here is what the laws tell us.

Texas Insurance Code, Section 541.151 grants a cause of action to a person who sustains actual damages caused by another person engaging in any unfair insurance practice or deceptive trade practices.

To assert a cause of action the plaintiff must be: (1) a “person” as defined by the statute; and (2) injured by another’s unfair or deceptive acts.  This is shown in the 2000, Texas Supreme Court opinion styled, Crown Life Insurance Company v. Casteel.

What are examples of misrepresentations made by insurance companies that they can be held liable for making?

Different types of misrepresentation are prohibited by the Texas Insurance Code.  Misrepresentations are also unlawful under the incorporated DTPA, Section 17.46(a).  These misrepresentations also include non-disclosure.

Section 541.051 broadly prohibits making any statement misrepresenting the terms of a policy, or the benefits, advantages, or dividends of a policy, making misrepresentations about the financial condition of an insurer, misrepresenting the true nature of any policy or class of policies, or making any misrepresentation to a policy holder for the purpose of inducing or intending to induce the policy holder to allow an existing policy holder to lapse, forfeit, or surrender his insurance.  This provision is sometimes referred to as the “anti-twisting” provision, because the latter portion is aimed at preventing one insurer stealing away the insureds of another insurer by making misrepresentations.

In an answer to the above question, one attorney said, “It’s hard to define but I know it when I see it.”  That response is fine but what a regular insured person thinks is clearly “bad faith,” the Courts look at differently.

The Texas Insurance Code, Section 541.060, sets forth specific acts that can be considered bad faith in context of settling a claim.  The statute prohibits engaging in any of the following unfair settlement practices with respect to a claim by an insured or beneficiary:

1. misrepresenting to a claimant a material fact or policy provision relating to coverage at issue;

Let’s list some of the conduct that is actionable against an insurance company.

The Texas Insurance Code, Chapter 541, defines and prohibits unfair and deceptive insurance practices.  The Sections include Sections 541.001 to 541.061, 541.151 to 541.162, and 541.453.  Prior to April 1, 2005, the statute appeared as Article 21.21, so most authorities cite that version of the statute.

Section 541.151 allows a private cause of action by any person who has sustained actual damages caused by another’s engaging in any act or practice that is defined as an unfair method of compensation or unfair or deceptive practice in the business of insurance, or defined as an unlawful deceptive trade practice.  The definitions of unfair and deceptive practices are found in two places.  Those two places are the Texas Insurance Code, Sections 541.051 to 541.061 and the Texas Business & Commerce Code, Section 17.46(b).

Bad Faith Claims and proving them have their own set of rules.  These rules were discussed in a 2020 opinion from the Eastern District of Texas, Beaumont Division.  The opinion is styled, Mt. Javed Ventures, Ltd. v. Mt. Hawley Insurance Company.

This is a summary judgment opinion.  The legal history and the facts of the case can be read in the opinion.  This writing will focus on the law related to “bad faith claims.”

The Texas Supreme Court has stated in previous case opinions that under Texas law, “an insurer has a duty to deal fairly and in good faith with its insured in the process of payment of claims.”  This duty is breached if: “(1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.”  Whether an insurance company’s liability has become reasonably clear is a question of fact as cited in the 1997, Texas Supreme Court opinion, Universal Life Ins. Co. v. Giles.  However, evidence establishing only a bona fide coverage dispute does not demonstrate bad faith.  Evidence that shows a bona fide coverage dispute does not, standing alone, demonstrate bad faith.

Bad faith claims are a common source of litigation.  A 2020, opinion from the Southern District of Texas, Houston Division, discusses bad faith claims in the situations where an appraisal clause in the insurance contract allows for appraisal and that clause is invoked.  The case is styled, Braulio Reyna v. State Farm Lloyds.

Reyna was insured by a State Farm policy which covered loss to his home.  This homeowners policy contained an appraisal clause.  The home suffered storm damage during the policy period.  A claim was timely made.  State Farm had the home adjusted by one of its adjusters and made payment of the claim.  State Farm later paid more money on the claim based on a reevaluation.

Next, Reyna requested another investigation on the damages and State Farm sent an additional small amount.  Reyna then invoked the appraisal clause in the insurance contract and the appraisal resulted in a much higher estimate of damages which State Farm immediately paid.

The concurrent-cause doctrine is a source of much litigation as it relates to storm damage to roofs and structures.  This was the issue in a 2020, Western District of Texas, San Antonia Division, opinion styled, Ironwood Building II, LTD. and Principle Auto Management, LTD. v. Axis Surplus Insurance Company.

This is an opinion issued on competing motions for summary judgment.  The Court denied both motions.

The Plaintiffs suffered a hailstorm in 2016, and were paid money related to the damages by the insurance company who provided coverage at the time of the loss.  Only minor repairs were made and there were no leaks occurring on the property.  After this, Plaintiffs purchased another insurance policy with Axis.