Claims Against Insurance Companies – Not Just Bad Faith

Insurance transactions tend to resemble one another, so disputes arising from them tend to resemble one another.  There are only so many ways that an insurer and an insured can get crossways.  Most cases present recurring problems that can be grouped into categories.  Insurance law is even more precedent-driven than other areas, as courts try to construe similar policy language consistently.  It is not surprising that cases start to look alike.

The starting point is the contract itself.  The initial inquiry always begins with the language of the contract to determine what is covered and what is not.  Other tort and statutory theories may logically depend on the existence of coverage, or may exist independent of coverage.  The interplay between recovery for breach of contract and recovery under other theories needs to be studied.  Beyond suit for breach of contract, most insurance cases can be grouped into three categories:

(1)  misrepresentations

(2)  nondisclosures

(3)  unfair settlement practices.

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 the 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 business practices, deceptive trade practices, negligence, or fraud.

In a 2003 opinion from the 14th Court of Appeals, styled, Vecellio Ins. Agency, Inc. v. Vanguard Underwriters Ins. Co. the insurer had an indemnity cause of action against one of its own agents if the agent’s conduct results in vicarious liability for the insurer.  Further, as discussed in 2002 14th Court of Appeals opinion styled, Omni Metals, Inc. v. Poe & Brown of Texas, Inc., an agent may be held liable for misrepresentations 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.  As to what constitutes negligent misrepresentation, read the 2003 opinion from the Austin Court of Appeals styled, New York Life Ins. Co. v. Miller.

It should be noted that when insurance benefits are received under an employer benefit plan, common law claims for misrepresentation are preempted by the federal statute known as ERISA.

Closely related misrepresentation is the theory that the insurer, agent, or insured failed to disclose information.  For example, if an exclusion is not adequately disclosed, the insurer may be liable for breach of contract for relying on the exclusion to deny a claim.  Failing to adequately disclose limitations or exceptions to coverage may also make the insurer or agent liable for unfair insurance practices or deceptive trade practices.

Several statutory prohibitions are specifically aimed at settlement practices.  Liability may arise from failing to pay benefits that are owed under the policy, for failing to pay benefits that were promised by the agent, for failing to act promptly to settle once liability is reasonably clear, for paying too little, or for paying too slowly.  Liability may also arise from the insurer’s failure to adequately investigate the claim.

Other disputes may arise that do not fit neatly within the preceding categories, such as unreasonable cancellation of a policy, unconscionable conduct, or unfair discrimination.

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