Insurance Company Counter-Sues

Lawyers who handle lawsuits against insurance companies know that it is not uncommon for an insurance company to file a counter-suit for their court costs and attorney fees.  So, the question is, if an loses his lawsuit against the insurance company, will the insurance company win in its counter-claim against its customer.  This issue was addressed in a Northern District of Texas, Dallas Division, opinion in September, 2019.  The opinion is styled, Arizpe v. Principal Life Insurance Company.

In this case, Arizpe had sued his insurance company for benefits.  Principal filed a counter-claim for attorney fees.  Principal filed a motion for summary judgment on Arizpe’s claims which the court granted in favor of Principal.  The Court next addressed the issue of whether or not Principal was entitled to be awarded court costs and attorney fees on its counter-claim.

Principal argued that pursuant to Texas Insurance Code, Section 541.153, that they are entitled to recover its reasonable and necessary attorney’s fees and court costs since the claims of Arizpe were groundless and brought in bad faith or for the purpose of harassment.  Also, Principal points out that Section 17.50(c) of the Texas Deceptive Trade Practices Act (DTPA) allows recovery of these expenses.

Section 541.153 says, “a court shall award to the defendant court costs and reasonable and necessary attorney’s fees if the court finds that an action under this subchapter is groundless and brought in bad faith or brought for the purpose of harassment.” The DTPA says, on a finding by the court that an action under this section was groundless in fact or law or brought in bad faith, or brought for the purpose of harassment, the court shall award to the defendant reasonable and necessary attorneys’ fees and court costs.”

Both Texas courts and Federal courts interpreting these statutory provisions have determined that a groundless action is defined as one having no basis in law or fact and not warranted by a good faith contention for modification, reversal, or extension of existing law.  Courts have established that the standard for determining whether an action is groundless is whether the totality of the tendered evidence demonstrates an arguable basis in fact and law for the consumer’s claim.  Courts have explained that a case is not groundless simply because a plaintiff failed to convince a jury of the truth of her allegations.

To establish bad faith, it must be shown that the claim was motivated by a malicious or discriminatory purpose.

The Court refused to award Principal its costs and attorney fees based on evidence that the case, though unsuccessful, was not brought against Principal for reasons that were groundless, in bad faith, or for purposes of harassment.