Insurance Company “Knowing” Conduct And Mental Anguish Damages

Fort Worth insurance lawyers need to have an understanding how the courts look at mental anguish damages as compensation for insurance code violations.
The 1995, Texas Supreme Court case, State Farm Life Ins. Co. v. Beaston case is a reference point. Here is some of the relevant information from that case.
Terri and David Beaston bought life insurance policies from State Farm. The Beastons failed to pay the premium on David’s policy due. His policy lapsed and the thirty-one day grace period expired. Three days after the expiration of the grace period, David died in an automobile accident. State Farm refused to pay the benefits under his life insurance policy, claiming that coverage had expired before his death.
As the sole beneficiary of her husband’s policy, Terri brought suit against both State Farm, asserting, among other claims, that they had violated the Texas Insurance Code. She also contended that the terms of the policy guaranteed payment of a dividend at death which should have been used to pay a part of the premium that was in arrears and thereby “cure” the policy’s lapse.
The jury found that State Farm had engaged in unfair or deceptive acts and that such conduct was a producing cause of damages to Terri Beaston. The jury failed to find, however, that State Farm (1) had engaged in any false, misleading, or deceptive act or practice, (2) had engaged in any unconscionable action or course of action, (3) was negligent, or (4) was grossly negligent. There was a finding that State Farm had not waived any lapse under the policy. An issue as to whether State Farm or Heaton had knowingly engaged in any unconscionable conduct was conditioned on an affirmative response to the question that asked whether either defendant had engaged “in any unconscionable action or course of action that was a producing cause of damages to Terri Beaston.” Because the jury responded negatively, it did not reach the question asking whether the defendants had engaged in knowing conduct.
In response to the damage issue, the jury awarded no policy benefits, but awarded $200,000 for mental anguish in the past.
State Farm there is no evidence to support the jury’s finding regarding mental anguish damages and damages for emotional distress are not recoverable because Terri failed to secure a jury finding that State Farm acted knowingly.
The Texas Insurance Code provides a remedy for those injured by (1) any “unfair methods of competition and unfair and deceptive acts or practices in the business of insurance” and violations of Section 17.46 of the Texas Business and Commerce Code, (DTPA). The jury found that State Farm engaged in an unfair or deceptive act or practice.
State Farm contended that there is no evidence to support this finding. Because the only damages found by the jury were for mental anguish, this court turned to State Farm’s argument that Terri cannot recover mental anguish damages in the absence of a finding that it acted knowingly. Whether such a finding is a prerequisite for recovering mental anguish damages was a question of first impression for the Court.
Courts traditionally have been reluctant to allow recovery of damages for emotional distress without some additional threshold showing, for example, that the mental anguish was accompanied by a physical injury “resulting from a physical impact or was produced by a particularly upsetting or disturbing event.” The court has held in a DTPA case that mental anguish damages are not recoverable where there was no willful conduct and no resulting physical injury and that damages cannot be recovered for mental anguish alone and that there must be proof of a willful tort, gross negligence, or willful disregard.
This court saw no reason that a culpable mental state should not also be required to recover mental anguish damages under the Insurance Code. Section 17.50(a)(4) of the DTPA incorporates the Insurance Code and prohibits an insurer from engaging in any practice proscribed by Section 17.46 of the DTPA.
In DTPA cases that do not involve personal injury, the court requires a threshold finding of a culpable mental state as one of the prerequisites for mental anguish damages. It is logical to require a similar culpable mental state under the Insurance Code.
This court concluded that a finding of knowing conduct is a prerequisite to the recovery of mental anguish damages under the Insurance Code. “Knowingly” is the only culpable mental state to which the statute currently refers. The court therefore held that mental anguish damages are not recoverable under the Insurance Code as an element of actual damages without an express finding of knowing conduct.

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