Blog Topic

Bad Faith and Other Insurance Claims
June 30, 2009

Most people who have tried to handle their own claims with an insurance company quickly learn that the process is not fast, the process is extremely frustrating, and the insurance company and adjuster may not be handling the claim in a fair manner. After experiencing one delay and excuse after another, we are often contacted by people who are at their breaking point because their lives have been turned upside down and the insurance company is not treating them fairly and is not making efforts to resolve the claim promptly. The insurance company is acting in "bad faith."

If this situation sounds familiar, we encourage you to contact our firm to discuss your rights. Texas law is constantly changing with regard to "bad faith" actions by insurance companies. Although the phrase "bad faith" is commonly used to refer to the wrongful refusal to pay a claim or the unnecessary delay in the payment of a claim, the claim is actually the breach of the duty of good faith and fair dealing. However, the Texas Supreme Court held that not every type of claim being made with an insurance company requires that the insurance company act with good faith and fair dealing even though liability is reasonably clear. Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex. 1994). In particular, there is no duty of good faith and fair dealing on "third party claims" - claims against someone else's insurance policy.

The decision in Allstate Ins. Co. v. Watson, has left thousands of people very frustrated when they make a valid third party claim for damages. An example of such a third party claim would be if you are injured in a motor vehicle collision because another driver is drunk and runs a red light and strikes your vehicle. Even if the incident is captured on video-tape and even if the drunk driver confesses under oath that he caused the wreck, when you make a claim against the drunk driver's insurance policy in the State of Texas, the drunk driver's insurance company has no legal duty to you to treat you fairly, to be honest with you, or to handle your claim in a prompt manner. It is not surprising then that often times when people feel that the adjuster simply does not care about their claim or that the adjuster is not being fair, those perceptions may be accurate. The insurance company often has no incentive to be fair to you.

However, when you are making a first party claim - such as "Personal Injury Protection" claim, an "Uninsured Motorist" or "Underinsured Motorist" claim, the insurance company owes you a duty of good faith and fair dealing. This duty originated under Texas common law.

The duty of good faith and fair dealing arose under Texas "common law" in large part due to the fact that generally you are a "consumer" or an intended beneficiary of a consumer transaction where you or someone you know paid a lot of money to an insurance company for coverage in the event of a loss. In general, Texas law was designed to help those who acted responsibly by obtaining insurance to pay for damages in the event of an accident rather than making the government pay for your medical care. Unfortunately, the trend of recent decisions from the Texas Supreme Court has been to focus on giving the insurance company more powers and rights to challenge payment of claims rather than to encourage the prompt payment of valid claims

In general, to establish a claim for common law bad faith in Texas, an insured must prove that the insurer denied or delayed payment when the insurer knew that liability for the claim mas

"reasonably clear." Universe Life Ins. Co. v. Giles, 950 S.W.2d 48,55 (Tex. 1997). In addition to these common law duties, the Texas Insurance Code and the Texas Business & Commerce Code also provide other statutory claims that can be made against an insurance company if it fails to handle a first party claim in a proper or timely manner. In addition to the potential of having a jury assess punitive damages against the insurance company if its conduct was with "malice", the statutory claims also carry with it the threat the insurance company may have to pay your attorney's fees as well as other penalties, interest, and costs of court.

Because these first party claims often allow for the recovery of attorney's fees unlike most other injury claims, the insurance company had an incentive to treat its insured fairly and to promptly pay valid claims. Over the years, insurance companies have been fighting to get rid of these obligations to act in good faith and fair dealing. As a result, there have been a number of court cases that have addressed the duties of the insurance company when handling a first party claim. However, in December of 2006, the Texas Supreme Court took a giant cut out of the protections Texas law had afforded to consumers. The Texas Supreme Court issued three opinions: State Farm Mutual Automobile Ins. Co. v Nickerson; Lillith Brainard v. Trinity Universal Ins. Co.; and State Farm Mutual Automobile Ins. Co. v. Jimmie R. Norris. Although all of these cases have had a significant impact on Texas law, most of the time the analysis of these three cases is simply referred to as a post-Brainard analysis because these cases were such a major departure from existing Texas law.

The Brainard Case

To understand how Texas law has changed it is important to know some of the facts of the Brainard case as it was clearly a tragic case for the Brainard family. On July 1, 1999, Edward H. Brainard II was killed when his vehicle was involved in a head-on collision with a rig owned by Premier Well Service, Inc. His widow, Lilith Brainard, and their five children (collectively, Brainard) brought a wrongful death action against Premier and sought UIM benefits from Trinity Universal Insurance Company under a policy issued to the family business, Brainard Cattle Company. Trinity paid Brainard $5,000 under the policy's PIP provision but requested further information supporting the UIM claim.

Brainard and Premier settled Brainard's claims for $1,000,000, Premier's policy limit, and Premier was subsequently dismissed from the suit. Because Brainard contended that the losses related to the death of Edward Brainard greatly exceeded $1,005,000.00, the Brainards made an Underinsured Motorist Claim with Trinity. Brainard alleges she submitted the information to Trinity so that it could evaluate the claim, and that the Brainards performed all conditions precedent to receiving the benefits, but Trinity refused to pay the claim.

When Brainard demanded that Trinity also pay the policy limits of $1,000,000 under the policy, Trinity refused to pay and offered only $50,000. Essentially, Trinity was telling the Brainard family that had purchased the insurance policy that the mental anguish the family suffered from the loss of Mr. Brainard, as well as the costs of medical and funeral expenses, the loss of earnings, and the physical pain and suffering and mental anguish that Mr. Brainard suffered prior to his passing was only worth an additional $50,000. Needless to say, the family felt that the loss was much greater and filed a lawsuit against Trinity alleging breach of contract, breach of the common law duty of good faith, violations of the Deceptive Trade Practices-Consumer Protection Act, and violations of Insurance Code articles 21.21 and 21.55. This paper will only address the effect the Court's decision had on a claim for breach of contract and a claim for attorney's fees on a breach of contract claim.

The trial court did what most courts do with these cases and it "severed" Brainard's extra-contractual claims, which remain pending, and the parties proceeded to trial on the UIM contract.In other words, the court cut up the lawsuit into smaller lawsuits and ruled that there would have be at least two trials. The first trial was a trial solely for breach of contract to obtain the underinsured motorist benefits which Brainard believed were owed. At trial, the jury found that Premier's negligence caused the accident and awarded Brainard $1,010,000 for pecuniary loss, funeral expenses, loss of companionship and society, and mental anguish. The jury also awarded $100,000 for attorney's fees.

After the jury's verdict, the trial court applied a $1,005,000 credit for Brainard's settlement and PIP benefits, and signed a judgment against Trinity awarding Brainard only $5,000 in damages plus $100,000 in attorney's fees. On appeal, Trinity challenged the attorney's fees award, and Brainard, by cross appeal, alleged the trial court erred in refusing to award prejudgment interest on the $1,010,000 in actual damages.

In addressing Brainard's claim for attorney's fees, the Texas Supreme Court pointed out that attorney's fees are recoverable from an opposing party only as authorized by statute or by contract between the parties. Travelers Indem. Co. v. Mayfield, 923 S.W.2d 590, 593 (Tex.1996). Because an insurance policy is a contract, Brainard had good reason to believe that attorney's fees were recoverable because the claim was a claim for breach of a contract and Chapter 38 of the Civil Practice & Remedies Code permits an insured to recover attorney's fees incurred in a successful breach of contract suit against the insurer unless the insurer is liable for the fees under a different statutory scheme. Tex. Civ. Prac. & Rem.Code §§ 38.001(8), 38.006; Grapevine Excavation, Inc. v. Maryland Lloyds, 35 S.W.3d 1, 5 (Tex.2000).

Brainard contended that her suit is like any other lawsuit alleging a breach of contract suit, and therefore, presentment occurred on February 15, 2000, the day she made a claim for UIM benefits. Brainard even cited three courts of appeals decisions that agreed with her position. See Norris v. State Farm, 217 S.W.3d at 3; State Farm Mut. Auto. Ins. Co. v. Nickerson, 130 S.W.3d 487, 490 (Tex.App.- Texarkana 2004, pet. granted); Allstate Ins. Co. v. Lincoln, 976 S.W.2d 873, 876 (Tex.App.-Waco 1998, no pet.); Whitehead v. State Farm Mut. Auto. Ins. Co., 952 S.W.2d 79, 88-89 (Tex.App.-Texarkana 1997), rev'd on other grounds, 988 S.W.2d 744 (Tex.1998); Novosad v. Mid-Century Ins.Co., 881 S.W.2d 546, 552 (Tex.App.-San Antonio 1994, no writ).

Trinity, took the position that the court should treat an insurance contract different than Texas law does for all other contracts. Trinity argued the insurer's duty to pay does not arise until the underinsured motorist's liability, and the insured's damages, are legally determined. Five courts of appeals, including the court of appeals in this case, agree. See DeLaGarza v. State Farm Mut. Auto. Ins. Co.,175 S.W.3d 29, 34 (Tex.App.-Dallas 2005, pet. denied); Menix v. Allstate Indem. Co., 83 S.W.3d 877, 882 (Tex.App.-Eastland 2002, pet. denied); Sprague v. State Farm Mut. Auto. Ins. Co., 880 SW.2d 415, 416 (Tex.App.-Houston [14th Dist.] 1993, writ denied); Sikes v. Zuloaga, 830 S.W.2d 752, 753 (Tex.App.-Austin 1992, no writ). As is frequently the case over the past few years, the Court sided with the insurance company.

The Court determined that the UIM insurer is under no contractual duty to pay benefits until the insured obtains a judgment establishing the liability and underinsured status of the other motorist. Henson, 17 S.W.3d at 653-54. Neither requesting UIM benefits nor filing suit against the insurer triggers a contractual duty to pay. Id. Where there is no contractual duty to pay, there is no just amount owed. Thus, under Chapter 38, a claim for UIM benefits is not presented until the trial court signs a judgment establishing the negligence and underinsured status of the other motorist. So, if you are frustrated by the efforts of the insurance company in refusing to pay your claim, realize that now you had better plan on filing a lawsuit and going to trial to determine your rights before you the insurance company will even pay a valid claim.

Because of the Brainard decision, some insurance companies are now taking the position that the insurance companies no longer owe their own policy holders who pay for these insurance policies a duty of good faith and fair dealing. Fortunately the Brainard case did not eliminate that obligation, it just made it much harder and more expensive to prove.

If you have a claim against your insurance company, you need to level the playing field. You need to hire an attorney who is familiar with the legal issues that affect your case. Claims against an insurance company are not simple. You have to comply with the terms of the policy, and most people have never read their insurance policy or understand it if they did read it. Contact Montes Herald Law Group, LLP to handle your insurance claims. We are experienced in dealing with insurance companies and different insurance policies. Montes Herald is a law firm that is located in Las Colinas (Irving), Texas in the Dallas Fort Worth area. We handle insurance claims all across the state of Texas. Call us now at (214) 522-9401 for a free, no obligation consultation and visit our website www.MontesHerald.com for more information about Rachel Montes and Tom Herald.

Permalink

City of Dallas Will Tow Uninsured Vehicles
May 22, 2009

In an effort to encourage drivers to comply with State law that requires all drivers to carry at least the minimum amount of liability insurance coverage, the City of Dallas has enacted a city ordinance that went into effect January 1, 2009 that authorizes the towing of any uninsured vehicle. If you drive in Dallas and you either haven't bought insurance or you have let your insurance lapse, you better take care of that soon or you could be facing very expensive costs to get your car out of the city pound. Officers now have the ability to access a state-wide database of insured motorists to verify whether the person or the vehicle is insured. Towing fees are expected to be at least $175 per vehicle. Dallas Police reported that during the very first day the ordinance went into effect, Dallas Police towed over 57 vehicles in the first few days the ordinance went into effect, including 9 involved in accidents. Far too often, the people that cause accidents are uninsured. However, if you are the victim of a hit and run accident or an accident where the person that hit you does not have insurance, you may still have the ability to get compensated for your injuries and damages through your underinsured motorist coverage on your own automobile insurance policy. At Montes Herald Law Group, L.L.P., we can take the stress and hassle of dealing with the insurance company away from you, and allow you to focus on getting the treatment you need and putting your life back together. Contact us now if you have been in an accident caused by an uninsured motorist or if you are the victim of a hit and run accident.

Permalink