Consumers and Texas Insurance Law Consumer Transactions Dr. Steiner

Ins. Code § Definitions  (2) “Person” means an individual, corporation, association, partnership, reciprocal or interinsurance exchange, Lloyd's plan, fraternal benefit society, or other legal entity engaged in the business of insurance, including an agent, broker, adjuster, or life and health insurance counselor.

Ins. Code § Misrepresentation Regarding Policy or Insurer  It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to: (1) make, issue, or circulate or cause to be made, issued, or circulated an estimate, illustration, circular, or statement misrepresenting with respect to a policy issued or to be issued:  (A) the terms of the policy;  (B) the benefits or advantages promised by the policy; or  (C) the dividends or share of surplus to be received on the policy;

Ins. Code § Misrepresentation Regarding Policy or Insurer (2) make a false or misleading statement regarding the dividends or share of surplus previously paid on a similar policy; (3) make a misleading representation or misrepresentation regarding:  (A) the financial condition of an insurer; or  (B) the legal reserve system on which a life insurer operates;

Ins. Code § Misrepresentation Regarding Policy or Insurer (4) use a name or title of a policy or class of policies that misrepresents the true nature of the policy or class of policies; or (5) make a misrepresentation to a policyholder insured by any insurer for the purpose of inducing or that tends to induce the policyholder to allow an existing policy to lapse or to forfeit or surrender the policy.

Ins. Code § False Information and Advertising  (a) It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to make, publish, disseminate, circulate, or place before the public or directly or indirectly cause to be made, published, disseminated, circulated, or placed before the public an advertisement, announcement, or statement containing an untrue, deceptive, or misleading assertion, representation, or statement regarding the business of insurance or a person in the conduct of the person's insurance business.

Ins. Code § Deceptive Name, Word, Symbol, Device, or Slogan  (a) Except as provided by Subsection (b), it is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to use, display, publish, circulate, distribute, or cause to be used, displayed, published, circulated, or distributed in a letter, pamphlet, circular, contract, policy, evidence of coverage, article, poster, or other document, literature, or public media:

Ins. Code § Deceptive Name, Word, Symbol, Device, or Slogan (1) a name as the corporate or business name of a person or entity engaged in the business of insurance or in an insurance-related business in this state that is the same as or deceptively similar to the name adopted and used by an insurance entity, health maintenance organization, third-party administrator, or group hospital service corporation authorized to engage in business under the laws of this state; or

Ins. Code § Deceptive Name, Word, Symbol, Device, or Slogan  (2) a word, symbol, device, or slogan, either alone or in combination and regardless of whether registered, and including the titles, designations, character names, and distinctive features of broadcast or other advertising, that is the same as or deceptively similar to a word, symbol, device, or slogan adopted and used by an insurance entity, health maintenance organization, third-party administrator, or group hospital service corporation to distinguish the entity or the entity's products or services from another entity.

Ins. Code § Unfair Settlement Practices  (a) It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to engage in 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;

Ins. Code § Unfair Settlement Practices (2) failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of:  (A) a claim [upon] which the insurer's liability has become reasonably clear; or  (B) a claim under one portion of a policy [to] which the insurer's liability has become reasonably clear to influence the claimant to settle another claim under another portion of the coverage unless payment under one portion of the coverage constitutes evidence of liability under another portion;

Ins. Code § Unfair Settlement Practices (3) failing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or offer of a compromise settlement of a claim; (4) failing within a reasonable time to:  (A) affirm or deny coverage of a claim to a policyholder; or  (B) submit a reservation of rights to a policyholder;

Ins. Code § Unfair Settlement Practices (5) refusing, failing, or unreasonably delaying a settlement offer under applicable first-party coverage on the basis that other coverage may be available or that third parties are responsible for the damages suffered, except as may be specifically provided in the policy; (6) undertaking to enforce a full and final release of a claim from a policyholder when only a partial payment has been made, unless the payment is a compromise settlement of a doubtful or disputed claim;

Ins. Code § Unfair Settlement Practices (7) refusing to pay a claim without conducting a reasonable investigation with respect to the claim; (8) with respect to a Texas personal automobile insurance policy, delaying or refusing settlement of a claim solely because there is other insurance of a different kind available to satisfy all or part of the loss forming the basis of that claim; or

Ins. Code § Unfair Settlement Practices (9) requiring a claimant as a condition of settling a claim to produce the claimant's federal income tax returns for examination or investigation by the person unless:  (A) a court orders the claimant to produce those tax returns;  (B) the claim involves a fire loss; or  (C) the claim involves lost profits or income.

Ins. Code § Unfair Settlement Practices  (b) Subsection (a) does not provide a cause of action to a third party asserting one or more claims against an insured covered under a liability insurance policy.

Ins. Code § Misrepresentation of Insurance Policy  It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to misrepresent an insurance policy by: (1) making an untrue statement of material fact; (2) failing to state a material fact necessary to make other statements made not misleading, considering the circumstances under which the statements were made;

Ins. Code § Misrepresentation of Insurance Policy (3) making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact; (4) making a material misstatement of law; or (5) failing to disclose a matter required by law to be disclosed, including failing to make a disclosure in accordance with another provision of this code.

Ins. Code § Private Action for Damages Authorized  A person who sustains actual damages may bring an action against another person for those damages caused by the other person engaging in an act or practice: (1) defined by Subchapter B to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance; or (2) specifically enumerated in Section 17.46(b), Business & Commerce Code, as an unlawful deceptive trade practice if the person bringing the action shows that the person relied on the act or practice to the person's detriment.,

DTPA §17.50 Relief for Consumers  (a) A consumer may maintain an action where any of the following constitute a producing cause of economic damages or damages for mental anguish: (4) the use or employment by any person of an act or practice in violation of Article 21.21, Insurance Code.

Ins. Code § Damages, Attorney's Fees, and Other Relief  (a) A plaintiff who prevails in an action under this subchapter may obtain: (1) the amount of actual damages, plus court costs and reasonable and necessary attorney's fees; (2) an order enjoining the act or failure to act complained of; or (3) any other relief the court determines is proper.  (b) On a finding by the trier of fact that the defendant knowingly committed the act complained of, the trier of fact may award an amount not to exceed three times the amount of actual damages.

Ins. Code § Prior Notice of Action  (a) A person seeking damages in an action against another person under this subchapter must provide written notice to the other person not later than the 61st day before the date the action is filed.  (b) The notice must advise the other person of: (1) the specific complaint; and (2) the amount of actual damages and expenses, including attorney's fees reasonably incurred in asserting the claim against the other person.

Ins. Code § Prior Notice of Action  (c) The notice is not required if giving notice is impracticable because the action: (1) must be filed to prevent the statute of limitations from expiring; or (2) is asserted as a counterclaim

Ins. Code § Abatement  (a) A person against whom an action under this subchapter is pending who does not receive the notice as required by Section may file a plea in abatement not later than the 30th day after the date the person files an original answer in the court in which the action is pending.  (b) The court shall abate the action if, after a hearing, the court finds that the person is entitled to an abatement because the claimant did not provide the notice as required by Section

Ins. Code § Limit on Recovery after Settlement Offer  (a) If the court finds that the amount stated in the settlement offer for damages under Section (1) is the same as, substantially the same as, or more than the amount of damages found by the trier of fact, the claimant may not recover as damages any amount in excess of the lesser of: (1) the amount of damages stated in the offer; or (2) the amount of damages found by the trier of fact.

Ins. Code § Limit on Recovery after Settlement Offer  (b) If the court makes the finding described by Subsection (a), the court shall determine reasonable and necessary attorney's fees to compensate the claimant for attorney's fees incurred before the date and time the rejected settlement offer was made. If the court finds that the amount stated in the offer for attorney's fees under Section (2) is the same as, substantially the same as, or more than the amount of reasonable and necessary attorney's fees incurred by the claimant as of the date of the offer, the claimant may not recover any amount of attorney's fees in excess of the amount of fees stated in the offer.

Ins. Code § Limit on Recovery after Settlement Offer  (c) This section does not apply if the court finds that the offering party: (1) could not perform the offer at the time the offer was made; or (2) substantially misrepresented the cash value of the offer.

Ins. Code § Limitations Period  (a) A person must bring an action under this chapter before the second anniversary of the following: (1) the date the unfair method of competition or unfair or deceptive act or practice occurred; or (2) the date the person discovered or, by the exercise of reasonable diligence, should have discovered that the unfair method of competition or unfair or deceptive act or practice occurred.

Ins. Code § Limitations Period  (b) The limitations period provided by Subsection (a) may be extended for 180 days if the person bringing the action proves that the person's failure to bring the action within that period was caused by the defendant's engaging in conduct solely calculated to induce the person to refrain from or postpone bringing the action.

Ins. Code § Liberal Construction  This subchapter shall be liberally construed to promote the prompt payment of insurance claims.

Ins. Code § Receipt of Notice of Claim  (a) Not later than the 15th day or, if the insurer is an eligible surplus lines insurer, the 30th business day after the date an insurer receives notice of a claim, the insurer shall: (1) acknowledge receipt of the claim; (2) commence any investigation of the claim; and (3) request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.

Ins. Code § Notice of Acceptance or Rejection of Claim  (a) Except as provided by Subsection (b) or (d), an insurer shall notify a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the date the insurer receives all items, statements, and forms required by the insurer to secure final proof of loss.

Ins. Code § Notice of Acceptance or Rejection of Claim  (b) If an insurer has a reasonable basis to believe that a loss resulted from arson, the insurer shall notify the claimant in writing of the acceptance or rejection of the claim not later than the 30th day after the date the insurer receives all items, statements, and forms required by the insurer.

Ins. Code § Notice of Acceptance or Rejection of Claim  (c) If the insurer rejects the claim, the notice required by Subsection (a) or (b) must state the reasons for the rejection.  (d) If the insurer is unable to accept or reject the claim within the period specified by Subsection (a) or (b), the insurer, within that same period, shall notify the claimant of the reasons that the insurer needs additional time. The insurer shall accept or reject the claim not later than the 45th day after the date the insurer notifies a claimant under this subsection.

Ins. Code § Delay in Payment of Claim  (a) Except as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section , delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section

Ins. Code § Delay in Payment of Claim  (b) This section does not apply in a case in which it is found as a result of arbitration or litigation that a claim received by an insurer is invalid and should not be paid by the insurer.

Ins. Code § Liability for Violation of Subchapter  (a) If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to pay the holder of the policy or the beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney's fees.

Ins. Code § Remedies Not Exclusive  The remedies provided by this subchapter are in addition to any other remedy or procedure provided by law or at common law.

Whither Article 21.21?  Articles 541 and 542 were added as part of a “nonsubstantive revision” of the Insurance Code that was passed during the 78th Legislature in 2003  These articles will replace Article  But the effective date is April 1, 2005  That means the February 2005 Bar will require references to Article 21.21

Arnold v. National County Mut. Fire Ins. Co.  Insurer’s basis for declining claim  Disposition in lower courts  When does a duty of good faith and fair dealing exist?  What must be alleged for a valid cause of action against an insurer?

Aranda v. Insurance Co. of N. Am.  Whether a workers’ compensation claimant may sue for the insurer’s breach of a duty of good faith and fair dealing  Standard of care absence of reasonable basis for denying or delaying claim, and carrier knew or should have known that there was not a reasonable basis for its actions  Exclusivity of workers’ compensation?

Union Bankers Ins. Co. v. Shelton  Whether insured’s intent to deceive must be proved for insurer’s defense of misrepresentation  Whether a cause of action for breach of good faith and fair dealing exists when an insurer cancels an insurance policy without a reasonable basis

Universe Life Ins. Co. v. Giles  Whether any evidence supports judgment against insurer for breach of duty of good faith and fair dealing  The problem with no-evidence standard of review and bad-faith findings on appeal  Clarifying the “no reasonable basis” standard  Question of law or of fact?

United States Fire Ins. Co. v. Williams  Whether an insurer can be held liable for bad faith because it misinterpreted rule that led to denial of claim  When could an insurer be liable for “misinterpreting” a rule?

Crown Life Ins. Co. v. Casteel  Whether an insurance agent has standing to sue an insurer for unfair or deceptive acts or practices  Whether an insurance agent has standing to sue an insurer under the Insurance Code for incorporated DTPA-based claims

Allstate Ins. Co. v. Watson  Whether an accident victim who is a third- party claimant has standing to sue directly an insurer for unfair claim settlement practices under the Insurance Code  Unfair claims settlement practices and the Insurance Code’s incorporation of DTPA- based claims

Republic Ins. Co. v. Stoker  Whether an insurer breaches its duty of good faith and fair dealing to its insured if it denies a claim for an invalid reason when there was at the time a valid reason for denial  If a policy claim is independent of a bad faith claim, may an insured recover for a bad faith denial of a claim even if the claim isn’t covered by the policy?

Liberty Nat’l Fire Ins. Co. v. Akin  Does a trial court abuse its discretion when it refuses to sever a bad faith claim from a policy claim?  If claims aren’t severed, how could trial court limit prejudicial effect of evidence that is admissible for only one claim?

State Farm Lloyds v. Nicolau  Does an insurer’s reliance upon an expert’s report to deny a claim automatically foreclose bad faith recovery as a matter of law?  What’s necessary for malice finding to support punitive damages?  Unconscionability under DTPA and insurer’s conduct

New CPRC §  (a) Except as provided by Subsection (c), exemplary damages may be awarded only if the claimant proves by clear and convincing evidence that the harm with respect to which the claimant seeks recovery of exemplary damages results from: (1) fraud; (2) malice; or (3) gross negligence

New CPRC §41.001(7)  “Malice” means a specific intent by the defendant to cause substantial injury or harm to the claimant

New CPRC §41.001(11)  “Gross negligence” means an act or omission: (A) which when viewed objectively from the standpoint of the actor at the time of its occurrence involves an extreme degree of risk, considering the probability and magnitude of the potential harm to others; and (B) of which the actor has actual, subjective awareness of the risk involved, but nevertheless proceeds with conscious indifference to the rights, safety, or welfare of others.

Provident Am. Ins. Co. v. Casteňeda  Whether evidence of coverage, standing alone, constitutes evidence of bad faith denial  How were the facts in Nicolau different?  Limitations on bad faith liability Focus is on reasonableness of conduct in rejecting claim, not validity of claim Not every erroneous denial of claim means insurer is liable Failure to properly investigate isn’t basis for obtaining policy benefits

Maryland Ins. Co. v. Head Indus. Coatings & Serv., Inc.  Whether an insurer owes its insured a duty of good faith and fair dealing to investigate and defend claims by a third party against its insured  Significance of Stowers doctrine

Erwin v. Texas Health Choice, L.C.  Whether bad faith claims are preempted when they involve allegations of an ERISA’s entity’s wrongful denial of benefits  Whether statutory claims under Insurance Code and common-law bad faith claims are excluded from preemption because of ERISA’s savings clause, which excludes from preemption “any law of any State which regulates insurance”

Bar Problem: Examiner’s Comments  Among the less successful answers, common problems included the following: 1. the failure to mention or explain the significance of the distinction between economic damages and actual damages and the basis for obtaining actual damages under the tie-in statute.

Bar Problem: Examiner’s Comments 2. many examinees did not mention or apply the distinction between who is able to sue the insurer under the DTPA and Article

Bar Problem: Examiner’s Comments  3. many examinees did not thoroughly describe the consumer's independent rights and remedies under the DTPA (without the benefit of the tie-in statute). For example, many examinees did not explain that privity of contract is not necessary to bring a claim under the DTPA and also did not mention that Widow and/or Bank only had to be "intended beneficiaries" of the insurance policy rather than the actual purchasers of the policy.

Bar Problem: Examiner’s Comments  4. while most examinees recognized that insurers have various statutory duties toward their insureds, many examinees did not elaborate on the specific duties such as the duty to promptly pay or deny claims, conduct a reasonable investigation and to provide a reasonable explanation of a denial of coverage.