Opinion ID: 2099901
Heading Depth: 2
Heading Rank: 1

Heading: The Statute's Application

Text: Rocor has elected to recover under article 21.21 should we determine that it has an action thereunder. Accordingly, we must first decide whether the statute, as it existed when this suit was filed, permits an insured to recover defense costs it incurred because its insurer unreasonably delayed settling a third-party liability claim. [3] Section 16(a) of article 21.21 provides: Any person who has sustained actual damages as a result of another's engaging in an act or practice declared in Section 4 of this Article or in rules or regulations lawfully adopted by the Board under this Article to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance ... may maintain an action against the person or persons engaging in such acts or practices. TEX. INS.CODE art. 21.21, § 16(a) (emphasis added). In interpreting article 21.21, we have recognized the Legislature's `intent to comprehensively regulate and prohibit deceptive insurance practices.' Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 385 (Tex.2000) (quoting Liberty Mut. Ins. Co. v. Garrison Contractors, Inc., 966 S.W.2d 482, 485-87, 486 (Tex.1998)). Section 16(a) allows insureds to pursue claims for conduct declared unfair in rules or regulations adopted by the State Board of Insurance under article 21.21. State Board of Insurance Order No. 18663, which was adopted under the statute, prohibits unfair or deceptive practices as defined by the provisions of the Insurance Code. State Bd. of Ins., Bd. Order No. 18663 (codified at 28 Tex. Admin. Code § 21.3). Insurance Code article 21.21-2, section 2(b)(4), in turn, defines as an unfair practice [n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear. Tex. Ins.Code art. 21.21-2, § 2(b)(4). Although article 21.21-2 does not itself create a private cause of action, we held in Vail that conduct violating article 21.21-2 was actionable under article 21.21 by reference through Board Order 18663. Vail, 754 S.W.2d at 133-134. [4] Accordingly, Vail recognized that an insured may sue its insurer under article 21.21, section 16 for not attempting in good faith to settle a claim promptly, fairly, and equitably after liability has become reasonably clear. In Watson, we refused to extend Vail to allow a third-party claimant to sue the defendant's insurer for not settling a liability claim against its insured. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 147-50 (Tex.1994). We emphasized that the Legislature had specifically refused to create such a cause of action under the statute, and distinguished the unfair settlement practice in Vail as one that arose in the context of the special relationship between an insured and its insurer. Id. at 149. Because a third party to the insurance contract enjoys no such special relationship, we refused to confer upon Watson, a third-party claimant, the rights and remedies of an insured: A third party claimant has no contract with the insurer or the insured, has not paid any premiums, has no legal relationship to the insurer or special relationship of trust with the insurer, and in short, has no basis upon which to expect or demand the benefit of the extra-contractual obligations imposed on insurers under art. 21.21 with regard to their insureds. Id. Our holding in Watson was consistent with the remedial purposes underlying article 21.21. We expressed concern about undermining the duties owed by an insurer to its insured by creating an inherently conflicting duty to a third party. Id. at 150. To hold otherwise, we stated, would undermine the duties insurers owe to their insureds, contrary to article 21.21's purpose. Id. These considerations led us to conclude that Watson had no standing under article 21.21, section 16 to sue the insurer for unfair claim settlement practices. Id. But we emphasized that Vail remains the law as to claims for alleged unfair claim settlement practices brought by insureds against their insurers. Id. at 149. National Union suggests that we resolved the issue presented in this case against the insured in Garcia. There, an insurer had refused to settle a medical malpractice suit against its insured on the ground that the plaintiffs' claims were not covered by the policy. Garcia, 876 S.W.2d at 845. The plaintiffs settled with the physician, agreeing to enforce the judgment they obtained against him only against his insurer, and taking an assignment of his rights against the insurer. Id. The plaintiffs then sued the insurer solely as its insured's assignees, alleging that its failure to settle was negligent and violated article 21.21 and the DTPA. Id. at 845-46. Based on jury findings that the insurer's failure to settle was negligent and an unfair practice in the business of insurance, the trial court rendered judgment against the insurer under article 21.21, and the court of appeals affirmed. Id. at 846. We held that (1) the evidence conclusively established that the insurer discharged its duty to defend, and (2) the insurer did not breach its Stowers duty to settle because it never received a settlement demand within policy limits. Id. at 843. We also emphasized that the record was devoid of evidence that [the insurer] ever engaged in any unfair or deceptive act or practice as defined in the relevant statutes. Id. at 847. National Union points to language in Garcia that it claims suggests that an insured has no cause of action against its insurer under article 21.21 for failing to settle a third-party claim against the insured. For example, we wrote that [b]reach of the Stowers duty does not constitute a violation of article 21.21, id. at 847, and Vail is inapposite [because it involved a first-party property insurance policy]. Id. at 847, n. 10. But neither of these statements indicates that we intended to limit an insured's statutory claims against its own insurer for unfair claim settlement practices to first-party insurance claims, and neither was necessary to our decision. Nor can we identify a principled basis upon which to draw a distinction between first-party and third-party claims when the insured has been directly injured as a result of its insurer's unfair claim settlement practices. When construing statutes, our ultimate purpose is to ascertain the Legislature's intent. Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex.1999). In determining that intent, we may look to the statute's underlying purpose. Tex. Gov't Code § 311.023(1); see Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 662 (Tex. 1996). The Legislature has directed that article 21.21 shall be liberally construed and applied to promote its underlying purposes as set forth in this section. Tex. Ins.Code art. 21.21, § 1(b). The statute was enacted to protect insurance consumers by prohibiting unfair or deceptive practices in the business of insurance. Id. § 1(a); see State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 435 (Tex.1995). We see nothing in the statute's language or in its underlying purposes to support a conclusion that the Legislature intended to limit the statute's application to first-party claims when the insured has sustained actual damages as a result of unfair practices. Accordingly, we conclude that Rocor may assert an article 21.21 claim against its excess liability carrier for damages that it sustained as a result of National Union's unfair claim settlement practices.