Court Opinion

ID: 9681965
Source: CourtListenerOpinion
Date Created: 2023-08-24 08:02:23.661455+00
Date Added: 2024-06-11T18:17:36.778055
License: Public Domain

OPINION ON REHEARING
Allstate’s motion for rehearing and various amicus curiae briefs on rehearing focus more directly than did the original briefs on the issue of whether a third-party beneficiary of a Texas automobile liability policy has an individual cause of action against the insurer under Tex.Ins.Code Ann. art. 21.21 (Vernon 1981 & Supp.1992) when the insurer has committed an unfair claims settlement practice because, with such frequency as to indicate a general business practice, it does not attempt in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear. Watson’s motion for rehearing questions our holding that federal law controls as to what constitutes the business of insurance, arguing that state law controls.
We overrule Allstate’s motion for rehearing because we hold that Watson has a “claim” against Allstate as defined by the rules of the Texas Board of Insurance even if she could not yet assert the claim in court; that as a claimant, Watson is entitled to have her claim dealt with fairly; and that if Allstate does not, as a regular business practice, deal fairly with such claimants when its liability is reasonably clear, Watson or any other claimant has an individual cause of action against it under article 21.21, section 16 of the Texas Insurance Code. We also hold that to eliminate a cause of action established by the legislature and the State Board of Insurance, the constitutionality of which has not been challenged, for policy reasons such as those argued by Allstate and the amici curiae, would be an unwarranted judicial intrusion into the legislative and the executive arena. We do not reach the issue of whether such a cause of action must be abated until judgment against the insured has been obtained.
We grant Watson’s motion for rehearing in part by withdrawing those portions of our original opinion which hold that federal law controls the determination of what constitutes the “business of insurance” in causes of action brought under article 21.-21, section 16 of the Texas Insurance Code. Instead we hold that whether the federal test is used or the definition of the “business of insurance” contained at Tex.Ins. Code Ann. art. 1.14-1, sec. 2(a)(6) (Vernon Supp.1992) is used, Allstate’s handling of Watson’s claim constituted the business of insurance as it relates to an article 21.21, section 16 action. We overrule the remaining portions of Watson’s motion for rehearing.
Article 21.21, section 16 of the Texas Insurance Code creates an individual cause of action against an insurer for any person who has sustained actual damages due to unfair claims settlement practices on the part of that insurer. The Texas Supreme Court has recognized this cause of action when brought by an insured. See Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 134 (Tex.1988). Allstate and the amici curiae contend that Watson does not qualify to bring such a suit because her seeking recovery from the insurer of the party whom she alleges caused her injury does not meet the State Board of Insurance’s definition of a claim until such time as she has obtained a judgment against the insured.
The term “claim” as defined by the rules of the State Board of Insurance is “a request or demand reduced to writing and filed by a Texas resident with an insurer for payment of funds or the providing of services under the terms of a policy, certificate, or binder of insurance.” State Board of Insurance, 28 Tex.Admin.Code sec. 21.-202 (West Sept. 9, 1982) (Unfair Claims Settlement Practices). There is no contention that Watson is not a Texas resident nor that her request or demand was not reduced to writing. We hold that her request or demand is for the payment of funds under the terms of the insurer’s contract of insurance with its insured. Consequently, her claim does meet the definition of “claim,” thereby conferring upon her the right to bring an action under article 21.21, section 16 of the Insurance Code.
*430Allstate contends that the definition indicates that the third party’s claim must be liquidated in order to qualify as a claim within the meaning of the insurance board rules. One of the amicus curiae contends that because a third-party beneficiary has no contractual rights under the policy until the liability of the covered person has been established by judgment or written agreement with the insurer, Watson presently has no legal right to payment of funds.
As we noted in the opinion, Allstate’s responsibility under its policy is to pay damages for bodily injury or property damages for which any covered person becomes legally responsible because of an auto accident. Watson’s claim against Allstate is based on her allegation that Allstate’s insured has become legally responsible to her by virtue of her accident with the insured. We therefore believe that we are correct in holding that Watson’s request or demand in writing for payment of funds by virtue of Allstate’s insurance policy with its insured is a “claim” as defined in section 21.202 of the State Board of Insurance rules. See 28 Tex.Admin.Code sec. 21.202. We see nothing in the definition of “claim” that would require the demand to be liquidated or that would require the demand be one that could presently be recovered in court at the time it is made, only that it be based upon the terms of the insurance policy. Although a third-party beneficiary under an automobile liability policy is precluded from seeking recovery under the policy against the insurer until it has obtained judgment against the insured, there is no prohibition against the third-party beneficiary presenting his or her claim to the insurer based upon the beneficiary’s claim that the insurer is liable to it under the terms of the policy because the insured has become legally responsible due to the insured’s negligence being a proximate cause of damage to the beneficiary.
Allstate relies on Warfield v. Fidelity & Deposit Co., 904 F.2d 322, 326-27 (5th Cir.1990); Chaffin v. Transamerica Ins. Co., 731 S.W.2d 728, 732 (Tex.App.—Houston [14th Dist.] 1987, writ ref’d n.r.e.); Caserotti v. State Farm Ins. Co., 791 S.W.2d 561, 566 (Tex.App.—Dallas 1990, writ denied); and Employers Casualty Co. v. International Trucking Co., No. 04-90-00012-CV (Tex.App.—San Antonio, June 26, 1991, rehearing pending).
Warfield was a suit against certain insurers for failure to pay a claim on a banker’s blanket bond. In upholding the trial court’s dismissal of the lawsuit, the 5th Circuit Court held that one may not make a recovery under article 21.21 of the Texas Insurance Code unless there is a direct and close relationship between the wrongdoer and the claimant. The court relied on Chaffin, Vail, Aetna Cas. & Sur. Co. v. Marshall, 724 S.W.2d 770 (Tex.1987), and Hermann Hosp. v. National Standard Ins., 776 S.W.2d 249 (Tex.App.—Houston [1st Dist.] 1989, writ denied). We have examined all of those cases, including Warfield, and find that not one constitutes authority that a third-party beneficiary of an automobile liability policy who has not yet obtained a judgment against the insured has no individual cause of action against an insurer under article 21.21, section 16 of the Texas Insurance Code due to the insurer’s unfair claims settlement practices. To the extent that Warfield might contain language that might indicate such authority, it is clearly dicta since Warfield did not involve an automobile liability policy. To the extent that Warfield might constitute such authority we decline to adopt that rule for the reason that we hold that such a third-party beneficiary is a claimant within the rules of the Texas Insurance Board who may bring such an action when confronted with unfair claims settlement practices.
We distinguished Chaffin in our original opinion for the reason that the plaintiff in that case was not a third-party beneficiary of the policy. As we also noted in our original opinion, Watson is such a third-party beneficiary. In Caserotti, the court held, based on Chaffin, that the insurer did not have a duty of good faith and fair dealing to an injured third party. Caserot-ti, 791 S.W.2d at 566. Although the plaintiff alleged some violation of the Texas Insurance Code, the opinion does not specifically address her cause of action under *431the code in its discussion. We therefore find no authority in Caserotti inconsistent with our holding here, for we have agreed that Allstate owed Watson no common-law duty of good faith and fair dealing.
We acknowledge that Employers Casualty is on point and reaches a different conclusion. In that case, the Fourth Court of Appeals determined that a third party such as Watson could not bring a cause of action under article 21.21 against the insurer because the third party could not claim beneficiary status in the absence of a determination of the liability of the insured. Employers Casualty, slip op. at 10. In reaching that conclusion, the court relied only on the case of Hermann Hosp., 776 S.W.2d at 250. In that case, the First District Court of Appeals held that a hospital was entitled to bring an action under article 21.21, even though not an insured, against a health insurer whose assurance of coverage the hospital had relied upon in admitting a patient. In reaching its conclusion, that court found that the relationship between a hospital and a health insurance company was a direct one because of the hospital’s reliance upon the representations of coverage made by health insurance carriers. Id. at 254. Although the court in Hermann found a direct relationship between the hospital and the insurance company existed in that case, its holding is not in any way inconsistent with our holding here. Since that case did not involve an automobile liability policy, the court was not faced with whether a third party under a Texas automobile liability policy could be a claimant under article 21.21.
The court in Employers Casualty apparently concluded that if one may not bring a suit under the insurance contract until a judgment has been obtained against the insured, and if the insurer has no common-law duty of good faith and fair dealing as to the third party, such a third party has no right of action under article 21.21 of the Texas Insurance Code. Such a conclusion has no support in logic and is inconsistent with the terms of the Code and the rules of the State Board of Insurance. We also note that Employers Casualty Company is still pending rehearing some nine months after the first opinion was handed down, and is thus not a final opinion.
As we have previously noted, Watson makes her claim under the policy based upon her assertion that the insured is legally responsible, due to negligence and proximate cause, for any injury or damage she suffered as a result of the accident. Because Watson’s claim is based upon the coverage set forth in the policy between Allstate and its insured, it constitutes a claim as defined at section 21.202 of the State Board of Insurance Rules. If Watson has a claim as defined, she has a cause of action against Allstate if she can show that, as a regular business practice, Allstate does not deal fairly with such claimants when its liability becomes reasonably clear.
Everyone recognizes that if Watson has a “claim” as defined by the Insurance Board rules then she is also a “claimant” as defined by the rules. Surely one who is a claimant under the rules is entitled to have his or her claim dealt with fairly by the insurer which means that where the insurer’s liability is reasonably clear, the insurer must attempt in good faith to effectuate prompt, fair, and equitable settlement of such a claim. We assume that the legislature in providing for mandatory liability insurance for the benefit of those who might suffer injury or damage on our highways did not envision those injured parties not even having their claims fairly considered by insurers until they first obtained a court judgment against the insured.
Allstate and the amici curiae make several policy arguments as to dire consequences that will result in the event that there is such a cause of action. If we find the policy arguments compelling, are we to ignore a cause of action created by the legislature and the rules of the State Board of Insurance? We do not think so. One amicus curiae argues that intrusion into the legislative arena to establish a cause of action without regard for traditional constitutional and legal safeguards of legislative power violates a fundamental judicial rule. If that be so, then our abolishment of a *432cause of action established by the legislature and the State Board of Insurance, when the constitutionality of the cause of action has not been called into question, would also be an unwarranted intrusion into the legislative and the executive arena that we as a part of the judicial branch would not be privileged to make.
Allstate refers us to the California cases of Royal Globe Ins. Co. v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 (1979) and Moradi-Shalal v. Fireman’s Fund Ins., 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 (1988). It argues that the California Supreme Court adopted the rule we have announced here but had to change its mind because of the consequences that followed. In Royal Globe, the California Supreme Court inferred an individual cause of action for unfair claims settlement practices from statutory language that did not expressly provide for such a cause of action. Royal Globe, 592 P.2d at 329. Later, in Moradi-Shalal, the court overruled Royal Globe, apparently since most other state courts and commentators did not agree with its interpretation of the language of the act as creating an individual cause of action. Moradi-Shalal, 758 P.2d at 58. Our situation is different because article 21.21, section 16 of the Texas Insurance Code expressly creates an individual cause of action for unfair claims settlement practices, and such an individual cause of action has been recognized by the Texas Supreme Court in Vail, 754 S.W.2d at 134. Here then, unlike California, the issue is whether Watson is an individual who may bring such an action, not whether such an action exists under the Code.
Finally, Allstate argues that if we are correct then at least the trial ought to be postponed until a judicial determination of liability of the insured has been made in a separate proceeding. Since Allstate sought judgment in the trial court and not an abatement until proceedings against the insured were completed, the time at which the proceedings were to be heard was not at issue in the trial court and therefore has not been at issue here. We consequently do not reach that issue.
In her motion for rehearing, Watson urges that there is no need to use the federal definition of the “business of insurance” because the term is defined by Texas Insurance Code article 1.14-1, section 2(a)(6) to include the investigation or adjustment of claims. We withdraw our holding in the original opinion that federal law controls in causes of action under article 21.21, section 16 of the Texas Insurance Code as to what constitutes the “business of insurance.” Instead, we hold that in this cause whether one relies on the federal standard as discussed in our original opinion or the state standard as found in article 1.14-1, section 2(a)(6) of the Insurance Code, the handling of Watson’s claim constituted the business of insurance.
We overrule Allstate’s motion for rehearing and grant Watson’s motion for rehearing only to the extent stated in this opinion.