In 2006, the Supreme Court of Texas issued its opinion in Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809 (2006). Touted by insurance companies as a great victory and lamented by plaintiff’s attorneys as an pro-insurance aberration, the Brainard opinion has taken on a mythical life of its own with many defense attorneys and insurance companies arguing that it eliminated all “extra-contractual” claims against the insurance carrier in an Uninsured/Underinsured Motorist case until a judgment has been taken against the offending driver. However, that is simply not the case.
Understanding Brainard v. Trinity Universal Ins. Co.
First. lets focus on what Brainard did and did not do.
Brainard revolved around two primary questions: (i) attorneys’ fees for breach of contract by the insurance company failing to timely settle and resolve the UIM claim; and (ii) whether pre-judgment interest was allowed. The court held that prejudgment interest was recoverable and provided guidance on how it should be applied – actually good for the plaintiff. However, with regard to the issue of attorney’s fees, the Supreme Court of Texas held that attorneys’ fees were not recoverable because the insurance company was not obligated to pay the policy because no judgment establishing liability of the other motorist had been entered. This is the portion of the case that insurance defense attorney’s assert bars all “bad faith” claims. However, this is simply not the case.
Brainard, merely held, based on the language of the insurance agreement itself, “[T]he 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.” Brainard, however, did not address any “pre-payment” contractual or extra-contractual claims that may exist, including breach of contract and violations of the Texas Insurance Code.
Always Read the Contract
Given the fact that the Brainard court based its opinion on the actual wording of the insurance contract, I would strongly recommend that anyone handling a first party insurance claim start by requesting and reading the insurance agreement itself. Many of the terms and obligations stated in the insurance policy are lifted straight from the Texas Insurance Code, including prompt acknowledgement of the claim, accept or rejection of the claim, etc. If an insurance carrier, breaches these “pre-payment” obligations then a viable claim for breach of contract likely exists and those claims should not abated by a court as they are actionable by themselves. Moreover, if the breach is proven, the plaintiff may be entitled to recover attorney’s fees based on those “pre-payment” breaches, even if a judgment has not been taken against the offending driver.
“Bad Faith” versus “Unfair Settlement Practices”
As a practicing attorney, I have often heard other attorneys speak of “bad faith” cases. In fact, I have often used this term in general parlance with other attorneys. However, what Texas common law actually recognized was a claim against an insurance company for failing to attempt in “good faith” to effectuate a prompt, fair and equitable settlement. This common law cause of action was later codified as part of Section 541.060 of the Texas Insurance Code. However, as the Brainard case illustrates, words such as “good faith” and “fair and equitable” are not well-defined and can be circumvented by other means. While I do not suggest that the “common law” is dead, given the extent to which Texas had “codified” virtually every actionable tort or defense, I would respectfully recommend to other attorneys handling these cases that they look for “black letter” insurance code violations that have far less wiggle room for an insurance-company to rely upon. Fortunately, section 541.060 states a number of other practices that constitute an “unfair or deceptive act or practice,” including:
- Misrepresenting to a claimant a material fact or policy provision;
- Failing to provide a policyholder with a reasonable explanation for the denial of a claim or offer of a compromise settlement of a claim;
- Failing within a reasonable time to affirm or deny coverage; and
- With respect to a Texas personal auto policy, delaying or refusing settlement of a claim solely because there is other insurance.
Damages for violations of these statutory requirements may include, in addition to the amount of actual damages, reasonable and necessary attorneys’ fees, court costs, and “any other relief the court determines as proper.” Additionally, if it is established by the trier of fact that the insurance company knowingly committed one or more of these violations, treble damages may be awarded.
Prompt Payment Violations
Another “pre-payment” obligation applicable to UM/UIM claims are what are generally referred to as the “prompt payment” requirements under Sections 542.056, 542.057, and 542.058 of the Texas Insurance Code. Under these often overlooked sections, an insurance carrier:
- Shall notify a claimant in writing of the acceptance or rejection of a claim within 15 days, unless additional information is requested;
- If additional information is requested, the insurance carrier shall accept or reject the claim not later than the 45th day after the date the additional information is requested (maximum of 60 days from date of notice of claim); and
- If the insurance carrier notifies a claimant that it will pay all or part of a claim, the insurer shall pay the claim not late than the fifth business day after the notice is made.
Violations by the insurance carrier of any of these requirements, the insurance carrier may be liable in addition to the amount of the claim itself, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorneys’ fees. See Section 542.060.
Notice, Notice, Notice
As one final practical concern, I cannot stress enough the need to provide notice to the insurance carrier regarding the claim, any breaches of contract, or any insurance code violations. These notices are often a pre-requisite to recovery of damages for attorneys’ fees and other statutorily authorized damages. See Section 541.154 of the Texas Insurance Code. Moreover, these written notices as well as other correspondence to or from the insurance carrier will most likely constitute key pieces of evidence if the case proceeds to trial. Perhaps the most effective way to present a “bad faith” claim against an insurance company is through a timeline of written correspondence to and from the insurance company, establishing that the insurance company violated one or more provisions of the contract or insurance code.
In the end, I hope this brief discussion offers food for thought to other attorneys handling these claims and serves to dispel some of the myths surrounding these claims.
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