Chapter 5-2 Unfair Insurance Practices—Deceptive Insurance Practices

• Jurisdiction: United States

5-2 Unfair Insurance Practices—Deceptive Insurance Practices

5-2:1 Overview

5-2:1.1 Related Causes of Action

Bad Faith, Breach of Contract, Breach of Stowers Duty, Texas Prompt Payment of Claims Act Violation, DTPA

MUST READ CASES & STATUTES

USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018)

Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019)

Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378 (Tex. 2000)

Rocor Int'l v. Nat'l Union Fire Ins. Co., 77 S.W.3d 253 (Tex. 2002)

Texas Insurance Code Chapter 541 (regulates insurance trade practices and provides a private cause of action for unfair or deceptive insurance practices).²⁹

5-2:2 Notice

A person seeking damages in an action against another person under Chapter 541 must provide written notice to the other person not later than the 61^st day before the date the action is filed.³⁰ This notice must advise the other person of: the specific complaint; and the amount of actual damages and expense, including attorney's fees reasonably incurred in asserting the claim against the other person.³¹

The notice is not required if giving notice is impracticable because the action: must be filed to prevent the statute of limitations from expiring; or is asserted as a counter-claim.³²

A person who has had a claim under Chapter 151 filed against them but did not receive the required notice under § 541.154 may file a plea in abatement.³³ The deadline to file a plea in abatement is not later than the 30th day after the date the person files an original answer in the court in which the action is pending.³⁴

The action is automatically abated beginning on the 11th day after the plea in abatement is filed if the plea is (1) verified and alleges that the person against whom the action is pending did not receive the required notice; and (2) is not controverted by an affidavit filed by the claimant before the 11th day after the date the plea in abatement is filed.³⁵ If the action is not automatically abated, 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 required notice.³⁶

If the action is abated under § 541.155, the abatement continues until the 60th day after the date notice is provided in compliance with § 541.154.³⁷

5-2:3 Elements

(1) The claimant is a person who has sustained actual damages.³⁸

"Person" for the purposes of Chapter 541 is defined as: 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.³⁹
The insured or a beneficiary of the insurance policy has standing to sue under Chapter 541.⁴⁰ A third party claimant does not have a right to recover under Chapter 541.⁴¹
Note that if the claimant is alleging allegations of the DTPA as the basis for recovery under Chapter 541, the claimant may have to prove that she is a consumer as defined by the DTPA depending on which provisions of the DTPA she is alleging were violated.⁴²

(2) The party against whom the Chapter 541 action is brought is a "person."⁴³

"Person" can include employees of an insurance company whose job duties call for them to engage in the business of insurance—meaning that these employees can both sue and be sued for violations of the Texas Insurance Code.⁴⁴
An insurance company may be liable for any acts of its employees or agents that is within the actual or apparent scope of the agent's authority.⁴⁵

(3) Defendant violated at least one of three categories of statutes.⁴⁶

Violation of Texas Insurance Code chapter 541, subchapter B.⁴⁷
Violation of § 17.46(b) of the Texas DTPA and the person bringing the action relied on the act or practice to their detriment.⁴⁸
Violation of a tie-in provision of the Texas Insurance Code.⁴⁹

(4) Defendant's act or practice was a producing cause of actual damages.⁵⁰

"Producing cause" means a cause that was a substantial factor in bringing about an injury, and without which the injury would not have occurred.⁵¹

5-2:4 Damages and Remedies

5-2:4.1 Actual Damages

Actual damages are recoverable.⁵² See Chapter 10 and Chapter 11.

The General Rule: An insured cannot recover policy benefits as damages for an insurer's statutory violation if the policy does not provide the insured right to receive those benefits.

The Entitled-To-Benefits Rule: An insured who establishes a right to receive benefits under the policy can recover those benefits as actual damages under the Insurance code if the insurer's statutory violation causes the loss of the benefits.⁵³

The Benefits-Lost Rule: Even if the insured cannot establish a present contractual right to policy benefits, the insured can recover benefits as actual damages under the Insurance code if the insurer's statutory violation caused the insured to lose that contractual right.⁵⁴

The Independent Injury Rule: If an insurer's statutory violation causes an injury independent of the loss of policy benefits, the insured may recover damages for that injury even if the policy does not grant the insured a right to benefits.⁵⁵

The No-Recovery Rule: An insured cannot recover any damages based on an insurer's statutory...