Terry, et al v. Safeco Insurance Company of America
Filing
89
MEMORANDUM AND OPINION entered GRANTING IN PART and DENYING IN PART 82 MOTION for Summary Judgment Pursuant to Rule 56. A Status Conference is set for 3/18/2013 at 09:00 AM in Courtroom 11B before Judge Lee H Rosenthal.(Signed by Judge Lee H Rosenthal) Parties notified.(leddins, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
JACK TERRY and EDEN TERRY,
Plaintiffs,
v.
SAFECO INSURANCE COMPANY OF
AMERICA,
Defendant.
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CIVIL ACTION NO. H-10-0340
MEMORANDUM AND OPINION
This is an uninsured-motorist insurance case. It arose from an accident between a car driver,
Jack Terry, and an uninsured motorist. Jack Terry and his wife, Eden, were on the interstate when
the car in front of theirs had a blowout. The driver lost control and hit the Terrys’ vehicle. The
Terrys were insured by Safeco Insurance Company of America. The other driver did not have
automobile insurance. The Terrys filed a claim under their uninsured motorist (UM) coverage.
Safeco accepted the claim in part and denied it in part. Safeco initially disputed liability on the basis
that Jack Terry was partially responsible for the accident. It also challenged the reasonableness of
the amount the Terrys sought for their medical expenses and for pain and suffering.
The Terrys filed suit, alleging that Safeco had breached the insurance contract, breached its
common law duty of good faith and fair dealing, and violated the fair settlement practices and
prompt-payment provisions of the Texas Insurance Code. This court severed the plaintiffs’
extracontractual claims from their breach of contract claims until the plaintiffs established the UM
liability and their resulting damages at trial. At the trial, the jury found that Jack Terry was not at
fault for the accident. The jury awarded the Terrys some, but not all, of the damages they requested.
Safeco has asserted that once the verdict is reduced to partial final judgment and it pays the amount
the jury awarded under the contract, it will not be liable for the additional damages the Terrys seek.
Safeco moves for summary judgment on the Terrys’ claims.
Based on the complaint; the motion, response, and reply; the record; and the relevant law,
Safeco’s motion for summary judgment is denied on the Terrys’ claim under § 542.057 of the Texas
Insurance Code and granted on the Terrys’ claims for violations of other sections of the Texas
Insurance Code and their claims for breach of contract and breach of the common law duty of good
faith and fair dealing. The reasons are explained below. A status conference is scheduled for
March 18, 2013 at 9:00 a.m. in Courtroom 11-B.
I.
Background
On December 12, 2008, Jack Terry was driving down Interstate 10 with his wife in the
passenger seat. Lasonya Nakia was driving in the lane to the right, slightly in front of the Terrys’
vehicle. Nakia’s car had a blowout. She lost control and crossed into the Terrys’ lane. Nakia’s car
struck the side of the Terrys’ car. This caused the Terrys’ car to drive off the right side of the
highway and roll over.
The Terrys were taken by ambulance to Memorial Hermann Hospital. Jack Terry was treated
for cervical, lumbar, right shoulder, and right knee sprains and strains; headaches; and muscle
spasms. He was later confirmed to have a protruding disc at L4-5. (Docket Entry No. 86, Ex. H).
Eden Terry also received medical treatment. Her injuries included cervical radiculalgia; disc
herniation and protrusions at C5-6 and C6-7; cervical, lumbar, and thoracic sprains, strains;
hyperflexion/hyperextension; muscle spasms; and headaches. (Id., Ex. I).
2
Another motorist, Anthony Rodriguez, witnessed the accident and provided a statement to
the police. The Houston Police Department found Nakia at fault. She was cited for driving without
automobile insurance and for failing to drive in a single lane. (Id., Ex. A).
The Terrys’ Safeco policy covered liability, property damage, person injury protection (PIP),
and uninsured and underinsured motorist (UM/UIM) coverages. The PIP coverage was for $2,500
per person; the UM/UIM coverage was $50,000 per person for bodily injuries and $100,000 per
accident. (Docket Entry No. 82, Ex. A-8 at 5).
The Terrys first contacted Safeco on December 15, 2008. (Docket Entry No. 82, Ex. A-3
at 1). Safeco representative Letesha Wheeler interviewed Jack Terry on December 17, 2008.1 Terry
stated that he was in the third of five lanes and that Nakia was “a couple of car lengths” ahead in the
fourth of five lanes. One of her tires blew out and her car “fishtailed.” The front of Nakia’s car hit
the rear passenger door of the Terrys’ car. (Docket Entry No. 86, Ex. B at 4). Jack Terry stated that
when Nakia’s car started to fishtail, he “tried to pull on the brake and move over,” but her car came
into their lane and hit their car. (Id. at 5).
Safeco sent the Terrys a letter dated December 19, 2008, providing them with an application
for PIP benefits and a medical authorization form. Safeco requested that they return the completed
forms with any medical bills from the accident. (Docket Entry No. 82, Ex. A-3 at 2). Safeco’s
records indicate that its representative spoke to Jack Terry by telephone that day. (Id. at 3).
Safeco sent the Terrys a letter dated March 19, 2009, asking for information about the status
of their injuries and treatment. (Docket Entry No. 82, Ex. A-3 at 8). Sometime later, Safeco was
1
The Terrys submitted a transcript of the phone conversation between Jack Terry and
Letesha Wheeler. Safeco has not objected to any aspect of this evidence.
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informed that the Terrys were represented by counsel. On April 7, 2009, Safeco sent a letter to the
Terrys’ attorney, seeking copies of the Terrys’ medical bills and records. The letter also stated: “[i]t
looks as though Lasonya Nakia was the tortfeasor in this accident. I will require a letter from Ms.
Nakia or her auto carrier stating that she had no coverage at the time of the accident otherwise I do
not see this as a Underinsured Motorist (UM) claim.” Safeco informed the Terrys’ counsel that, if
the Terrys intended to file a UM claim, they would need to provide certain documents. Safeco noted
that it had not received a completed PIP application or medical authorization forms. (Id. at 5–6).
Safeco’s records indicate that it tried to call the Terrys’ attorney on May 1, 2009, but he was
out of the office. Safeco sent the attorney letters dated June 16 and July 17, 2009, asking him to
contact Safeco and stating that it had not received responses to several previous letters. Safeco also
asked the Terrys to provide information about their injuries and send any medical records and bills
from the accident. (Id. at 8–9). Alison Kendall, the Safeco PIP adjuster assigned to the Terrys’
claims, sent their attorney an email on August 31, 2009 seeking an update on the PIP application and
supporting documentation. (Id. at 10). Safeco’s records from that date state that it had not received
the Terrys’ medical records and that Safeco had tried, without success, to speak with their attorney
by telephone. (Id. at 11).
Safeco received a letter of representation dated September 2, 2009 from the Terrys’ attorney.
The letter included applications for PIP benefits, the Texas Peace Officer’s crash report, and copies
of the Terrys’ medical records and bills. The letter stated that Jack Terry’s medical bills were
$6,548.50 and Eden Terry’s bills were $10,037.75. It did not mention the Terrys’ UM coverage.
(Docket Entry No. 82, Ex. A-2).
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Safeco paid the PIP policy limits on September 30, 2009. (Id., Ex. A-1). Safeco also sent
the Terrys’ attorney a letter stating that those payments “exhausted” the PIP/Medical limits and that
additional medical expenses would need to be sent to their health insurance carrier. (Id., Ex. A-4).
The Terrys’ attorney responded with a demand letter dated November 20, 2009. The letter stated
that the Terrys’ injuries were caused when Nakia’s car crashed into theirs and caused it to roll over,
and that Nakia was entirely at fault:
According to the investigating officer, factors which [led] to the
collision include a slick tire on Ms. Nakia’s vehicle which resulted in
a blow-out and Ms. Nakia’s failure to drive in a single lane. Ms.
Nakia received two citations, one for no insurance and the other for
failure to drive in a single lane. My clients were not issued a citation
nor were there any allegations of wrongdoing on their part. Weather
was not a factor in the collision. It was also the investigating
officer’s opinion that both of my clients suffered possible injuries.
(Docket Entry No. 82, Ex. A-4 at 2–3). The letter also summarized the Terrys’ injuries and medical
treatment. The letter offered to settle Jack Terry’s claim for $20,000 and Eden Terry’s claim for
$35,000.
Safeco declined the Terrys’ settlement offer in a December 5, 2009 letter, in part because it
found Jack Terry to be partially at fault for the accident:
Since Mr. Terry admittedly was behind Ms. Nakia and saw the left
tire blow, there is no indication that Mr. Terry a 72 year old
experienced driver attempted to brake knowing through his
experience that at highway speed there was a good chance for the
Ford Victoria to go out of control. There is no evidence that Mr.
Terry moved . . . [to] the left lane to avoid the Crown Victoria, and
no evidence that Mr. Terry tried to avoid a dangerous situation, but
only he drove straight on though, thus putting himself and Mrs. Terry
into harms [sic] way.
We believe the failure to avoid this accident in the making puts at
least 15% negligence on Mr. Terry.
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(Docket Entry No. 82, Ex. A-5). Safeco disputed some of the medical billings because Medicaid
had previously paid some bills, other bills were for non-treatment services like medical records and
narrative reports, and the Terrys’ attorney had failed to attach one of the bills to his demand letter.
Safeco’s letter also noted:
The odd thing is that Mr. Terry a 72 year old man braced behind the
steering wheel and Mrs. Terry a 69 year old lady who was not braced
had virtually the same exact injuries per the chiropractor. The
chiropractic treatment was the exact same, the time and length of
treatment was exactly the same (1/2/09 to 3/9/09 and 24 visits). The
MRI were need [sic] on each at the same time.
(Id.). Safeco found that reasonable medical expenses were $5,408.92 for Jack Terry and $6,163.62
for Eden Terry. It offered $6,300 to Jack Terry and $8,165.00 to Eden Terry for their claims.
Safeco’s offer was in addition to the $2,500 that it had already paid to both on their PIP claims.
(Id.).
The Terrys’ counsel responded in a letter dated December 11, 2009. The letter contested
Safeco’s assertion that Jack Terry was partially at fault for the accident:
We reiterate again that Ms. Nakia received two citations, one for no
insurance and the other for failure to drive in a single lane. More
importantly, the investigating officer will testify that factors which
led to the collision included a slick tire on Ms. Nakia’s vehicle which
resulted in a blow-out and Ms. Nakia’s failure to drive in a single
lane. The officer attributed absolutely no fault on Mr. Terry, though
he had the opportunity to do so. There is absolutely no evidence
whatsoever to support your allegation that Mr. Terry could have done
something to avoid this accident, and any assertion otherwise is
simply unfounded.
(Docket Entry No. 82-7, Ex. A-6). The letter also stated that under the Texas Supreme Court’s
decision in Mid-Century v. Kidd, 997 S.W.2d 265 (Tex. 1999), Safeco was not permitted to offset
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its settlement offers with the PIP benefits it had already paid to the Terrys.2 The letter offered to
settle Jack Terry’s claim for $18,000 and Eden Terry’s claim for $30,000. (Id.).
Safeco responded with a letter dated December 14, 2009. The letter offered $6,500 to Jack
Terry and $8,500 to Eden Terry. The letter pointed to a policy section stating that “[n]o one will be
entitled to receive duplicate payments for the same elements of loss under this coverage.” (Docket
Entry No. 86, Ex. C at 2). Safeco also stated: “[r]egarding the MRIs, the reports for both Mr. Terry
and Mrs. Terry do not show or state any new injury or an injury . . . connected to the auto accident
of 12/12/08. They do however confirm the findings of the lumbar and cervical x-rays that were
taken by Memorial Hermann . . . Hospital on 12/18/08 and 12/12/08 respectively and will be able
to be proven by an expert witness.” (Id.). In a December 16, 2009 letter, Safeco offered to pay Jack
Terry $8,500.00, and Eden Terry $10,500.00. The Safeco representative stated that “for the
purposes of settlement . . . I will drop the liability issue on Jack.” (Docket Entry No. 82, Ex. A-7).
The Terrys sued Safeco on February 4, 2010. On October 27, 2010, Safeco offered Jack
Terry $10,048.50 and Mrs. Terry $13,472.75 to settle their claims. (Docket Entry No. 86, Ex. C at
1). The Terrys rejected this offer.
In January 2011, this court severed the Terrys’ extracontractual claims from their breach of
contract claims. At the trial on the uninsured motorists liability and the damages, the jury found that
Nakia was entirely at fault. The jury awarded Jack Terry medical expenses of $8,081.87 and
physical pain and mental anguish damages of $12,670.60. It awarded Eden Terry medical expenses
of $7,932.63 and $12,670.60 for physical pain and mental anguish. (Docket Entry 78).
2
The Terrys appear to have abandoned this position on summary judgment.
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Safeco moves for summary judgment on the Terrys’ claims. Safeco argues that these claims
were premature because it did not have any contractual or extracontractual duty to pay the Terrys
before the court entered a final judgment on the jury’s verdict. Safeco also argues that its denial of
part of the Terrys’ UM claim was based on a bona fide dispute over the Terrys’ liability and
damages. Finally, Safeco argues that the Terrys have failed to show that Safeco’s alleged breach
of its duties injured them.
II.
The Summary Judgment Standard
Summary judgment is appropriate if no genuine issue of material fact exists and the moving
party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). “The movant bears the
burden of identifying those portions of the record it believes demonstrate the absence of a genuine
issue of material fact.” Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 322–25 (1986)). If the burden of proof at trial lies with the
nonmoving party, the movant may satisfy its initial burden by “‘showing’—that is, pointing out to
the district court—that there is an absence of evidence to support the nonmoving party’s case.”
Celotex, 477 U.S. at 325. While the party moving for summary judgment must demonstrate the
absence of a genuine issue of material fact, it does not need to negate the elements of the
nonmovant’s case. Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005) (citation
omitted). “A fact is ‘material’ if its resolution in favor of one party might affect the outcome of the
lawsuit under governing law.” Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir.
2009) (quotation omitted). “If the moving party fails to meet [its] initial burden, the motion [for
summary judgment] must be denied, regardless of the nonmovant’s response.” United States v.
$92,203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir. 2008) (quoting Little v. Liquid Air Corp.,
37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam)).
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When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive
a summary judgment motion by resting on the mere allegations of its pleadings. The nonmovant
must identify specific evidence in the record and articulate how that evidence supports that party’s
claim. Baranowski v. Hart, 486 F.3d 112, 119 (5th Cir. 2007). “This burden will not be satisfied
by ‘some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated
assertions, or by only a scintilla of evidence.’” Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d
at 1075). In deciding a summary judgment motion, the court draws all reasonable inferences in the
light most favorable to the nonmoving party. Connors v. Graves, 538 F.3d 373, 376 (5th Cir. 2008).
“Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving
party, there is no ‘genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986) (quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289
(1968)).
III.
Analysis
A.
The Breach-of-Contract Claim
Safeco argues that the Terrys’ breach-of-contract claim is premature because it had no
contractual duty to pay until the uninsured motorist’s liability and the Terrys’ damages were
established at trial. The Terrys’ UM coverage requires Safeco to “pay damages which an insured
is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of
. . . bodily injury sustained by an insured and caused by an accident.” (Docket Entry No. 82, Ex.
A-8, at 31). Interpreting the phrase “legally entitled to recover” in a similar provision, the Texas
Supreme Court has held that an insurer is under “no contractual duty to pay benefits until the insured
obtains a judgment establishing the liability and [uninsured] status of the other motorist.” Brainard
v. Trinity Universal Ins. Co., 216 S.W.3d 809, 818 (Tex. 2006). The court explained:
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The [UM/UIM] contract is unique because, according to its terms,
benefits are conditioned upon the insured’s legal entitlement to
receive damages from a third party. Unlike many first-party
insurance contracts, in which the policy alone dictates coverage, UIM
insurance utilizes tort law to determine coverage. Consequently, the
insurer’s contractual obligation to pay benefits does not arise until
liability and damages are determined.
Id. To determine the liability of the uninsured motorist and the resulting damages, the insured may
obtain a judgment against the tortfeasor. Id. Alternatively, the insured “may settle with the
tortfeasor . . . and then litigate [UM/UIM] coverage with the insurer. But neither a settlement nor
an admission of liability from the tortfeasor establishes [UM/UIM] coverage, because a jury could
find that the other motorist was not at fault or award damages that do not exceed the tortfeasor’s
liability insurance.” Id.
In this case, there was no judgment establishing Nakia’s liability and uninsured status and
the Terrys’ resulting damages until this court entered partial final judgment. Safeco’s contractual
duty to pay UM benefits under the policy did not arise until the Terrys obtained that judgment,
Safeco cannot have breached the insurance contract. Summary judgment is granted on the Terrys’
breach of contract claim. Cf. Owen v. Employers Mut. Cas. Co., 2008 WL 833086, at *2 (N.D. Tex.
Mar. 28, 2008) (granting the insurer’s motion to dismiss the breach of contract claim because there
was “no previous [judicial] determination of [the underinsured motorist’s] liability and
uninsured/underinsured status in the record”); Schober v. State Farm Mut. Auto. Ins. Co., 2007 WL
2089435, at *3 (N.D. Tex. July 18, 2007) (“Fundamentally, the Schobers fail to indicate how, in the
absence of [a judgment establishing the underinsured driver’s liability and their damages], they were
legally entitled to recover UIM benefits from State Farm at the time of State Farm’s alleged breach.
Consequently, State Farm cannot legally be held to have breached a contractual duty that never
arose.”).
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B.
The Extracontractual Claims
Safeco also contends that because it intends timely to pay the judgment entered by this court,
summary judgment should be granted on the Terrys’ extracontractual claims.
1.
The Claim for Breach of the Duty of Good Faith and Fair Dealing
Texas law imposes on insurers “a common law duty to deal fairly and in good faith with its
insured in the processing and payment of claims.” Aleman v. Zenith Ins. Co., 343 S.W.3d 817, 822
(Tex. App.—El Paso 2011, no pet.) (citing Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 340 (Tex.
1995)). “An insurer will be liable if [it] denies a claim when the insurer knew or should have known
that it was reasonably clear that the claim was covered.” Id. “An insurer may also breach its duty
of good faith and fair dealing by failing to reasonably investigate a claim.” Id. “The issue of the
breach of the duty of good faith and fair dealing ‘focuses not on whether the claim was valid, but
on the reasonableness of the insurer’s conduct’ in handling the claim.” Id. (citation omitted). “An
objective standard is utilized to determine whether a reasonable insurer under similar circumstances
would have delayed or denied payment of the claim.” Id.
Safeco argues that it is entitled to summary judgment on the bad faith claim because its
liability on the UM benefits claim could not be “reasonably clear” until the Terrys established
Nakia’s negligence and their resulting damages in a judicial proceeding. But under Texas law, a
UM benefits claim may be “reasonably clear” even before a court judgment establishes that an
insured is “legally entitled to recover” those benefits.
In Hamburger, 361 F.3d 875 (5th Cir. 2004), the insurer argued that “coverage of [the
plaintiff’s] UIM claim was not reasonably clear until the jury determined the extent of [the
plaintiff’s] damages caused by the [underinsured] driver.” Id. at 880. The insurer “thus contend[ed]
that the trial court properly granted summary judgment on [the] extra-contractual claims, because
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no bad faith liability could attach for [the insurer’s] failure to settle the claim prior to the jury’s
determination of [the plaintiff’s] damages caused by the accident.” Id. The Fifth Circuit rejected
the insurer’s argument. The court observed that “[t]here are no Texas cases which have squarely
held that liability can never be reasonably clear before there is a court determination of proximately
caused damages.” Id. Concerned about limiting an insured’s ability to assert a bad faith claim, the
court held that “[a]bsent a more clear indication from Texas courts that liability cannot be reasonably
clear . . . until the insured is found in a legal proceeding to be entitled to recover, we will not adopt
this interpretation of Texas law.” Id. at 881.
Safeco argues that the “clear indication from Texas courts” found missing in Hamburger
came two years later in the Texas Supreme Court’s decision in Brainard. In Brainard, the Texas
Supreme Court held that an insurer’s contractual duty to pay UIM benefits “does not arise until the
underinsured motorist’s liability, and the insured’s damages, are legally determined.” 216 S.W.3d
at 818. Brainard did not address whether an insured may assert a bad faith claim before obtaining
determination of the uninsured motorist’s liability and damages. Hamburger, decided two years
before Brainard, anticipated Brainard’s holding. Citing pre-Brainard cases, the Fifth Circuit
recognized that “Texas courts construe the phrase ‘legally entitled to recover’ in UIM provisions
to mean that the insured must establish the uninsured motorist’s fault and the extent of the resulting
damages before becoming entitled to recover UIM benefits.” Hamburger, 361 F.3d at 880
(alteration and internal quotation marks omitted). Brainard does not appear to call into doubt
Hamburger’s holding.
Safeco contends that several other Texas Supreme Court opinions establish that “[i]n most
circumstances, an insured may not prevail on a bad faith claim without first showing that the insurer
breached the contract.” (Docket Entry No. 82 at 15). It cites to Republic Ins. Co. v. Stoker, 903
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S.W.2d 338, 341 (Tex. 1995), and Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994).
But Stoker stands for the separate proposition that “[a]s a general rule there can be no claim for bad
faith when an insurer has promptly denied a claim that is in fact not covered.” 903 S.W.2d at 341.
Because the Terrys established at trial that their claim was covered by their UM policy, Stoker does
not bar their bad faith claims. Moriel also does not support Safeco’s position. The Moriel court did
not address whether an insured must prove a breach of contract in order to maintain extracontractual
claims.
Safeco argues that, even if the Terrys’ bad faith claim does not depend on their breach-ofcontract claim, summary judgment is warranted because the evidence shows that it had bona fide
disputes over the extent of Jack Terry’s fault for the accident, the reasonableness and necessity of
the Terrys’ medical treatment and bills, and the appropriate amount of compensation for the Terrys’
pain and suffering.
Safeco’s initial offer for payment of the Terrys’ medical expenses is almost identical to what
the jury found Safeco liable for at trial. Safeco deducted $150 from Natural Chirocare’s bill for the
cost of a narrative report that Safeco found not to be medical treatment. The Terrys point to no
evidence showing that Safeco’s liability for this $150 part of the bill was clear. Nor do the Terrys
point to evidence showing that Safeco’s denial of this $150 was not based on a bona fide dispute.
Safeco’s initial letter also did not offer payment for several other expenses that the jury found Safeco
liable for. These were Jack Terry’s bill from Memorial Southwest Hospital, Jack Terry’s bill from
the Houston Fire Department/EMS, and the Terrys’ bills from Lone Star Orthopedics. The record
does not reflect that the Terrys initially requested compensation for, or submitted, the bills or records
justifying payment for these services.
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The Terrys argue that Safeco breached its duty of good faith and fair dealing in taking the
initial position that Jack Terry was partially at fault for the accident. The Terrys point to the police
report, witness statement, and telephone statement that Jack Terry gave Safeco. In the statement,
Terry related that he was driving at highway speeds in the lane next to Nakia’s car and was only a
couple of car lengths behind when the tire blew out. Safeco does not point to any evidence in its
possession when it sent its December 4, 2009 letter that contradicts Terry’s statement or that
otherwise supports its finding that Jack Terry could have avoided Nakia’s car. Based on the
summary judgment evidence, a reasonable trier of fact could find that Safeco should have known
that there was no reasonable basis to find Jack Terry “at least 15 percent negligent.”
The Terrys also argue that the compensation Safeco offered the Terrys for their pain and
suffering was so low as to breach its duty of good faith and fair dealing. In its December 4, 2009
letter, Safeco offered to pay Jack Terry about $3,500 and Eden Terry about $4,500 for pain and
suffering. In its final offer before the Terrys filed suit, Safeco stated that it would pay the Terrys
about $6,000 each for pain and suffering. At trial, the jury found that Safeco was liable to each of
the Terrys for about $12,500 for pain and suffering. The Terrys do not point to any competent
evidence showing that it was reasonably clear that Safeco’s offer was inadequate. The difference
between Safeco’s offer and the amount the jury awarded is not sufficient to create a fact issue on the
Terrys’ bad faith claim. See Hamburger, 361 F.3d at 881 (holding that an insurer’s finding that
$16,039.10 was adequate compensation for pain and suffering was not “bad faith per se” and that
summary judgment was appropriate even though a jury awarded the insured $50,000 for pain and
suffering). Summary judgment is appropriate on the Terrys’ bad faith claims for inadequate
compensation for their pain and suffering.
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Safeco also moves for summary judgment on the ground that the Terrys have not identified
or raised a fact issue as to an injury resulting from Safeco’s alleged breach of its duty of good faith
and fair dealing independent of the injuries resulting from the accident or Safeco’s denial of policy
benefits. To recover from an insurer’s breach of its duty to act in good faith, a claimant must show
that an insurer’s actions “produced an independent injury.” Aranda v. Insurance Co. of North
America, 748 S.W.2d 210, 214 (Tex. 1988); see also United Serv. Auto. Ass’n v. Gordon, 103
S.W.3d 436, 442 (Tex. App.—San Antonio 2002, no pet.) (“An insured is not entitled to recover
extra-contractual damages unless the complained of actions or omissions cause injury independent
of the injury resulting from a wrongful denial of policy benefits.”).
The Terrys argue that “Safeco’s delays and denials of prompt payment resulted in
foreseeable physical, emotion, and financial injuries to Mr. and Mrs. Terry that are separate and
distinct from those contractual damages which were considered at the prior trial of this matter.”
(Docket Entry No. 86 at 12). But the Terrys do not state what those injuries were. Nor do they point
to competent record evidence showing any independent injuries caused by Safeco’s breach of its
duty of good faith and fair dealing. The Terrys state that they were “forced by Safeco to place their
claim into litigation [and] to hire and pay their attorneys.” (Id. at 4). But the record shows that the
Terrys were represented by counsel before they made their UM claim. And there is no competent
summary judgment evidence that the Terrys paid attorneys’ fees.
Nor could Safeco’s initial position that Jack Terry was 15% liable for the accident have been
the reason for their lawsuit. In a letter dated December 16, 2009, the Safeco representative working
with the Terrys stated that “for the purposes of settlement . . . I will drop the liability issue on Jack.”
(Docket Entry No. 82, Ex. A-7). Because there is no basis to infer that the Terrys suffered an
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independent injury resulting from Safeco’s alleged breach of its duty of good faith and fair dealing,
summary judgment is granted on this claim.
The Terrys argue that this court should not grant summary judgment because they have not
had the opportunity for discovery on their extracontractual claims. The Terrys contend that they
should be allowed discovery on whether Safeco fairly and timely evaluated their insurance claim.
Under Federal Rule of Civil Procedure 56(d), a party may move the court to defer consideration of
an opposing party’s motion for summary judgment or for additional time to obtain affidavits and
declarations or to take discovery if the party “shows by affidavit or declaration that, for specified
reasons, it cannot present facts essential to justify its opposition” to the motion. FED. R. CIV. P.
56(d). The party, however, “may not simply rely on vague assertions that additional discovery will
produce needed, but unspecified, facts.” Raby v. Livingston, 600 F.3d 552, 561 (5th Cir. 2010)
(quotation omitted). “[A] request to stay summary judgment under Rule 56[(d)] must set forth a
plausible basis for believing that specified facts, susceptible of collection within a reasonable time
frame, probably exist and indicate how the emergent facts, if adduced, will influence the outcome
of the pending summary judgment motion.” Id.
The Terrys have not submitted an affidavit, declaration, or other statement that meets Rule
56(d)’s requirements. Nor have the Terrys specified facts that they want to learn through discovery
or explained how those facts will affect the summary judgment outcome. The Terrys have failed
to submit or point to any evidence showing that they suffered independent injuries as a result of
Safeco’s alleged breach of its duty of good faith and fair dealing. There is no basis to conclude that
permitting the Terrys additional discovery would correct this omission or change the result. The
Terrys’ request that this court delay granting summary judgment so that they may obtain additional
discovery is denied.
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2.
The Statutory Prompt-Payment Claims
The Texas prompt-payment statute “provides for additional damages when an insurer
wrongfully refuses or delays payment of a claim.” Lamar Homes, Inc. v. Mid-Continent Cas. Co.,
242 S.W.3d 1, 16 (Tex. 2007). An insurer “who is ‘liable for a claim under an insurance policy’ and
who does not promptly respond to, or pay, the claim as the statute requires, is liable to the policy
holder or beneficiary not only for the amount of the claim, but also for ‘interest on the amount of
the claim at the rate of eighteen percent a year as damages, together with reasonable attorney’s
fees.’” Id. (quoting TEX. INS. CODE § 542.060(a)). If a suit is filed, the plaintiff is also eligible for
attorneys’ fees. TEX. INS. CODE § 542.060(b). “To recover a statutory penalty under [the promptpayment statute], an insured must establish: (1) a claim under an insurance policy; (2) that the
insurer is liable for the claim; and (3) that the insurer has failed to comply with one of the
requirements of [the statute] with respect to the claim.” Evergreen Nat’l Indem. Co. v. Tan It All,
Inc., 111 S.W.3d 669, 678 (Tex. App.—Austin 2003, no pet.); see also Harris v. Am. Prot. Ins. Co.,
158 S.W.3d 614, 623 (Tex. App.—Fort Worth 2005, no pet.) (“An insurer will not be held liable for
violating [the prompt-payment statute] unless it is found liable for the underlying insurance claim.”).
The jury verdict and partial judgment satisfy the prompt-payment statute’s requirement that the
insured by found liable for the underlying claim.
The Terrys allege that Safeco failed to meet the prompt-payment statute’s deadlines. Within
15 days of receiving notice of a claim, an insurer must acknowledge receipt of the claim, begin an
investigation, and request from the claimant “all items, statements, and forms that the insurer
reasonably believes, at that time, will be required from the claimant.” TEX. INS. CODE § 542.055(a).
An insurer must also inform the claimant within 15 business days after receiving “all items,
statements, and forms required by the insurer to secure final proof of loss” whether it accepts or
17
rejects the a claim. TEX. INS. CODE § 542.056(a). If an insurer rejects a claim, it must state the
reasons for the rejection. TEX. INS. CODE § 542.056(c). If the insurer approves all or part of a claim,
an insurer must pay the claim no later than 5 business days after notifying the claimant. TEX. INS.
CODE § 542.057(a). An insurer may condition payment on “the performance of an act by the
claimant.” TEX. INS. CODE § 542.057(b). Except as otherwise provided, an insurer may not delay
paying a claim for more than 60 days after receiving “all items, statements, and forms reasonably
requested and required.” TEX. INS. CODE § 542.058.
The record reflects that Safeco timely acknowledged receipt of the Terrys’ claim, began its
investigation, and requested the relevant records from the Terrys. The record also reflects that once
the Terrys’ attorney informed Safeco that they were filing a UM claim and provided Safeco with the
records it requested, Safeco sent a letter within 15 business days approving part of the Terrys’ claim.
Safeco’s letter stated the reasons why it was not approving payment of the full amount that the
Terrys requested. But Safeco does not suggest or point to any evidence showing that it paid the
Terrys within five days after sending notice that it approved part of the UM claim.
Safeco argues that it timely paid the Terrys for their property damage and for a part of their
medical bills under the Terrys’ PIP coverage. These payments are not relevant to whether Safeco
timely paid the Terrys’ UM claim. Summary judgment is granted on the Terrys’ claims under §§
542.055, 542.056, and 542.058 and denied on the Terrys’ claim under § 542.057.
3.
The Statutory Unfair Settlement Practices Claims
Section 542.003(b) of the Texas Insurance Code, also known as the Texas Unfair Settlement
Practices Act, prohibits an insurer from: (1) knowingly misrepresenting to a claimant “pertinent facts
or policy provisions relating to coverage”; (2) failing “to acknowledge with reasonable promptness
pertinent communications relating to a claim arising under” Safeco’s policy; (3) failing “to adopt
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and implement reasonable standards for the prompt investigation of claims”; (4) “not attempting in
good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability
has become reasonably clear”; (5) “compelling a policyholder to institute a suit to recover an amount
due under a policy by offering substantially less than the amount ultimately recovered in a suit
brought by the policyholder”; (6) failing “to maintain the information required by Section 542.005”;
and (7) committing any other act that “constitutes an unfair claim settlement practice” as determined
by the Texas Insurance Commissioner.
The Terrys’ claims fail because there is no private right of action under the Unfair Settlement
Practices Act. “[T]he existence of a private cause of action is a jurisdictional requirement,” Siegel
Transfer, Inc. v. Carrier Exp., Inc., 54 F.3d 1125 (3d Cir. 1995) (citing Merrell Dow
Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804 (1986)), and a court must examine its jurisdiction
even if the parties have not questioned it, Int’l Marine, L.L.C. v. Delta Towing, L.L.C., 704 F.3d 350,
353 n.4 (5th Cir. 2013). As one court recently held, “the language of the [Insurance] Code, its
legislative history, and court interpretations of the Code suggest that only the Texas Department of
Insurance can bring a claim under section 542.003.” Great American Assur. Co. v. Wills, 2012 WL
3962037, at *2 (W.D. Tex. Sept. 10, 2012); see also Citibank Tex., N.A. v. Progressive Cas. Ins. Co.,
2006 WL 3751301, at *8 (N.D. Tex. Dec. 21, 2006) (“As for [the plaintiff’s] pleaded claim under
section 542.003 of the [Texas] Insurance Code, that provision (formerly Article 21.21–2, § 2(b))
allows enforcement by the State Board of Insurance but does not create a private cause of action.”),
rev’d on other grounds, 522 F.3d 591 (5th Cir. 2008). The Unfair Settlement Practices Act refers
to enforcement by the Texas Department of Insurance and the State Attorney General. In contrast,
the Prompt Payment Act, TEX. INS. CODE § 542.060, which follows the Unfair Settlement Practices
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Act in the Texas Insurance Code, explicitly provides for a private right of action. The Terrys’ §
542.003 claims fail as a matter of law. Summary judgment is granted on these claims.
The Terrys also allege that Safeco violated § 541.060 of the Texas Insurance Code, which
prohibits certain unfair settlement practices. “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” prohibited under § 541.060. TEX. INS. CODE § 541.151. A prevailing plaintiff may recover
actual damages, court costs, and reasonable and necessary attorneys’ fees. TEX. INS. CODE §
541.152(a)(1). If the trier of fact finds that a defendant knowingly committed an unfair settlement
practice, “the trier of fact may award an amount not to exceed three times the amount of actual
damage.” TEX. INS. CODE § 541.152(c).
The Terrys allege that Safeco violated § 541.060(a) by failing “to attempt in good faith to
effectuate a prompt, fair, and equitable settlement of . . . a claim with respect to which the insurer’s
liability has become reasonably clear”; 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”; “failing within a reasonable time
to . . . affirm or deny coverage of a claim to a policyholder; or . . . submit a reservation of rights to
a policyholder”; and “refusing to pay a claim without conducting a reasonable investigation with
respect to the claim.” TEX. INS. CODE § 541.060(a)(2), (3), (4), and (7).
Safeco moved for summary judgment on the ground that the Terrys suffered no independent
injury from the alleged § 541.060 violations. See South Texas Medical Clinics, P.A. v. CNA
Financial Corp., 2008 WL 450012 (S.D. Tex. Feb. 15, 2008) (holding that a plaintiff must establish
independent actual damages to bring a § 541.060 claim). The Terrys have not pointed to any
competent evidence showing that they suffered an injury from the alleged § 541.060 violations
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independent from the allegedly wrongful denial of policy benefits. In addition, the record does not
support an inference that Safeco failed to “affirm or deny coverage” within a reasonable amount of
time. TEX. INS. CODE § 541.060(a)(3). The evidence shows that Safeco responded to the Terrys’
November 20, 2009 letter seeking payment under their UM policy on December 4, 2009. Safeco’s
letter partially affirmed coverage for the Terrys’ UM claim but disputed the amount. The Terrys
also have not pointed to any competent evidence showing that Safeco refused to pay their claim
“without conducting a reasonable investigation.” TEX. INS. CODE § 541.060(a)(7). Although the
Terrys contend that Safeco improperly denied portions of their UM claim, their summary judgment
response does not address whether the denial was the result of an inadequate investigation, and the
Terrys do not identify any aspects of Safeco’s investigation that may have been inadequate.
Summary judgment is granted on the Terrys’ § 541.060 claims.
IV.
CONCLUSION
For the reasons stated above, Safeco’s motion for summary judgment is denied on the
Terrys’ claim under § 542.057 of the Texas Insurance Code and granted on the Terrys’ claims for
violations of other sections of the Texas Insurance Code claims and its breach-of-contract and
breach of the common law duty of good faith and fair dealing claims. A status conference is set for
March 18, 2013 at 9:00 a.m.
SIGNED on March 7, 2013, at Houston, Texas.
______________________________________
Lee H. Rosenthal
United States District Judge
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