Terry, et al v. Safeco Insurance Company of America
Filing
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MEMORANDUM AND ORDER entered GRANTING 92 MOTION to Supplement Defendant Safeco Insurance Company of America's Motion for Summary Judgment Pursuant to Rule 56 as to 82 MOTION for Summary Judgment Pursuant to Rule 56. For the reason s stated, Safecos motion for summary judgment is granted on the Terrys claim under § 542.057 of the Texas Insurance Code. The parties are directed to confer and file a written statement identifying any further issues and proposing a form of final judgment no later than September 23, 2013.(Signed by Judge Lee H Rosenthal) Parties notified.(leddins, 4)
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 ORDER
This is an uninsured-motorist insurance case. The remaining issue is whether the insurer’s
offer to settle a claim on terms that the insureds unequivocally rejected triggered the five-daypayment provision under § 542.057 of the Texas Insurance Code. Section 542.057 requires an
insurer to pay the insured within five business days after notice that the insurer will pay all or part
of the claim. If the insurer conditions payment of all or part of the claim on the insured’s
performance of an act, the five-day period begins when that act is performed.
After a jury awarded the Terrys damages for their uninsured motorist (“UM”) claim, their
insurer, Safeco Insurance Company of America, moved for summary judgment on the
extracontractual claims that had been abated pending the jury’s determination of the third-party’s
negligence and the Terrys’ resulting damages. (Docket Entry No. 80). In a Memorandum and
Opinion, the court granted Safeco’s summary judgment motion on all claims except the five-daypayment claim. After a hearing, the parties filed a second round of briefing addressing additional
aspects of the issue. (Docket Entry No. 90).
Based on the pleadings; the motion, response, and reply; the parties’ submissions; and the
relevant law, Safeco’s motion for summary judgment is granted on the five-day-payment claim. The
parties are directed to confer and to file a written statement no later than September 23, 2013,
identifying any further issues needing resolution and proposing a form of final judgment.
I.
Background
The background of this case is set out in a prior Memorandum and Opinion. See Terry v.
Safeco Ins. Co. of Am., — F. Supp. 2d —, 2013 WL 873654 (S.D. Tex. Mar. 7, 2013). The facts
relating to the remaining issue can be briefly summarized.
The Terrys were involved in a car accident with an uninsured driver on December 12, 2008.
In a letter from counsel dated November 20, 2009, the Terrys demanded benefits under their UM
coverage. This letter stated that “Mr. Terry [was] willing to settle his claim for $20,000.00 and Ms.
Terry [was] willing to settle her claim for $35,000.00." (Docket Entry No. 92, Ex. A-4, at 5). The
letter stated that the demands were “for an unconditional release of any further liability related to
the incident made the basis of this potential lawsuit” and cautioned that the “offer [would] remain
open for a period of ten (10) days from” receipt. (Id.). The letter also stated that “all written offers
w[ould] be reviewed” with the Terrys but warned that “any written offer which is less than [the]
latest written demand [should be] considered rejected in advance for the purposes of calculating prejudgment interest.” (Id.).
In a letter dated December 4, 2009, Safeco acknowledged receipt and stated that the “demand
to settle Jack Terry’s Uninsured Motorist Bodily Injury (UMBI) claim for $20,000 . . . must [be]
decline[d and the] demand to settle Mary Eden Terry’s UMBI claim for $35,000 must [be]
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decline[d].” (Id., Ex. A-5, at 1). After asserting that Jack Terry was 15 % at fault for the accident
and summarizing the Terrys’ medical bills, Safeco’s letter stated:
Considering the negligence on Mr. Terry’s part and the PIP offset of
$2,500 (previously paid) and the reasonable net medical bills of
$5,408.92, my offer to settle [Mr. Terry’s] UMBI claim is $6,300.
...
Considering the negligence on Mr. Terry’s part and the PIP offset of
$2,500 (previously paid) and the reasonable net medical bills of
$6,163.62, my offer to settle [Mrs. Terry’s] UMBI claim and
Liability claim is $8,165.
(Id.). Safeco “look[ed] forward to getting these two claims settled.” (Id.).
The Terrys rejected Safeco’s offer and sent a “counter-demand” letter on December 11,
2009. (Id., Ex. A-6). That letter stated:
In an effort to reach an amicable resolution, Mr. Terry is willing to
settle his claim for $18,000.00 and Ms. Terry is willing to settle her
claim for $30,000. This offer will remain open for a period of ten
(10) days from your receipt of this demand. Please note that all
written offers will be reviewed with [the Terrys]; however, any
written offer which is less than our latest written demand is
considered rejected in advance for purposes of calculating prejudgment interest. In light of the above, we ask that you re-evaluate
our clients’ claims in good faith. Otherwise, we will be forced to
initiate court proceedings, thereby resulting in litigation expenses for
all parties.
(Id.). Safeco responded with another offer, which the Terrys rejected. The Terrys then filed this
lawsuit.
In their complaint, the Terrys alleged that Safeco failed to “timely acknowledge, investigate,
accept[,] and pay the claim.” (Docket No. 1, at 12). That allegation was followed by a string
citation to seven subsections of § 542 of the Texas Insurance Code, including § 542.057. The court
declined to grant Safeco summary judgment on the § 542.057 claim and directed further briefing.
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After reconsidering the issue with the benefit of the parties’ additional briefs, the court grants
Safeco’s motion for summary judgment. The reasons are explained below.
II.
Discussion
A.
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(a). “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.” See
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 Texas, 560 F.3d 316, 326 (5th Cir.
2009) (quotation omitted). When the moving party has met its Rule 56 burden, the nonmoving party
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). 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).
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B.
Section 542.057 of the Texas Insurance Code
Sections 542.051–.062 of the Texas Insurance Code (formerly codified at Article 21.55), the
“Prompt Payment of Claims” statute, “imposes requirements on an insurer with respect to
responding to claims, accepting or rejecting claims, and promptly paying accepted claims.” Cox
Operating, L.L.C. v. St. Paul Surplus Lines Ins. Co., No. H-07-2724 (GHM), 2013 WL 4459038,
at *2 (Aug. 16, 2013). The statute is intended “to secure payment of valid insurance claims [and to]
set out a framework for ensuring that this intent is accomplished in a timely manner.” Id. at *3. “In
order to ensure that insurers promptly respond to and pay covered claims,” the statute “establishes
certain deadlines and penalties for noncompliance.” Id.
Under the Code, “[w]ithin 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.’” See Terry, 2013 WL 873654, at *10 (quoting TEX. INS. CODE § 542.055(a)). The court
previously found that Safeco met this requirement. Section 542.056 requires the insurer to 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 rejects the claim. Id. (citing TEX. INS.
CODE § 542.056(a)). If the insurer rejects the claim, it must explain the reasons for the rejection.
Id. (citing TEX. INS. CODE § 542.056(c)). The court found that Safeco also met these requirements.
The prompt-payment statute differentiates between an insurer’s notice of acceptance of a
claim and notice that it will pay the claim. Section 542.056, entitled “Notice of Acceptance or
Rejection of Claim,” provides that:
(a) [A]n insurer shall notify a claimant in writing of the acceptance
or rejection of a claim no later than the 15th business day after the
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date the insurer receives all items, statements, and forms required by
the insurer to secure final proof of loss.
TEX. INS. CODE § 542.056. Section 542.057, entitled “Payment of Claim,” provides:
(a) Except as otherwise provided by this section, if an insurer notifies
a claimant under Section 542.056 that the insurer will pay a claim or
part of a claim, the insurer shall pay the claim not later than the fifth
business day after the date notice is made.
(b) If payment of the claim or part of the claim is conditioned on the
performance of an act by the claimant, the insurer shall pay the claim
not later than the fifth business day after the date the act is performed.
TEX. INS. CODE § 542.057; see Am. S. Ins. Co. v. Buckley, 748 F. Supp. 2d 610, 625 (E.D. Tex. 2010)
(“Section 542.057 of the Texas Insurance Code provides that a claim must be paid within five
business days after notice that the claim, or a part of the claim, will be paid.); In re Slavonic Mut.
Fire Ins. Ass’n, 308 S.W.3d 556, 559 (Tex. App. —Houston [14th Dist.] 2010) (same). The
question is whether Safeco’s rejected offers to settle the Terrys’ claim is a “notice of payment of
claim” that triggered § 542.057. Two cases help answer that question.
In Daugherty v. American Motorists Insurance Company, the insured appealed a takenothing judgment denying his claim to the cash value of his stolen car. 974 S.W.2d 796, 796 (Tex.
App. —Houston [14th Dist.] 1998). Daugherty had submitted a claim to his insurer for $68,895.42.
While Daugherty was out of town, the insurer told Daugherty’s bookkeeper that the total payoff
would be $62,431.14, about $6,000 less than the claim. Id. at 797. The insurer rescinded that offer
the next day, before Daugherty learned of the offer, because the police found the car. The insurer
then tendered payment for $1,901.50 to cover the car’s damage and depreciation. Daugherty
rejected the offer. After that rejection, the parties could not agree, and Daugherty sued.
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Daugherty alleged that the insurer owed $62,431.14, the amount that had been offered, then
withdrawn. Daugherty argued that the insurer “effectively notified him it would pay his claim when
. . . it informed his bookkeeper it had determined” the car’s value. Id. Daugherty alleged that the
insurer’s failure to pay the $62,431.14 within five days violated the prompt-payment statute. Id.
The insurer responded that the communication to Daugherty about the car’s value was an offer to
settle that the insurer had rescinded before Daugherty learned of it. The court stated that
“[w]hatever can be said of the [$62,431.14] communication, it [did] not appear to be a ‘notice of
payment of claim’” under the five-day-payment statute. Id. at 798.1 The court also noted that the
communication was “more in the nature of an offer than a notification that [the insurer] was going
to pay the claim. Were [the court] to hold that an oral offer constitutes notice of payment,
negotiations between an insurer and its insured would be severely hampered.” The court then held
that the oral settlement offer was not a notice of payment of claim that triggered the prompt-payment
statute.2
Similarly, Safeco did not give the Terrys notice of payment of the claim. Safeco’s offer to
settle by paying a certain amount did not notify the Terrys that it would pay that amount. The
Terrys’ initial demand letter had preemptively rejected any payment less than their demand. In the
negotiations that followed, the Terrys changed their demands and Safeco changed its offers, which
the Terrys then rejected. The Terrys did not treat Safeco’s responses to the Terrys’ demands as
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The court invoked § 542.057's predecessor, Texas Insurance Code Article 21.55 § 4, which mirrors
the current statutes language: “If an insurer notifies a claimant that the insurer will pay a claim or part of a
claim . . . , the insurer shall pay the claim no later than the fifth business day after the notice has been made.”
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One dissenting panel member would have construed the oral settlement offer as a notice of payment
of claim that was due within five days. See id. at 800 (“The foregoing evidence clearly indicated the fact that
the communication . . . was a ‘notification’ of intent to pay the claim.”)
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notices of payment, but rather as counteroffers to settle: “We are in receipt and appreciate your
correspondence . . . wherein you offered . . . to settle Mr. Terry’s claim and . . . to settle Ms. Terry’s
claim.” (Docket Entry No. 92-3 (emphasis added)). The five-day-payment provision does not
require payment of every settlement offer. Nor does the provision require rolling pay-outs every
five days even if the insured rejects a settlement offer and demands more, and the insurer then
increases its offer. Safeco’s settlement offers were not notices of payment of the claim that
triggered the five-day-payment provision.
Additionally, the Terrys do not have an actionable claim because the settlement offer
implicitly required the Terrys’ acceptance before payment became due. See TEX. INS. CODE
§ 542.057(b). In DeLaGarza v. State Farm Mutual Automobile Insurance Company, the insurer
tendered a settlement offer stating that “[u]pon receipt of notice that your client accepts our offer,
we will forward a payment draft to you within five business days.” 175 S.W.3d 29 (Tex. App —
Dallas 2005). The insured did not accept the settlement offer, and the insurer did not pay. The
insured sued and argued that the insurer’s offer to settle was an acceptance of that amount of the
claim and required payment within five business days. Id. at 31. The court disagreed, recognizing
that the statute “allows an insurer to notify its insured that it is accepting only part of a claim and
also allows payment of part of the claim to be conditioned on the performance of an act by the
insured. If payment is conditioned on the insured performing an act, such as signing a release or
agreeing to settle for a lesser amount, the insurance company is not required to pay the claim until
five business days after the act is performed.” Id. at 32 (emphasis added).
This approach does not require an insurer to pay the insured the amount of a settlement offer
after that offer is rejected. Safeco clearly stated that it was making a settlement offer — “[we] look[]
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forward to getting the[] claims settled” — and the Terrys unequivocally rejected the offer. Even
assuming that Safeco’s settlement offers could be viewed as a notices of intent to pay part of the
claim, the Terrys rejected the offers. The five-day-payment provision was not triggered.
The Terrys argue that acceptance of a settlement offer cannot be a condition triggering the
five-day-payment provision because an insurer cannot force an insured to settle for an amount below
what they are legally entitled to receive. The Terrys rely on Republic Underwriters Insurance
Company v. Mex-Tex, Incorporated, 150 S.W.3d 423, 426 (Tex. 2004). In Republic Underwriters,
the Texas Supreme Court noted that an insurer cannot tender partial payment of undisputed aspects
of a claim on the condition that the insured provide a liability release “to which it is not ultimately
entitled.” Id. “Otherwise, an insurer’s insistence on a release to which it is not ultimately entitled
delays payment, again impairing the [prompt-payment] statute’s purpose.” Id. As the DeLaGarza
court later observed, “[c]entral to [the] Supreme Court’s analysis was the idea that an insurance
company could not force an insured to settle for less than he was legally entitled to receive by
conditioning prompt payment to a release of the insurer’s liability for further payment.” DeLaGarza
v. State Farm Mut. Auto. Ins. Co., 181 S.W.3d 755, 756 (Tex. App. —Dallas 2005).
Republic Underwriters involved Article 21.55 § (3)(f) of the Texas Insurance Code,
recodified at § 542.058, which requires payment of claims within a specialized period. Republic
Underwriters did not consider the payment provision at issue here. Aside from that, in the UM
context, the insurer “has the right to withhold payment of UIM benefits until the insured’s legal
entitlement is established.” Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875, 880 (5th
Cir. 2004) (citing Wellisch v United Servs. Auto. Ass’n, 75 S.W.3d 53, 57 (Tex. App. —San Antonio
2002, pet. den.)). When the parties were negotiating, the Terrys had not established that they were
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legally entitled to the full amounts they demanded. Though the jury ultimately returned a verdict
higher than Safeco’s settlement offer, the Terrys have not provided a basis to hold that the verdict
alone retroactively established their legal entitlement to the amounts Safeco offered when those
offers were made. To the contrary, “[n]othing in the [prompt-payment statute] precludes an insurer
from awaiting a judicial determination of an insured’s legal entitlement to [UM] benefits.” Wellisch,
75 S.W.3d at 57.
In Wellisch, an insured attempted to obtain penalties under the prompt-payment statute when
the insurer held out on settling or paying claims until the uninsured motorist’s liability was
established. The court noted that the prompt-payment statute “is premised on the presumption that
carriers have the right to dispute claims. It merely requires that they do so promptly. Further,
nothing in [the prompt-payment statute] precludes an insurer from awaiting a judicial determination
of an insured’s ‘legal entitlement’ to [UM] benefits. It merely requires that the insurer notify the
insured of its reasons for delaying the acceptance or rejection of claim.” Wellisch, 75 S.W.3d at 57
(citations omitted). The insured in Wellisch asserted that the jury verdict made the initial denial of
payment improper and subject to prompt-payment penalties. That was because, the insured asserted,
the statute provides for penalties when the insurer fails to pay a claim within sixty days. The general
sixty-day period begins only “at the time of the covered event.” Id. In the UM context, the “covered
event” is not the accident but the “date the trial court entered final judgment following a
determination [that the uninsured motorist’s] negligence caused the accident and a jury returned”
a favorable verdict and damages.” Id. (citations omitted). Other Texas courts have cited Wellisch
favorably for these propositions. See, e.g., Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d
875, 880 (5th Cir. 2004) (“Generally, establishment of an insured’s legal entitlement requires a
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settlement with the tortfeasor or a judicial determination following trial on the issue of the
tortfeasor’s liability.” (quotation omitted)). As this court previously held, the parties had a goodfaith dispute over legal entitlement and damages. See Terry, 2013 WL 873654, at * 8. Republic
Underwriters does not make Safeco’s offer to settle a notice of payment or require Safeco to pay in
advance of proof of legal entitlement to payment.
To summarize, the court does not consider Safeco’s settlement offers as a partial acceptance
of claim under the prompt-payment statute. Safeco rejected the Terrys’ demand before offering
settlement, and the settlement offers “stated the reasons why [Safeco] was not approving payment
of the full amount.” Terry, 2013 WL 973654, at *11. The fact that Safeco “approved” part of the
claim for settlement purposes is not a notice of acceptance for the purpose of the prompt-payment
statute.
Safeco is not liable under § 542.057 of the Texas Insurance Code, as a matter of law.
III.
Conclusion
For the reasons stated above, Safeco’s motion for summary judgment is granted on the
Terrys’ claim under § 542.057 of the Texas Insurance Code. The parties are directed to confer and
file a written statement identifying any further issues and proposing a form of final judgment no later
than September 23, 2013.
SIGNED on September 17, 2013, at Houston, Texas.
______________________________________
Lee H. Rosenthal
United States District Judge
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