Extracontractual and Bad Faith Claims Litigation Committee

Mission Statement
The mission of the Extracontractual and Bad Faith Claims Litigation Committee is to provide the highest level of continuing education specific to the practice area, and promote professionalism and fellowship among both policyholder and insurer attorneys. 

2020-2021 Co-Chairs
Robert Allen
Heather Sanderson


Selected Presentations & Papers:

Texas Supreme Court to Decide Whether a Declaratory Judgment Action is the Proper Way to Assert an Underinsured Motorist Claim
January 7, 2021 by Bob Allen, The Allen Law Group, [email protected]

Also see Law360 Article: Allstate Asks Texas Justices To Ax Fee Award In Crash Suit

Ever since the landmark Texas Supreme Court decision in Brainard v. Trinity Universal Ins. Co., 216 S.W. 3d 309 (Tex. 2006), Texas courts and practitioners have struggled with the proper way for insureds to assert a claim for underinsured motorist coverage. In current practice, claims for breach of contract and insurance code violations in connection with underinsurance motorist claims are commonly dismissed or abated. In the past few years, Texas courts started to entertain claims for underinsured motorist coverage against insurers as declaratory judgment actions.

Earlier this morning, the Texas Supreme Court heard oral arguments in Allstate v. Ins. Co. v. Irwin, 606 S.W. 3d 774 (Tex. App.—San Antonio 2019, pet. granted), in which Allstate takes the position that while policyholders can bring an action against their underinsurance insurers to determine the negligence of an alleged tortfeasor and the insured’s damages, it should not be under the rubric of a Declaratory Judgment action. The link to the Texas Supreme Court’s Youtube recording of the argument is https://www.youtube.com/watch?v=XjN52ef0f_g.

Although the argument was fascinating in its exploration of esoteric concepts of subject matter jurisdiction, case and controversy and standing, the bottom line is that policyholders desire to use, and Allstate opposes the use of, a declaratory judgment action to resolve underinsurance motorist cases because of the discretion bestowed on judges to award attorneys fees under Tex. Civ. Prac. & Rem. Code §37.009.


Interestingly, Allstate did not take the position that insureds cannot sue to seek underinsurance motorist coverage benefits. Rather, Allstate argued that the cause of action is pursuant to the contract; but it is not a breach of contract action or declaratory judgment action (either of which allows for the awarding of attorneys fees to the insured).

The take-away from the oral argument is that the Texas Supreme Court will announce the procedure on how insureds access their underinsured motorist coverage after they settle with the tortfeasor. There does not seem to be any dispute that insureds have the right to pursue such coverage in a lawsuit. Instead, the dispute is over whether the appropriate cause of action to access underinsured motorist coverage will support an award of attorneys fees to the insured. 

 


From Law360: Theater Chain Sues Insurer $400 Million for Systematically and “Suggestively Steering” Claims to Lower Limit Coverages 12/23/2020


Missouri Insurance Bad Faith Claim Overrides New York Choice of Law Provision 12/21/2020


American Guarantee and Liability Ins. Co. v. ACE American Ins. Co., Cause No. 19-20779 on file in the Fifth Circuit Court of Appeals 12/21/2020  -  Casenote by Bob Allen 12/22/2020


Insurer Liable for Bad Faith—For Filing a Declaratory Judgment Action
By Randy Maniloff, White & Williams, LLP


Insurer Estopped from Denying Coverage for Legal Malpractice Action But Not Subsequent Disgorgement Action
Wiley Executive Summary Blog(Nov 11 2020)Errors & Omissions 
The U.S. District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, has held that an insurer is estopped from denying coverage for a legal malpractice action after defending the action for over a year without a reservation of rights, despite knowledge of the facts upon which it ultimately relied to deny coverage.


11th Circuit's significant decision - Court certified bad faith issues to the Georgia Supreme Court 
Law 360 Article


No Coverage for TPA in Claim Arising from Extracontractual Exposure to Insurer
Wiley Executive Summary Blog Article


After Refusing $30K Settlement Offer, Bad Faith Suit May Cost GEICO $2.7M
https://www.claimsjournal.com/news/national/2020/09/29/299621.htm


Texas Supreme Court and the Fifth Circuit to Rule on the Texas Stowers Doctrine 
As the iconic Texas Stowers Doctrine (holding liability insurers liable for negligently failing to settle cases within their policy limits) approaches its 100th anniversary, the rumor is that Vince Morgan is planning a party at the Stowers Furniture warehouse with fireworks and a parade. Meanwhile, new situations arise that continue to test the boundaries of the established criteria for invoking the doctrine. Over the past two months, two cases—one federal and one state—have winnowed their way up the appellate ladder and were argued to their respective courts.

In this regard, here is the audio link to the 5th Circuit oral argument in American Guarantee v ACE American, an excess-primary Stowers case, which among other issues focuses on whether an in-trial settlement demand met the elements of the Stowers doctrine: http://www.ca5.uscourts.gov/OralArgRecordings/19/19-20779_8-10-2020.mp3.

Next is the link to the Texas Supreme Court’s zoom oral argument in In Re Farmers Texas, which analyzes whether the Stowers Doctrine is invoked in the context of an over-the-limits settlement, partially funded by the insured, which was allegedly required because the insurer’s allegedly negligently failed to accept an earlier demand within the policy limits. http://www.texasbarcle.com/CLE/SCPlayer5.asp?sCaseNo=19-0701&bLive=&k=&T=.

These cases were well argued and the panels were active. They are each about 45 minutes a piece, so they are perfect listening for a 20-minute commute (listen to half on the way there and the other half on the way back). The Texan Fellows are watching these cases closely. After a relative yawn on the 8-corner/extrinsic evidence duty to defend cases in last year’s Texas Supreme Court term, it will be very interesting to see how these decisions go. Stay tuned.


ACCC 2020 Annual Meeting Panel Paper: Duty to Defend Bad Faith Issues


August 2020 IADC newsletter article "Preparing for Possible Bad Faith Claims in COVID-19 Related First Party Property Lawsuits" by Karen K. Karabinos and Eric R. Mull


May 2020 IADC newsletter Alexander G. Henlin


COVID-19 DJ Alleges Bad Faith For Failure To Investigate Claim. Randy Maniloff


Right To Jury Trial re Reasonableness of Settlement. William T. Barker


Overview of Texas Bad Faith Law. Bob Allen


A Liability Insurer's Breach of the Duty to Defend and the often erroneous consequence of Extracontractual Liability. Douglas R. Richmond

Newly admitted fellow Terence Ridley recently secured a trial court ruling for the insurer, on remand from the Colorado Supreme Court, finding and concluding that a policyholder-appointed appraiser was improperly biased. The trial court vacated in toto a ~$3 million property-damage appraisal award, arising from a hail claim,  in favor of a Homeowner’s Association. After a two-day trial to the court, the judge ruled that the appraiser’s actions favored the policyholder and that the appraiser influenced the appraisal for the policyholder’s benefit.  Owners Ins. v. Dakota Station II Condo Ass’n, Inc. (Jefferson Cty. Dist. Ct. Colo. 2020).


Attached are the Colorado Supreme Court opinion and the Findings of Fact and Conclusions of Law on remand.


Excess vs. Primary Stowers Doctrine Bench Trial Reveals Inciteful Findings of Facts and Conclusions of Law

The Texas Stowers doctrine, which has been shaped in large part by ACCC Texas Fellows, gives rise to some of the more exciting insurance bad faith litigation in Texas. The prospect of opening up the policy limits for an insurer’s failure to accept a within limits settlement demand of a covered claim that an ordinarily prudent insurer would accept, considering the likelihood and degree of the insured’s potential exposure to an excess judgment, in many situations is the ultimate hammer in settlement negotiations.

The Stowers doctrine is particularly effective when dealing with one injury and one insured for a covered claim. Another recurring aspect of Stowers litigation is that it often arises in the context of an excess insurer suing a primary insurer. Both of these factors were involved in American Guarantee & Liability Ins. Co. v. Ace American Ins. Co., 2019 WL 4316531 (S.D. Tex. 2019).

The underlying tort litigation was a wrongful case brought by the mother, wife and two minor children of a man killed in a bike accident involving a truck owned by a large landscaping company.  The Plaintiffs were represented by a highly regarded and very successful Joe Jamail mentee; although defense counsel was very bullish about the insured’s lack of liability. The primary limits were $2 million. The excess insurer monitored the underlying tort litigation.

After a $39 million verdict against the insured, which was subsequently settled for $9.975 million with the excess carrier funding the amount over the $2 million primary limits, an excess vs primary insurer Stowers lawsuit was litigated in a Houston federal court.

What is very different than normal about American Guarantee v. Ace American, is that Houston Federal Judge Keith P. Ellison, after presiding over a week-long bench trial, issued 68 Paragraphs of Findings of Fact and 17 Paragraphs of Conclusions of Law in the attached Memorandum Order issued last month. He discussed the evidence involving whether the primary insurer was negligent in not accepting one of three settlement demands within the $2 million policy limits.

Significant to insurers facing demands under the Stowers doctrine is that Judge Ellison ruled that, even in the face of a hammer letter by the excess insurer, the primary insurer did not violate the Stowers doctrine for failing to accept the first policy limits demand made after a second failed mediation eleven days before the start of trial. Judge Ellison ruled that in light of the perceived liability defenses, an ordinarily prudent insurer could believe that the settlement value of the case was less than the $2 million policy limits, relying on what he found to be a reasonable report assessing a reasonable settlement range between $1.25 and $2 million.

However, there were adverse evidentiary rulings against the insured landscape company during trial, which changed Judge Ellison’s mind about two within policy limits demands made during trial, the last one expiring when the jury returned its verdict. As it relates to those demands, Judge Ellison ruled that the primary insurer violated the Stowers doctrine by not accepting either one of those demands, which will leave it responsible for the settlement payment made by the excess insurer.  

In many cases, the Stowers issue is decided by as few as one jury question. In American Guarantee & Liability Ins. Co. v. Ace American Ins. Co., however, Stowers liability was established by a very thorough analysis of the facts and then a highly detailed application of the law. Accordingly, unless it gets reversed or altered on appeal, this uncommon Memorandum Opinion will be helpful for those evaluating Stowers claims in the future.


Bad Faith Personal Liability of Claims Adjusters Arising Out of Claims-Handling Conduct, Bryan M. Weiss


State Farm Mutual Auto Assc. v. Cook
On September 18, 2019, the San Antonio Court of Appeals handed down an opinion that may open up the avenue for filing bad faith claims on uninsured/underinsured motorist claims in Texas. Here, the policyholder sought the entire UM limits of $100,000, while State Farm offered about $15,000. The UM case proceeded to trial and the insured obtained a verdict of over $100,000. State Farm quickly paid the $100,000 limits and then sought summary judgment on the plaintiffs bad faith claims. The trial court denied State Farm’s MSJ, however the court of appeals agreed to consider the trial court’s ruling in an interlocutory appeal. The San Antonio Court of Appeals affirmed the trial court’s denial of State Farm’s MSJ, holding that an UM carrier’s immediate payment of a adverse UM judgment does not insulate the carrier from bad faith lawsuits for the carrier’s handling of the bad faith claim.


Past Co-Chairs

2019-2020
David Anderson
Robert Allen


2018-2019
David Anderson
Joyce Wang

2017-2018
Jason Mazer
Joyce Wang

2016-2017
Jason Mazer
Joyce Wang

2015-2016
Jason Mazer
Diane Polscer

2014-2015
Jason Mazer
Diane Polscer