Allstate Ins. Co. v. Watson

• Citation: 876 S.W.2d 145
• Decision Date: 12 January 1994
• Docket Number: No. D-2474,D-2474
• Parties: ALLSTATE INSURANCE COMPANY, Petitioner, v. Kathleen G. WATSON, Respondent.
• Court: Texas Supreme Court

Page 145

876 S.W.2d 145

ALLSTATE INSURANCE COMPANY, Petitioner, v. Kathleen G. WATSON, Respondent.

No. D-2474.

Supreme Court of Texas.

Jan. 12, 1994.

Concurring Opinion by

Justice Spector Nov. 24, 1993. ^*

Dissenting Opinion by

Justice Doggett Nov. 24, 1993.* H. Robert Powell, Julie Caruthers Parsley, Austin, J. Michael Liles, Fort Worth, Paul E.B. Glad, San Francisco, CA, for petitioner.

Philip K. Maxwell, Austin, Stacy B. Loftin, John T. Lynch, IV, Steven M. Weinberg, Bedford, Joe K. Longley, Austin, for respondent.

ON MOTION FOR REHEARING

ENOCH, Justice.

Respondent's motion for rehearing is overruled. We withdraw our opinion of November 24, 1993 and substitute the following opinion in its place.

The issue in this case is whether the legislature has conferred upon a third party claimant a direct cause of action against an insurer for unfair claim settlement practices under section 16 of art. 21.21 of the Texas Insurance Code. We hold that a third party claimant has no such direct cause of action under art. 21.21 and therefore, we reverse in part and affirm in part the judgment of the court of appeals.

Kathleen Watson was injured in a car accident on March 31, 1989. The driver of the other car was M.D. Townley, an insured under an automobile liability policy issued by Allstate Insurance Company. Watson filed suit on June 28, 1989 against Townley alleging that Townley was negligent and that his negligence was a proximate cause of the accident and her injuries. In the same action, Watson also sued Allstate under art. 21.21, section 16, for alleged unfair claim settlement practices in failing to attempt in good faith to effectuate prompt settlement of her claims where liability had become reasonably clear and in denying or unreasonably delaying payment of her claim. Watson alleged that Allstate's conduct violated 28 Tex.Admin.Code § 21.3 (Board Order 18663) and section 17.46 of the Texas Deceptive Trade Practices--Consumer Protection Act (DTPA), thereby giving rise to her cause of action under art. 21.21, section 16. ¹ In addition to her claim under art. 21.21, Watson alleged violations of the DTPA, breach of contract, breach of the duty of good faith and fair dealing, and sought a declaratory judgment that Watson was an intended third party beneficiary of the Allstate liability policy.

On Allstate's motion, the trial court severed the claims against Allstate, struck Watson's pleadings as to Allstate for failure to state a claim, and granted Allstate's motion for summary judgment. The court of appeals affirmed the judgment of the trial court, 828 S.W.2d 423, except as to Watson's claim under art. 21.21 of the Texas Insurance Code. 828 S.W.2d at 425. The court of appeals reversed and remanded Watson's art. 21.21 claim, holding that Watson, as a third party beneficiary of an automobile liability policy, could bring an action under art. 21.21 without first proceeding directly against the named insured of the policy. ² Id. For the reasons stated below, we reverse the judgment of the court of appeals concerning Watson's art. 21.21 claim.

I.

In this case, we are asked to expand our holding in Vail v. Texas Farm Bureau Mutual Ins. Co., 754 S.W.2d 129 (Tex.1988) and conclude that section 16 of art. 21.21 confers upon third party claimants a direct cause of action against an insurer for unfair claim settlement practices. In essence, we are asked to extend to a party adverse to the insured, the same duties and obligations insurers owe to their insureds under Vail. For the reasons stated below, we decline to do so.

To have a private cause of action for alleged unfair claim settlement practices under art. 21.21, section 16, such practices must be declared unfair or deceptive acts or practices in the business of insurance in section 4 of art. 21.21, the rules and regulations of the State Board of Insurance adopted under art. 21.21, or be defined unlawful deceptive trade practices in section 17.46 of the DTPA. TEX.INS.CODE ANN. art. 21.21, § 16. The full text of art. 21.21, section 16 reads:

(a) Any person who has sustained actual damages as a result of another's engaging in an act or practice declared in Section 4 of this Article or in rules or regulations lawfully adopted by the Board under this Article to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance or in any practice defined by section 17.46 of the Business & Commerce Code, as amended, as an unlawful deceptive trade practice may maintain an action against the person or persons engaging in such acts or practices.

Id. We address each basis for art. 21.21 liability separately.

A. Section 4 of art. 21.21

The express purpose of art. 21.21 is to regulate trade practices in the business of insurance by defining or providing for determination of "all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices " and prohibiting such practices. TEX.INS.CODE ANN. art. 21.21, § 1 (emphasis added). Section 4 of art. 21.21 defines those practices that constitute unfair methods of competition or unfair or deceptive acts or practices. Id. at § 4. We note that unlike section 17.46 of the DTPA, discussed below, section 4 of art. 21.21 does not use the phrase "includes, but is not limited to" when defining prohibited acts. As written, art. 21.21, section 4, is an exclusive list of statutory unfair or deceptive acts or practices in the business of insurance. ³ Within this list, section 4 does not define unfair claim settlement practices as an unfair or deceptive act or practice. Unfair claim settlement practices are not actionable under art. 21.21, section 16, by virtue of art. 21.21, section 4.

B. Rules and regulations adopted under art. 21.21

Board Order 18663 was adopted by the State Board of Insurance pursuant to art 21.21. Through that order, Watson claims she is entitled to sue Allstate for unfair claim settlement practices. Board Order 18663 does not declare unfair claim settlement practices to be an unfair or deceptive act or practice. Rather, like art. 21.21 of the Insurance Code, this regulation prohibits insurers from engaging in unfair or deceptive acts or practices as defined elsewhere. The relevant portion of Board Order 18663 provides:

(a) Misrepresentation of insurance policies, unfair competition, and unfair practices by insurers, agents and other connected persons are prohibited by Article 21.20 and Article 21.21 or by other provisions of the Insurance Code. No person shall engage in this state in any trade practice that is a misrepresentation of an insurance policy, that is an unfair method of competition, or that is an unfair or deceptive act or practice as defined by the provisions of the Insurance Code or as defined by these sections and other rules and regulations of the State Board of Insurance authorized by the Code.

(b) Irrespective of the fact that the improper trade practice is not defined in any other section of these rules and regulations, no person shall engage in this state in any trade practice which is determined pursuant by law to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.

State Bd. of Ins., 28 Tex.Admin.Code § 21.3 (West October 1, 1992) (emphasis added). Because Board Order 18663 does not declare unfair claim settlement practices to be an unfair or deceptive act or practice, such practices are not actionable under art. 21.21 by reference to Board Order 18663 alone. TEX.INS.CODE ANN. art. 21.21, § 16.

Watson argues, however, that through Board Order 18663, Board Order 41454 is implicated. ⁴ This Court held in Vail that an insured could not rely on Board Order 41454 because the definition of unfair or deceptive acts or practices required that such acts be committed with "such frequency as to indicate a general business practice." Vail, 754 S.W.2d at 135. Thus, Vail precludes Watson's claims under Board Order 41454. ⁵ While Board Order 41454 was amended effective August 19, 1992 to delete any frequency requirement, because of its effective date, this amendment does not apply to this case. In any event, Board Order 41454 was adopted pursuant to art. 21.21-2, not art. 21.21 and, thus, cannot form the basis of a claim under art. 21.21, section 16. TEX.INS.CODE ANN. art. 21.21, § 16.

Watson also argues that art. 21.21-2, which defines and prohibits unfair claim settlement practices, is made available as a private cause of action through Board Order 18663. ⁶ To the contrary, art. 21.21-2 does not create a private cause of action for violations of that statute. See CNA Ins. Co. v. Scheffey, 828 S.W.2d 785, 791 (Tex.App.--Texarkana 1992, writ denied); Cantu v. Western Fire & Casualty Ins. Co., 716 S.W.2d 737, 741 (Tex.App.--Corpus Christi 1986), writ ref'd n.r.e. per curiam, 723 S.W.2d 668 (Tex.1987). Significantly, the legislature in 1985 specifically rejected a proposed amendment to art. 21.21, section 16, that would have created a private cause of action for unfair claim settlement practices as defined in art. 21.21-2. H.J. OF TEX., 69th Leg., R.S. 417 (1985). And more recently, in 1991, the legislature deleted a provision from H.B. 2 that would have provided a private cause of action in art. 21.21-2 to any "claimant" for unfair claim settlement practices. H.B. 2, § 9.12, 72d Leg., R.S. (1991) (original version of bill filed February 2, 1991). In construing art. 21.21 and Board Order 18663 promulgated thereunder, we cannot ignore the legislature's refusal to create a statutory private cause of action for unfair claim settlement practices for third party claimants such as Watson. See Transportation Ins. Co. v. Maksyn, 580 S.W.2d 334, 338 (Tex.1979) and Smith v. Baldwin, 611 S.W.2d 611, 617 (Tex.1980) (deletion of provision in a pending bill discloses legislative intent to reject the proposal). We will not construe art. 21.21, section 16 to permit, indirectly, a...