Chitsey v. National Lloyds Ins. Co.
| Decision Date | 08 July 1987 |
| Docket Number | No. C-4882,C-4882 |
| Citation | 738 S.W.2d 641 |
| Parties | Ronald H. CHITSEY, Petitioner, v. NATIONAL LLOYDS INSURANCE COMPANY, Respondent. |
| Court | Texas Supreme Court |
This is a suit by Ronald Chitsey against National Lloyds Insurance Company for loss under a fire policy and for damages due to alleged unfair settlement practices. Based on jury findings, the trial court rendered a take nothing judgment. The court of appeals reversed and remanded the cause to the trial court to render a judgment for Chitsey. 698 S.W.2d 766. We affirm.
Chitsey contracted with Lloyds for fire insurance on a duplex. The policy had a face value of $16,000 and provided that upon loss, payment would be made for the cost of repairing his Austin, Texas duplex with materials of a like kind and quality. A fire occurred on January 9, 1981, and Chitsey notified his local insurance agent. The agent forwarded notice of the fire to the Lloyds' Waco, Texas home office.
A dispute soon arose between Chitsey and the insurance company. While Chitsey claimed that the structure was a total loss and demanded full payment, Lloyds contended that the duplex could be repaired for less than the full amount of the policy. Chitsey obtained two general estimates from local builders indicating that it would cost $16,000 to rebuild the home, but Lloyds rejected those valuations and sent out a home office adjuster and a Waco homebuilder to make an estimate. Lloyds valued the claim at $7,079.29 and offered that amount. Chitsey declined the payment and instead filed suit. He specifically alleged that failing to properly evaluate and investigate the claim violated Tex.Ins.Code Ann. art. 21.21, § 16(a) (1981), breached the duty of good faith and fair dealing owed to him by Lloyds, and breached the insurance contract.
The jury found that Lloyds engaged in an unfair practice in handling the claim by "failing to use due diligence in determining the amount of [Chitsey's] loss" and that Lloyds breached its duty of good faith and fair dealing in its handling of the claim. The jury answered "we do not" when asked if the breach of the duty of good faith and fair dealing was gross negligence. The jury also found that Chitsey misrepresented to the insurance company plans he had regarding the property. The trial court overruled Chitsey's motion to disregard this issue and rendered judgment in favor of Lloyds.
The court of appeals agreed with Chitsey concerning recovery of $16,000 on the breach of contract theory, and reversed that portion of the trial court's judgment, remanding the cause to the trial court for entry of judgment in favor of Chitsey for breach of contract, attorney fees, pre-judgment and post-judgment interest, and costs. In doing so, the court held that even assuming for the sake of argument that there was evidence of misrepresentation by Chitsey, there was no evidence of reliance by Lloyds. The court of appeals also rejected Chitsey's cause of action under Tex.Ins.Code Ann. art. 21.21 for unfair practices committed by Lloyds in failing to use due diligence. That court held that acts of which Chitsey complained could not be the basis of a cause of action under the Insurance Code.
The court of appeals also denied recovery based on the jury's finding that Lloyds breached a duty of good faith and fair dealing, holding that no "covenant of good faith and fair dealing" was recognized under Texas law and that even if such a cause of action did exist, recovery would be limited to the amount Chitsey would have received for breach of the insurance contract.
Chitsey brings points of error challenging the court of appeals denial of his claims under Insurance Code Article 21.21 and under a common law duty of good faith and fair dealing. We first consider the Insurance Code cause of action.
Section 16(a) of Article 21.21 declares that a cause of action for treble actual damages may be brought by:
Any person who has been injured by another's engaging in any of the practices 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 and unfair and 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....
Tex.Ins.Code Ann. art. 21.21, § 16(a) (Vernon 1981) (emphasis added).
The first type of prohibited conduct arises from section 4 which contains eight subsections dealing with the competitive aspects of selling insurance. The third type of conduct prohibited is any practice defined by DTPA section 17.46 as an "unlawful deceptive trade practice." Tex.Ins.Code Ann. art. 21.21, § 16(a) (Vernon 1981). See Aetna Casualty & Sur. Co. v. Marshall, 724 S.W.2d 770 (Tex.1987). Section 17.46 contains 23 "laundry list" violations. Chitsey does not argue that Lloyds violated the first or third types of prohibited conduct.
Chitsey, then, argues that Lloyds engaged in the second type of conduct prohibited by article 21.21 section 16(a). He asserts that Lloyds' settlement practices have been "declared by the board" to be an ...
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