SOUTH TEXAS NAT. BANK v. US Fire Ins. Co.

• Decision Date: 10 January 1985
• Docket Number: Civ. A. No. L-83-34.
• Citation: 640 F. Supp. 278
• Parties: SOUTH TEXAS NATIONAL BANK OF LAREDO, Plaintiff, v. UNITED STATES FIRE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Texas

640 F. Supp. 278

SOUTH TEXAS NATIONAL BANK OF LAREDO, Plaintiff, v. UNITED STATES FIRE INSURANCE COMPANY, Defendant.

Civ. A. No. L-83-34.

United States District Court, S.D. Texas, Laredo Division.

January 10, 1985.

Donato D. Ramos, Laredo, Tex., for plaintiff.

Terry Topham, John W. Davidson, San Antonio, Tex., for defendant.

ORDER

KAZEN, District Judge.

South Texas National Bank (South Texas) has sued its insurer United States Fire Insurance Company (the company). South Texas seeks to recover under a Banker's Blanket Bond and Excess Fidelity policy (the policy). South Texas asserts that the policy covers its losses caused by the alleged dishonesty and fraudulent acts of its former President, Bristow, and Vice-President, Rios, in connection with loans to Francisco Lerma and his businesses. South Texas claims that it was injured because its former employees misbehaved during the course of their employment. The company has not reimbursed South Texas for this loss. The following motions are pending in this cause: (1) Defendant's motion for partial summary judgment and motion to dismiss, (2) Defendant's motion for leave to amend, and (3) Defendant's motion to compel production of certain portions of federal examiners reports, filed August 24, 1984.

The company first asserts that South Texas cannot proceed under the Deceptive Trade Practices-Consumer Protection Act, Tex.Bus. & Com.Code Ann. § 17.41 et seq. (Vernon Supp.1984) (D.T.P.A.), because South Texas did not give the company written notice at least thirty (30) days before filing this lawsuit. Id., § 17.50A. This admitted failure to give notice, however, does not require dismissal or judgment for Defendant. When "defect in the notice ... is ... brought to the attention of the trial court before trial, ... the trial court should ... abate the proceeding for thirty (30) days." Hollingsworth Roofing Co. v. Morrison, 668 S.W.2d 872, 875 (Tex.Civ. App.-Ft. Worth 1984, no writ). The Court would therefore be inclined to abate this action for thirty (30) days to allow the proper notice to be given. A serious question exists, however, as to the validity of a claim directly under the DTPA.

In the first place, it seems from South Texas' responsive brief that it intends to proceed instead under § 16 of article 21.21 of the Insurance Code. Section 16 provides a cause of action to remedy unlawful deceptive trade practices defined in § 4 of the Insurance Code, or in § 17.46 of the DTPA, or in rules and regulations adopted by the State Board of Insurance. Although a plaintiff may not claim breach of warranty or unconscionability under § 16, Mobile County Mut. Ins. Co. v. Jewell, 555 S.W.2d 903, 911 (Tex.Civ.-El Paso 1977), writ ref'd n.r.e., per curiam, 566 S.W.2d 295 (Tex. 1978), it is not true—as contended by the company—that there is no private cause of action under § 16. See, Bragg, Maxwell, & Longley, TEXAS CONSUMER LITIGATION (2d Ed.1983) § 7.03 (Consumer Litigation). Indeed the Texas Supreme Court per curiam opinion refusing application for writ of error in Hi-Line Electric Company v. Travelers Insurance Cos., 587 S.W.2d 488 (Tex.Civ.App.-Dallas, 1979), writ ref. n.r.e., per curiam, 593 S.W.2d 953 (1980) was apparently written specifically to reject the lower court's holding that suit under article 21.21 of the Insurance Code must be based on the Deceptive Trade Practices Act.

The more difficult issue is which of the so-called "three prongs" described in § 16 apply to this case. The first prong refers to those practices defined in § 17.46 of the DTPA, and only those acts enumerated in § 17.46(b) may be considered. Mobile County Ins. Co. v. Jewell, supra. South Texas nowhere alleges in its Second Amended Original Complaint nor intimates in its brief which of the twenty-three specified acts applies to this case. The Court finds none to be applicable, including those specifically discussed by Judge Higginbotham in Jay Freeman Co. v. Glens Falls Ins. Co., 486 F.Supp. 140 (N.D.Tex.1980). Likewise, under the second prong, nothing in § 4 of article 21.21 seems to apply to these facts. In its brief, South Texas relies primarily on the third prong, namely a practice condemned by "rules or regulations lawfully adopted" by the State Board. Specifically, South Texas invokes Regulation No. 18663, dated December 3, 1971.

Admittedly that Regulation, particularly sections 4 and 5 thereof, contains some rather sweeping definitions of unfair trade practices and misrepresentations. See, Consumer Litigation at § 7.04. Nevertheless, despite the Regulation, subsequent Texas cases have consistently held that denial of liability by an insurance company after the loss has occurred is not actionable under either the DTPA or article 21.21 of the Insurance Code. American Ins. Cos. v. Reed, 626 S.W.2d 898, 905 (Tex.Civ.App.-Eastland, 1981, no writ); General Acc. Fire & Life Assur. Corp., Ltd. v. Legate, 578 S.W.2d 505, 507 (Tex. Civ.App.-Texarkana, 1979, writ ref'd n.r.e.); Lone Star Life Ins. Co. v. Griffin, 574 S.W.2d 576, 580 (Tex.Civ.App.-Beaumont, 1978, writ ref'd n.r.e.). South Texas attempts to distinguish these cases by defining its complaint to be not of a mere denial of coverage but rather of alleged misrepresentations pertaining to such things as when the Company would complete its post-loss investigation and make a decision on the claim. The Court finds this to be a distinction without a difference, particularly in view of the rationale of the above cited cases, namely that a post-loss denial of benefits does not terminate the Company's obligations or extinguish the insured's rights. Also there is no allegation that South Texas did anything in reliance on the alleged misrepresentations or was injured by them in any way other than the injury that would always occur when an insured is not promptly paid its demand. See, Royal Globe Ins. Co. v. Bar Consultants, Inc., 577 S.W.2d 688, 694 (Tex.1979). It is therefore ORDERED that South Texas' claim under the DTPA and § 16 of article 21.21 of the Insurance Code be DISMISSED.

The Defendant insurance company also seeks summary judgment on the grounds that South Texas did not comply with the policy provision requiring it to furnish a sworn written proof of loss within 100 days "after discovery of loss". The policy defines discovery as occurring "when the insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred, even though the exact amount or details of loss may not then be known." South Texas does not challenge the applicability of these policy provisions. Instead, the main thrust of its response is the invocation of the provisions of article 5546, V.A.T.S., providing that whenever an insurance contract requires notice as a condition precedent to the right to sue, it shall be presumed that such notice has been given unless lack of notice is specially pleaded under oath. This suit is in federal court, however, and the Federal Rules of Civil Procedure contain a provision clearly applicable. Rule 9(c) provides merely that the denial of the performance of a condition precedent "shall be made specifically and with particularity." The Defendant has done this in its original answer and in all subsequent amendments.

This issue in controlled by Rosales v. Honda Motor Co., Ltd., 726 F.2d 259 (5th Cir.1984). There the Court explained that when a federal rule is clearly applicable, the analysis in Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), applies. Under that test, this Court concludes that Rule 9(c) does not abridge, enlarge or modify any substantive right and is within the scope of the Rules Enabling Act and a constitutional grant of power. Thus the Court concludes that Rule 9(c), Fed.R.Civ.P., controls over Article 5546 V.A.T.S. In any event, the Defendant has tendered an amended answer which would also comply with the state rule and the Court will GRANT leave to file that amendment.

The issue then becomes whether, under the policy in question, timely filing of a proof of loss is a condition precedent to recovery. South Texas relies on Aetna Life Ins. Co. v. Tipps, 98 S.W.2d 375 (Tex. Civ.App.-El Paso 1936, no writ) for the proposition that an untimely filing does not prevent recovery in the absence of a specific policy provision declaring a forfeiture. On the other hand, more recent authorities —including a decision by the Texas Supreme Court—appear to unequivocally hold that where an insurance contract requires proof of loss, a claimant's timely compliance with that requirement is a condition precedent to recovery. United States Fidelity and Guaranty Co. v. Bimco Iron...