Vail v. Texas Farm Bureau Mut. Ins. Co.
| Decision Date | 11 May 1988 |
| Docket Number | No. C-4598,C-4598 |
| Citation | 754 S.W.2d 129 |
| Parties | Melvin L. VAIL et ux., Petitioners, v. TEXAS FARM BUREAU MUTUAL INSURANCE COMPANY, Respondent. |
| Court | Texas Supreme Court |
Roger D. Sanders, Sherman, Joe K. Longley and Mark L. Kincaid, Longley & Maxwell, Austin, for petitioners.
Sidney H. Davis, Jr., Touchstone, Bernays, Johnston, Beall & Smith, Dallas, for respondent.
This case presents the question of whether an insured has a cause of action against an insurer for unfair claims settlement practices under the Deceptive Trade Practices Act or the Texas Insurance Code. Petitioners Melvin and Maryanne Vail insured their home under a policy issued by respondent Texas Farm Bureau Mutual Insurance Company. The home was destroyed by fire during the policy period, and Texas Farm refused to pay the Vails' claim. The Vails sued Texas Farm for the full amount of the policy and for damages under the Deceptive Trade Practices Act (DTPA), Tex.Bus. & Comm.Code Ann. § 17.41 et seq. (Vernon 1987), and the Texas Insurance Code, Tex.Ins.Code Ann. art. 21.21 (Vernon Supp.1988), alleging a bad faith failure to pay the claim.
Based on a jury verdict, the trial court rendered judgment for the Vails for treble the amount of the policy, prejudgment interest on the trebled amount, and attorney's fees. The court of appeals reversed that part of the trial court's judgment that trebled the actual damages and permitted the Vails to recover only the policy limit as actual damages, prejudgment interest on that amount, and attorney's fees. 695 S.W.2d 692. We reverse the judgment of the court of appeals in part and render judgment that the Vails recover treble the amount of the policy, prejudgment interest on the amount of the policy only, and attorney's fees.
The Vails purchased a fire insurance policy from Texas Farm in 1978. Under the policy, the home was insured for $25,000, and the contents were insured for $10,000. The Vails' home burned on July 18, 1979 during the term of the policy. The agent for Texas Farm informed the Vails that the company would not "willingly" pay the claim, allegedly because the Vails had not provided an adequate list of the contents destroyed in the fire. The adequacy of the contents list had no bearing, however, on Texas Farm's duty to pay under the policy on the home itself. Texas Farm notified the Vails on August 15, 1979 that it had denied the claims for both the home and the contents based on the inadequate contents list.
Texas Farm then hired an engineering firm to conduct an arson investigation. The engineering firm concluded that no fire-setting materials were present on the Vails' site. After receiving the engineering firm's report, Texas Farm engaged the State Fire Marshal's office to conduct a second arson investigation. An investigator for the Fire Marshal's office tested four samples of fire debris. One sample showed no fire-setting materials were present. The other three samples indicated the presence of fire-setting materials. Expert testimony at trial, however, indicated that the three samples were tested under conditions that raised questions as to validity of the results. Based on the Fire Marshal's report, Texas Farm changed its basis for denying the claim from an inadequate contents list to arson.
The Vails sued Texas Farm, seeking recovery on the policy, treble damages, and attorney's fees based on unfair claims settlement practices. The Vails alleged violations of the DTPA and the Insurance Code. Texas Farm lodged special exceptions to the Vails' pleadings, complaining of lack of notice. The trial court struck all of the DTPA and Insurance Code allegations with the exception of the following:
In the alternative, Defendant violated the Tex.Bus. and Comm.Code, § 17.50(a)(4) by employing or using acts which violate art. 21.21 of the Texas Insurance Code, or rules and regulations issued by the State Board of Insurance under said art. 21.21, as follows:
(b) By engaging in the practices contrary to Sec. 4 of Insurance Board Order 18663, Sec. (a), which acts were unfair or deceptive as defined by art. 21.21-2, Sec. 2(d) by not attempting in good faith to effectuate prompt, fair, and equitable settlements on claims submitted in which liability had become reasonably clear.
The case proceeded on the basis of these statutory allegations and the Vails' claim that Texas Farm had breached the common-law duty of good faith and fair dealing. The jury found that Texas Farm had intentionally failed to exercise good faith in the processing of the Vails' claim by refusing to settle the claim promptly, fairly, and equitably after Texas Farm's liability had become reasonably clear. Based on the jury findings, the trial court awarded the Vails the full policy limit of $35,000, trebled that amount, and awarded attorney's fees and prejudgment interest on the trebled figure.
The court of appeals reversed that part of the trial court's judgment that trebled the actual damages awarded the Vails. The court of appeals held that there is no private cause of action for unfair claims settlement practices under the DTPA or Insurance Code. The court of appeals modified the trial court's judgment to permit the Vails to recover only the combined policy limit of $35,000 on the home and contents, prejudgment interest on that amount, and attorney's fees.
The Vails contend that they properly pleaded, proved, and obtained jury findings under the DTPA and the Insurance Code so as to entitle them to recover treble damages. Texas Farm responds with two arguments. First, Texas Farm asserts that the Vails failed to adequately plead violations of the DTPA and the Insurance Code. Second, Texas Farm argues that even if the pleadings provided adequate notice of the DTPA and Insurance Code claims, the Vails failed to state a cause of action under Texas law.
The Vails' pleadings allege that Texas Farm violated section 17.50(a)(4) of the DTPA by engaging in acts that violate article 21.21 of the Texas Insurance Code or rules or regulations promulgated pursuant to that article. Section 17.50(a)(4) of the DTPA provides:
A consumer may maintain an action where any of the following constitutes a producing cause of actual damages:
* * *
(4) The use or employment by any person of an act or practice in violation of Art. 21.21, Texas Insurance Code, as amended, or rules and regulations issued by the State Board of Insurance under Art. 21.21, Texas Insurance Code, as amended.
Tex.Bus. & Comm.Code Ann. § 17.50(a)(4) (Vernon 1987). Texas Farm contends that section 17.50(a)(4) of the DTPA does not incorporate section 16 of article 21.21, the "remedies" provision that defines the types of unfair or deceptive acts or practices for which article 21.21 relief may be granted. The language of section 17.50(a)(4) of the DTPA, however, by its terms, incorporates article 21.21 of the Insurance Code in its entirety. See Mobile County Mutual Ins. Co. v. Jewell, 555 S.W.2d 903, 910 (Tex.Civ.App.--El Paso 1977, writ ref'd n.r.e.). Texas Farm was given adequate notice that the Vails were seeking relief under section 17.50(a)(4) of the DTPA for conduct proscribed by section 16 of article 21.21 of the Insurance Code. Tex.R.Civ.P. 47; Stone v. Lawyers Title Ins. Co., 554 S.W.2d 183, 187 (Tex.1977).
Texas Farm maintains that even if the Vails' pleadings provide adequate notice of their claims under section 17.50(a)(4) of the DTPA and article 21.21, § 16 of the Insurance Code, the Vails nevertheless failed to state a cause of action under Texas law. Texas Farm argues that the Texas legislature has limited the remedy for unfair claims settlement practices to that contained in article 21.21-2 of the Insurance Code. Article 21.21-2 authorizes the State Board of Insurance to issue cease and desist orders upon finding that an insurer has engaged in unfair claims settlement practices. Tex.Ins.Code Ann. art. 21.21-2 (Vernon 1981). It has been held, however, that article 21.21-2 does not confer a private cause of action upon individuals injured by unfair claims settlement practices. Lone Star Life Ins. Co. v. Griffin, 574 S.W.2d 576, 580 (Tex.Civ.App.--Beaumont 1978, writ ref'd n.r.e.). Texas Farm concludes that the legislature, by enacting article 21.21-2, "sealed off" any private cause of action for unfair claims settlement practices under the DTPA or Insurance Code.
The DTPA and the Insurance Code each grant relief for unfair or deceptive acts or practices in the business of insurance. Tex.Bus. & Comm.Code Ann. § 17.50(a)(4) (Vernon 1987); Tex.Ins.Code Ann. art. 21.21 §§ 3, 16 (Vernon Supp. 1988). The business of insurance includes the investigation and adjustment of claims and losses. Aetna Casualty & Surety Co. v. Marshall, 724 S.W.2d 770, 771-72 (Tex.1987); Tex.Ins.Code Ann. art. 1.14-1, § 2(a) (Vernon Supp.1988). There is no provision in the DTPA or the Insurance Code that exempts insurers from liability for conduct relating to the handling of insurance claims. See Melody Home Manufacturing Co. v. Barnes, 741 S.W.2d 349, 354 n. 7 (Tex.1987); The Deceptive Trade Practices--Consumer Protection Act: Hearings on Tex.H.B. 417 Before the House Committee on Business and Industry, 63rd Leg. 17 (Feb. 27, 1973) (); Tex.Ins.Code Ann. art. 21.21, § 1 (Vernon Supp.1988) (). The legislature has mandated that the DTPA and the Insurance Code are to be liberally construed to promote the remedial purposes of those statutes. Tex.Bus. & Comm.Code Ann. § 17.44 (Vernon 1987); Tex.Ins.Code Ann. art. 21.21, § 1(b) (Vernon Supp.1988).
Section 17.50(a)(4) of the DTPA incorporates section 16 of article 21.21 of the Insurance Code. Section 16 permits recovery by any person who has been injured by another's engaging in:
any of the practices declared to be unfair or deceptive...
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