Republic Insurance Co. v. Stoker

tion, statutory it is deconstruction.11 Prefer-

ring respect precedent both the enactment, legislative

Court and relevant affirm trial court regard

except with to the ultimate contribu- obligation Coating. Energy

tion COMPANY

REPUBLIC INSURANCE Adjusting Services,

and Southwest Petitioners,

Inc.,

Linda H. and John STOKER

Stoker, Respondents.

No. 94-0110.

Supreme Court of Texas.

Argued Oct. 1994. July 1995.

Decided pol- may permissibly public While consider one of one sentence in the brief of Defendant the other. icy construing Legislature sentences in that of three the intent of the at 327. ambiguous provision, we cannot re- from an plainly worded stat- write or ... deconstruct recently attempted ap Only Justice Hecht 11. ute we believe it not effectuate because ply approach to a civil service statute this same policy. sound disapproval. personal See Ti that met with his 846 S.W.2d at (Tex. jerina City Tyler, 846 S.W.2d 1992) (Hecht, J., dissenting). There this court temptation resisted the to meddle: investigate Republic hired Southwest claim. recommended the Stokers’ Southwest be denied uninsured motorist claim that the Stoker, Mrs. who it concluded that because driver, fifty percent than more was the was Republic causing the accident. at fault confirmed South- claims examiner senior acknowledged Mrs. Stoker west’s decision. that fault is of her bad faith claim at the trial Hood, Jeffrey Alley, Eric M. Joseph L. S. recovering under the uninsured an issue Paso, Brittain, Tatem, Jr., Stephen El for B. coverage. motorist petitioners. policy provided uninsured The Stokers’ Paso, Bassham, Terry Fry, El Joel coverage motorist respondents. only if the unidentified hit and run vehicle language hit the insureds’ car. The vehicle ENOCH, Justice, opinion delivered the of require- policy in accord with the Court, PHILLIPS, in which Chief regarding unin- ments of the Insurance Code GONZALEZ, HIGHTOWER, Justice, and coverage. Tex.Ins.Code art. sured motorist HECHT, CORNYN, OWEN, Justices, and l(2)(d) (in under unin- order to recover 5.06— join. physical con- “actual sured motorist occurred.”). initial- Republic tact must have presents question This case whether ly rely physical contact did not on the lack of good faith and an insurer breaches its pickup a reason for with the dealing fair to its insured if it denies a claim claim. Stokers’ for an invalid reason when there was at the reason for denial. The trial time valid Republic’s unin- Following denial of the summary judgment against granted court sued for sured motorist the Stokers policy holding that insureds on their claim breach of the insurance breach coverage, judg- no but rendered dealing, and faith and jury ment on the verdict for the insureds on Deceptive Trade Practices violations of their extra-contractual court of claims. The Act and article 21.21 of the Insurance Code. affirmed, appeals concluding finding that allegations predicated all their not, policy no on the action does as a on the fact against Republic and Southwest law, matter of defeat an insured’s extra-con- companies gave an invalid reason that the tractual claim. 867 74. The court Stoker’s denial of the Stokers’ claim—Mrs. Security on Nat’l rested its decision Viles v. Republic re- alleged fault. and Southwest (Tex.1990). Be- summary judg- sponded a motion for with appeals misapprehends cause the court of ment, no asserting that because there was judgment of the court we reverse the no under physical contact there was judgment appeals and render policy, consequently, the Stokers had and nothing. Stokers take extra-contractual claims no contractual and matter of as a law. multiple case arises out of a car acci- granted summary judgment automobile struck The trial court dent which However, issue. it submitted the rear end of another vehicle. It is undis- contract jury the case to a that found puted pickup an unidentified truck the balance of highway, and Southwest had breached dropped a load of furniture on the Also, good causing reaction collision. it is a chain 21.21 of the by violated the DTPA and article undisputed that this truck was not struck statutory violations in the Insurance Code. any of the vehicles involved collision. and, premised solely on the Stokers’ bad The Stokers had no collision judg- therefore, court rendered under faith claim. The trial submitted a claim to recover on the verdict. vehicle cover- ment for the Stokers their uninsured/underinsured summary appeals affirmed both age Republic. Texas, judg- Casualty on the claim Ins. Co. of ment damages. for extra-contractual 867 600 S.W.2d at 80. affirming judg In the trial court’s perfected appeal have not an ment, appeals to our the court of cited deci portion to this of of of Court the court Viles, Viles, in howev sion 788 S.W.2d 566. appeals’ judgment affirming summary judg- Viles, er, In support does not affirmance. policy ment on their claim. therefore We investigated the insurers and denied the take it as established that the uninsured/un- ground property that the claim based on the coverage in derinsured motorist the Stokers’ damage actually pre to be claimed covered

policy does cover their claim. Addition- coverage. dated Id. at 566-67. insurer ally, Southwest here that contend the before the submitted a denied claim Viles merely Republic’s agent, it because was proof doing of time for loss and before their owed the Stokers no faith and denied, expired. so had After the claim was Inc., Alexsis, dealing. fair v. Natividad proof the did not submit a of loss Viles (Tex.1994). Nor 875 S.W.2d 695 do the Stok- because it have been futile do so. they damaged by ers contend that trial, established, were contrary the At evidence delay processing by damage the their claim position, insurers’ the that the exist Therefore, Republic. only the ad- already issue we before been re Thus, paired. dress is whether the defendants are hable to Id. n. 2. at 567 the claim was Nevertheless, denying improperly the Stokers for their claim for an the denied. insur mostly attempted justify accident incorrect reason —the was ers denial claim timely file a Mrs. there a cor- based the Viles’ failure to Stoker’s fault —when was rejected proof argu Id. We this rect for the loss. reason denial which defendants stating: ment “The record shows ... give did not the Stokers —the incident was companies the by the the insurance denied Viles’ policy. not covered note that the We proof of claim before the loss form was due. fault has issue of Mrs. Stoker’s never been Hence, the file ... failure to that form could jury, purposes by a for of this resolved but been for Id. not have a basis denial.” at 567- opinion we will assume that was in its incorrect evaluation Mrs. Stoker’s

fault. is a We stated Viles: “Whether there claim] reasonable basis for denial a must [of fairly An insurer has a to deal judged by be the facts before the insurer at and in its insured in the Id. the time the claim was denied.” at 567. payment processing and of claims. Arnold statement, support This does not the Stok- County National Mut. Fire Ins. claim in case. the ers’ this Unlike situation (Tex.1987). S.W.2d breach of the the accident was never Stokers’ good faith estab by policy because there no covered was (1) lished is an of a when: there absence pickup collision with the truck. facts denying delaying pay for reasonable basis compelling claim denial of (2) policy ment of benefits under in existence at the time of the denial. Re- carrier knew or should have known public and on a Southwest’s reliance differ- denying not a basis for was reasonable erroneous, ent, perhaps denying for reason delaying payment of the claim. claim or dispositive. disposi- is not What is Am., 748 Aranda v. Insurance Co. N. whether, upon existing tive is based the facts (Tex.1988). 210, 213 “The first ele denial, at the time of the a reasonable insurer objective requires an deter ment of this test Aranda, would have denied claim. a insurer mination of whether reasonable at 213. under would have de similar circumstances argument layed An has been made that because or denied claimant’s benefits.” policy independent of a bad faith that a “will not be sub a claim is assures carrier ject a an for a bad faith for erroneous denial of insured recover claim,” id., if claim long denial of claim even is not as a reasonable basis Lyons by policy. accept prem- claim v. Millers covered denial of the exists. to estab- (Ky.1993) (noting that in order argument claim is 890 fee of the —that faith the insured tort action for bad lish a Transpor- independent of a bad faith claim. obligat- insurer prove that the must first Moriel, 10, 17 tation Ins. Co. v. policy); Pemberton ed to under conclusion, howev- The asserted Exchange, 109 Nev. Farmers Ins. er, necessarily follow. Several does not (“An (1993) fads to act support to us as cases have been cited proper it refuses ‘without faith when conclusion, but none of the cases cited for a loss compensate the insured cause’ to a claim holds an insurer liable v. John by policy.”); Bartlett covered policy.1 As have not covered A.2d Hancock Mut. Life noted, of a bad faith claim is an one element (“there (R.I.1988) can be no cause denying for or absence of a reasonable basis faith refusal for an insurer’s bad action Arnold, delaying payment 725 of benefits. until the insured first establishes pay a claim Aranda, 213; 167; at at 748 S.W.2d S.W.2d duty under the breached its that the insurer Republic not at 568. did insurance”); contract of see also OstRAGER & a rea- fail to determine whether there was Disputes CoveRage Newman, INSURANCE claim; denying for the sonable basis (7th 1994) (“The § ed. determi- 12.01 at 503 timely, simply its decision it made the was an insurer acted bad nation of whether right wrong decision for the reason. predicate a de- generally requires as a faith argued the It is further that Stokers coverage exists for the loss termination that Repub- rely entitled to Rhodes, should have been question.”); 15A on INSUR- Couch 1983) (Rev. § denying lic’s their claim in decid- 58:1 at 249 ed. reason ANCELaw 2d (“As rule, may no extra- general a be to file suit. The were whether Stokers recovery the insured is not contractual where persuaded by coverage language no more benefits under the contract entitled to they by Republic’s statement than sought the duties insurance which establishes mostly that to blame them Mrs. Stoker was exclude, upon.”). do not to be sued They vigorously contested for the accident. however, denying possibility that both reasons for denial of their claim. The act, may so commit some rely- preclude Republic cannot extreme, injury indepen- would cause that ing on a reason for their claim that Aranda, policy claim. See dent of the time, if it not the existed at the even understood at 214. Nor should we be gave. reason principles retreating from the established as general As a rule there can be no timely regarding duty of an insurer to faith when an insurer has claim for bad cir- investigate claims. These its insureds’ is in fact not promptly present denied a claim that in this case. are not cumstances e.g., O’Malley States covered. See United because, a mat- claim fails The Stokers’ (5th 494, Fidelity 776 F.2d & Guar. law, prong they meet the first ter of cannot Cir.1985) (noting Mississippi ease has that no As all the Stokers’ of the Aranda test. for the in ever allowed bad predicated on their bad causes of action are establishing first un sured without they to re- allegation, are entitled Congress policy); Gilbert v. der the Accordingly, the against defendants. cover Life (Ala.1994) (plaintiff 646 So.2d appeals in favor of judgment the court of proving reversed, a the burden of breach is bears the Stokers is defendant); nothing. by Reuter v. State take contract rendered that the Stokers Co., Inc., Auto. Ins. 469 N.W.2d Farm Mut. SPECTOR, Justice, joined by (“a (Iowa 1991) faith failure to GAMMAGE, Justice, concurring. oc when the insured event the insured subject company to treat may the insurer to tort An has ... insurance curs duty requires Jones, fairly. policyholders its liability”); Wittmer not reasonable portions the medical bills were particularly called to has been 1. Our attention Farm, compensable. 838 P.2d Id. 838 P.2d at Deese v. State and therefore (1992). company in Deese insurance 1266-67. coverage. dispute deny was whether did not officer, every spoken company report, to handle claim in a re- to the DPS visited manner, sponsible if un- he either of even the scene. Nor had interviewed in the company clear. other involved acci- When instead denies two drivers hand, conducting any claim out of without dent. Nor had he interviewed Stoker’s investigation riding is a daughter, determine whether there in the car who was denial, accident, husband, held reasonable basis should be time of the or Stoker’s responsible damages by any driving immediately Stoker caused who was behind Evidently, bad faith. occurred. when accident Republic’s Ponce not even read own ease, present In the there is no evidence policy. mishandling that the insurer’s the claim later, Republic’s Months Senior Claims For to the insured. reason, company’s join Examiner confirmed letter judgment. I in the Court’s however, deny claim. The disagree, decision Stoker’s letter strongly with the lan- again was not avail- guage indicated majority opinion suggesting in the able because was at fault. dependent on the Stoker be liability. print insurer’s contractual Fine suit, Republic brought After Stoker an insurance should excuse justification for completely offered a different damages by from insurer caused namely, of claim: that there its denial her slipshod handling its aof claim. no direct contact between Stoker’s car dumped

and the truck that the furniture. I. defense, trial Based on this new the court Republic’s partial granted motion for sum- supports case the The evidence mary judgment on Stoker’s of con- breach jury’s finding Republic that Insurance Com- proceeded claim. case then to tract The trial pany good duty its of breached claims, including on her other bad faith. dealing by improperly investigating Linda not, however, provide It Stoker’s claim. trial, jury Republic At the found that had any support for the lower courts’ determina- duty good its of and fair deal- breached Republic’s tion dam- Deceptive the Trade Prac- and violated ages to the Stokers. Act 21.21 the Insurance tices and article of jury The also the Code. awarded Stokers giving the The three-car accident rise to $1,975 necessary for the reasonable and costs shortly claim occurred after a insurance vehicle, repairing Linda and awarded spilled the truckload of furniture out onto $5,000 anguish. for her mental The Stoker highway. The of the truck did driver jury on the trial rendered stop, Depart- never The and was identified. verdict, of appeals and the court affirmed. investigat- Safety ment Public officer who 867 S.W.2d 74. report in his ed the accident concluded the was caused the unknown accident argue Republic and Southwest now the furni- driver’s failure secure load of no manner in there is evidence that the ture. prox- they investigated the was a which claim damages the Stokers. imate cause of accident, damaged in Stoker’s car was the agree. Republic a claim to she submitted poli- motorist under her uninsured clearly investigation claim did Ponce, adjuster, in- cy. Republic’s Abraham damages to not cause the the Stokers’ vehi- photographs looked at terviewed Stoker and cle; the would have incurred those later, provided. after had she Weeks Stoker if their claim had been same even inquired of her repeatedly as to status investigated regard to Linda properly. With claim, solely claim on the Ponce denied the proof anguish, the entire mental Stoker’s fifty per- ground more than that Stoker was following testimony: consists of the causing the accident. cent at fault Q [by attorney]: What was your to that denial? reaction claim, At time he Ponce denied very upset. [by Stoker]: I was accident Linda not received or reviewed DPS Q: Why? In Ar- nold, aspects various of the we identified they obligated A: Because I felt like in a vulnera- relationship that leave insureds repairs my for the car. unequal bargaining power position: the ble exchange does not rise to the level of parties; nature of con- compensable anguish. evidence of mental unscrupulous insur- tracts that allow “would Parkway Woodruff, Co. advantage of their insured’s mis- ers to take (Tex.1995). Thus, injury absent attribut- bargaining or reso- fortunes settlement to the able conduct and South- claims”; and the insurance lution of their west, the Stokers’ claim must fail. company’s “exclusive control over the evalua- majority could to resolve have chosen tion, processing and denial of claims.” Id. existing claim simple on this basis under reasons, duty recognized a For these Instead, though, majority law.1 has cho- relationship” arising “special from the away duty chipping sen to continue at the of parties from the contract itself. —not majority’s writing, faith. Under the damages, even if there had been evidence of fair Because the faith and the Stokers could not recover for relationship arises between because a reasonable insurer under similar parties, rather than the terms of the circumstances would have denied the Stok- a breach of the does not de- words, Supra ers’ claim. at 340. In other pend on a breach of the contract’s terms. completely if even an insurer fails to investi- language plain of Arnold makes that an gate a provides misleading informa- faith and violate insured, may escape tion to deter the still dealing, even when there is some reason- by finding for bad faith some reason- claim, if is “a able basis for denial of a able basis for the claim sometime part failure on the of the insurer to deter- before trial. any mine whether there is reasonable basis delay.”

for the denial or 725 S.W.2d at 167. words, recovery In other is not allowed II. only pay, for failure to but also for failure to faith bad claim is not a claim for breach investigate. All members of the Court were contract; rather, duty it is based on tort issue; agreement in on this even the concur- imposed by Chitsey Lloyds law. v. National ring opinion by Justice Gonzalez stated that Co., (Tex.1987) 641, Ins. 1 738 S.W.2d 643 n. recovery permitted should be “the in- when Court). (Gonzalez, J., writing for a unanimous surer failed to determine whether there was majority today principle alters this basic any delay.” for denial or reasonable basis by making the Stokers’ bad faith 725 S.W.2d at 168. dependent on their claim for breach of con- recasting tract. In thus just This reiterated this view five Court majority adopts completely a view that years ago. Security See Viles v. Nat’l Ins. disregards relationship between an insur- 566, 788 567 Be- company ance and its insureds. duty recognized in Arnold ema- cause contract, special relationship nature of this is nates “not from the terms of the law,” impose duty good obligation imposed in what led this Court to but from an we give dealing place. faith and fair in the first See held that a breach of the “will rise County separate Arnold v. National Mut. Fire Ins. to a cause of action tort that is cause, argument get During 1. oral on this Petition- JUSTICE DOGGETT: You can full and agreed basis, ers’ counsel that the issue is you? complete can't relief here on that dispositive: Absolutely, ANSWER: because there's no dis- JUSTICE DOGGETT: ... either dis- [Without flowing tinct from the acts of bad faith. loss approving, overruling, qualifying or Viles or Hood, argument Joseph Oral L. Counsel Aranda, your prevail can client not in this case Republic Insurance Co. and South- Petitioners solely on the basis that there’s no evidence of 19, Services, Adjusting October west damages? Well, clearly ANSWER: I think that’s that — raised, points Doggett. one of the we've Justice 344 any relationship is the

from of action for breach of the tract and the insurer’s cause play fairly to insured. obligation underlying insurance Id. Addi- contract.” tionally, describing duty, tort ex- 154, Ariz. at 726 Rawlings Apodaca, 151 pressly recognized investigate: a duty to reason, the al- P.2d at 570. For this though lowed faith even “special relationship” between the in- not the terms of the breached imposes sured and insurer on the insurer a 157, 726 P.2d at insurance contract. Id. at investigate thoroughly to claims Farm, 573; Ariz. see also Deese v. State faith, deny only those claims (same 504, (1992) 1265, P.2d investigation after an reveals there is a Supreme Wyoming holding). The Court reasonable basis do so. reasoning: applied has similar language, language 568. This like the [T]he Arnold, plain makes an insurer special relationship of emanates from the held be liable for failure to conduct an ade- not parties insurance quate investigation if the claim ulti- —even express provisions con- implied from the mately proved to be invalid. Therefore, in the contract. it is tained point made a similar less than Court party conduct of one toward other year-ago, again one when we once noted that proscribed by duty, even if such separate a bad action “is by the terms and conduct is not elevated underlying cause of action for breach of the provisions to a con- Transportation insurance contract.” Ins. obligation. tractual (Tex.1994) Moriel, Co. Farm, Cas. Hatch v. State Fire and 567). (quoting spe- 788 S.W.2d at We (Wyo.1992); P.2d see also State cifically that a lack of held Shrader, Farm Auto. Co. v. Mut. preclude recovery for bad faith: (“the (Wyo.1994) insured prevail on the contract claim to do ... need agree insur- “[C]laims duty of prevail the claim for breach of the ance are distinct from contract dealing”). and fair Courts faith; for bad those in tort resolution of See, many jurisdictions agree. e.g., other other.” one does not determine the Co., Opperman Mut. Fire Ins. v. Nationwide Moriel, id., (quoting at n. 8 18 263, (Fla.Dist.Ct.App.1987) 267 515 So.2d J., (Doggett, dissenting)). 879 S.W.2d at 40 dealing (duty good faith and fair is “inde- approval language quoted also with stat- any obligation”), re- pendent contractual ing that to facts to “[i]ndifference failure denied, (Fla.1988); view 523 578 So.2d White investigate axe sufficient to establish the tort Co., 94, Ins. 112 730 Unigard v. Mut. Idaho Id., (empha- 879 at 18 of bad faith.” (“An (1986) provides in tort action 1014 added) (quoting Rawlings Apodaca, sis v. 151 though remedy a for harm done to insureds (1986)). 149,162, 565, Ariz. 726 P.2d 578 express no breach of contractual covenant Savings v. also First Texas Ass’n Reliance damages has and where contract occurred (5th Cir.1992) Co., 1171, 1179 Ins. 950 F.2d insureds.”); compensate adequately fail to J.) (under law, duty (Reavley, Texas Farm Bureau Robinson v. North Carolina imposed “indepen- Co., 44, N.C.App. Ins. 356 S.E.2d 392 itself’). policy dent of the duties under the (1987) (insurer’s compliance policy does jurisdictions have likewise Courts in other faith); preclude Bullet action for bad faith does not held Trucking, Inc. Glen Falls 84 Ohio insurance contract. depend on a breach 333-34, 1123, 327, App.3d 616 N.E.2d Moriel, opinion quoted length at in In an (1992) (“the indepen- is an tort bad faith 18-19, the Court of Ari- Supreme necessarily rely on dent claim which does explained rule follows: zona existence”); its contract claim for breach of generally and the relation- 16A [T]he insurance contract see Law Appleman, INSURANCE (1994 supp.). § ship it contain than the com- creates more 8878.25 PRACTICE underlying these cases is sim- principle certain claims all of pany’s promise bare to so; dealing is ple: implicit in when to do the con- forced occurred, once the faith has independent obli- Once the bad of the insurer’s contractual considering in gations.2 use to breached, the insurance has been claims III. justify its later seek company cannot served to previous This Court’s decisions it information which by gathering denial in a encourage insurers to handle all claims place. first have had should Today’s decision will responsible manner. Lavoie, 505 So.2d Ins. Co. v. Aetna Life encourage sort of conduct: a different (Ala.1987). deny any an insurer to a claim allows case, Republic Insurance present In the any in- comes to mind—without reason that mishandling duty by vestigation long Company at all—as as the breached discovery eventually for denial. finds some valid basis and its belated the Stokers’ not immun- print in the should of fine recently Supreme The United States Court liability. company I would ize the from all wrong rejected comparable effort allow existing by holding Republic law adhere escape liability for conduct. doers to by its responsible Banner Publish See McKennon Nashville — present record Because the misconduct. -, U.S. S.Ct. join I damages, of such (1995). contains no evidence McKennon, L.Ed.2d 852 In the Su join I judgment; but do not unanimously the Court’s preme held that an em Court unnecessary Age majority’s and unfortunate ployer not avoid under the could Employment Act of 1967 writing constricting Discrimination the future (ADEA) by relying acquired on evidence damages. af employee wrongfully discharged. ter the private litigant reasoned that a Court who seeks redress “vindicates both the deter compensation objectives rence and the — at -,

ADEA.” U.S. 115 S.Ct. at 884.

Thus, “after-acquired even when there is evi wrongdoing

dence of that would have led legitimate grounds

termination on had the at -, it,” employer about id. known CARNEY, parte Ex H. Relator. John recovery is S.Ct. at some measure of No. 95-0293. barring any re essential. An absolute rule covery, recognized, the Court “would under Supreme Court of Texas. objectives.” mine the ADEA’s analysis apply a similar here. July company defends its mis- When an

conduct on the basis of information discover- fact, barring after the an absolute rule

ed objectives undermines the dealing. The

discovery simply does not of such information mishandling of the claim:

excuse the prerequisite for bad faith. Deese majority the cases 2. The asserts that "none of 337, 340, Farm, Ariz. 813 P.2d State denying a claim cited holds an insurer liable for Supreme (App.1991). Court of Arizona 321 reversed, Supra policy.” 341. This not covered at pre- holding that an insured need Deese, simply example, For incorrect. prevail claim in order to vail on a contract sought medical benefits that State Farm insured P.2d at claim. 172 Ariz. at bad faith compensable under the terms claimed were "not "security recognized 1270. The at of the insurance contract.” 172 Ariz. goal motivating primary is a financial loss jury that State Farm P.2d at 1267. The found insurance,” explained "the purchase but it had had not breached the but that the additional also is entitled to receive insured security appeals, in an bad faith. The court of acted in knowing be dealt with that she will remarkably majority’s opinion to the fairly similar 838 P.2d at and in faith.” Id. today, is a opinion held that a breach of contract

Case Details

Case Name: Republic Insurance Co. v. Stoker

Court Name: Texas Supreme Court

Date Published: Jul 7, 1995

Citation: 903 S.W.2d 338

Docket Number: 94-0110

Court Abbreviation: Tex.