The Texas Supreme Court is currently hearing a case that could determine the direction of extra-contractual recovery against an insurer.
Specifically, the court will decide whether the argument that an insurance company could comply with policy but at the same time violate the Insurance Code for failing to conduct a reasonable investigation, could hold water.
The dilemma has its roots in the
Menchaca decision, in which a jury awarded complainant Gail Menchaca more than $11,000 in damages and $130,000 in attorney’s fees after she sued her insurance company USAA in 2008, after Hurricane Ike, for breach of policy and “refusal to pay a claim without conducting a reasonable investigation.”
Menchaca went to court after USAA determined the wind damage to her home to be worth $700, which is less than her $2,020 deductible; and significantly lower than her repair estimates, which reached five figures.
The jury decided USAA did not “fail to comply with the terms of the insurance policy.” In the same breath, however, it also said that the insurance firm was guilty of violating the Texas Insurance Code for failing to conduct a reasonable investigation, as required by law.
USAA brought its case to the Court of Appeals (CA), arguing that if they did not breach the policy, then they have no liability under the law. However, the CA upheld the previous decision.
Industry observers say the dispute could be a landmark case because it manifests the many ways a policy holder may recover against their insurer even when there is no obvious breach of policy. They say laws can play a significant role in recovery since many states allow direct court action against carriers, especially in cases of deceptive trade practices.
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