February 25, 2015 Practice Points

Split of Authority in Texas on Extracontractual Damages

A Texas court of appeals rejected any requirement of independent damages and affirmed a judgment based on Chapter 541

by William T. Barker

In United National Insurance Co. v. AMJ Investments, LLC, 447 S.W.3d 1 (2014)a Texas court of appeals rejected any requirement of independent damages and affirmed a judgment based on Chapter 541. Because other courts of appeals have held independent damages necessary, and the federal courts agree, there is now a split of authority.

Texas has long recognized a common-law cause of action when an insured suffers an excess judgment due to the insurer’s negligent rejection of a within-limits settlement opportunity. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544, 547–48 (Tex. Comm’n App. 1929, holding approved). More recently, it recognized a common-law cause of action for failure, without a reasonable basis, to provide first-party benefits. Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). These common-law remedies have now been supplemented by (largely parallel) statutory causes of action that provide more extensive remedies and, so, may effectively supplant the common-law causes of action.

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