April 26, 2017 Practice Points

Texas Supreme Court Clarifies Scope of Statutory Protections for Policyholders

The Texas Supreme Court reinforced the rights of insurance policyholders by clarifying and enhancing statutory provisions that penalize insurers engaging in deceptive trade practices

by Richard Brown

Earlier this month the Texas Supreme Court reinforced the rights of insurance policyholders by clarifying and enhancing statutory provisions that penalize insurers engaging in deceptive trade practices. At issue in the case of USAA Texas Lloyd’s Co. v. Gail Menchaca, 60 Tex. Sup. Ct. J. 672 (Tex. 2017), was whether Texas law allows a plaintiff to recover policy benefits for an insurance company’s “bad faith” in handling a claim, when the insurer is found to have not otherwise breached the insurance contract.

Although a decision favoring either party in Menchaca was not reached, and the matter was remanded for a new trial, the Supreme Court set out five express rules applicable to claims for breach of an insurance policy and violation of the Texas Insurance Code. Recognizing that prior precedent has led to substantial confusion in the resolution of insurance coverage disputes, the Supreme Court announced in Menchaca that it “seek[s] to clarify our precedent by announcing five rules that address the relationship between contract claims under an insurance policy and tort claims under the Insurance Code.”

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