While the November 8, 2018 Court of Appeal of Texas, Fort Worth Division opinion reverses a trial court’s judgment on grounds of legal insufficiency and standing, the court’s analysis and application of current Texas bad faith law is of much more interest. The trial court judgment held that Old American Insurance Company violated both the Texas Unfair Settlement Practices and the Prompt Payment of Claims Acts by failing to promptly pay benefits owed under the life insurance policy assigned to Lincoln Factoring, LLC (assignee of beneficiary’s policy benefits). But the appellate court reversed, concluding that as a matter of law Lincoln could not recover damages on the claims it plead. Old Am. Ins. Co. v. Lincoln Factoring, LLC, No. 02-17-00186-CV, 2018 WL 5832111, at *1 (Tex. App.—Fort Worth Nov. 8, 2018).
Background
In 2011, Rebecca Barnes purchased a life insurance policy from Old American that provided that upon proof of a “covered death” the policy would pay a general benefit of $10,000 upon her death, and an additional $10,000 benefit upon proof that her death was “accidental.” Barnes died on September 28, 2014. On October 12, 2014, Barnes’s fiancé and the policy’s sole beneficiary assigned his entitlement to $4,725 of the proceeds to the funeral home who, in turn, assigned those proceeds to Lincoln. Lincoln sent the notarized assignments and claim forms to Old American, who acknowledged receipt but responded that it “need[ed] a copy of the death certificate” to pay the claim. The death certificate received stated that the manner of death was pending investigation.
Old American refused to pay until it received a death certificate with the final determination of the cause of death. Lincoln objected, asserting the basis for the “delay” was an “out of contract demand [that Old American had] no basis to make.” Lincoln threatened suit. Old American responded that it could not determine whether the accidental death benefit was payable, as the death certificate listed manner of death as pending investigation; therefore, payment was not due.
In March 2015, Lincoln filed suit in justice court, asserting the delay breached the policy and violated several provisions of Chapters 541 and 542 of the Texas Insurance Code, as well as the DTPA and the common law duty of good faith and fair dealing. Old American received the final death certificate in June 2015, which listed the cause of death as hypertensive cardiovascular disease. Within days, Old...
