Concurring Opinion by Justice Spector November 24, 1993.
Dissenting Opinion by Justice Doggett November 24, 1993.
ON MOTION FOR REHEARING
Respondent's motion for rehearing is overruled. We withdraw our opinion of November 24, 1993 and substitute the following opinion in its place.
The issue in this case is whether the legislature has conferred upon a third party claimant a direct cause of action against an insurer for unfair claim settlement practices under section 16 of art. 21.21 of the Texas Insurance Code. We hold that a third party claimant has no such direct cause of action under art. 21.21 and therefore, we reverse in part and affirm in part the judgment of the court of appeals.
Kathleen Watson was injured in a car accident on March 31, 1989. The driver of the other car was M.D. Townley, an insured under an automobile liability policy issued by Allstate Insurance Company. Watson filed suit on June 28, 1989 against Townley alleging that Townley was negligent and that his negligence was a proximate cause of the accident and her injuries. In the same action, Watson also sued Allstate under art. 21.21, section 16, for alleged unfair claim settlement practices in failing to attempt in good faith to effectuate prompt settlement of her claims where liability had become reasonably clear and in denying or unreasonably delaying payment of her claim. Watson alleged that Allstate's conduct violated 28 Tex.Admin.Code § 21.3 (Board Order 18663) and section 17.46 of the Texas Deceptive Trade Practices—Consumer Protection Act (DTPA), thereby giving rise to her cause of action under art. 21.21, section 16.
In this case, we are asked to expand our holding in Vail v. Texas Farm Bureau Mutual Ins. Co., 754 S.W.2d 129 (Tex.1988) and conclude that section 16 of art. 21.21 confers upon third party claimants a direct cause of action against an insurer for unfair claim settlement practices. In essence, we are asked to extend to a party adverse to the insured, the same duties and obligations insurers owe to their insureds under Vail. For the reasons stated below, we decline to do so.
To have a private cause of action for alleged unfair claim settlement practices under art. 21.21, section 16, such practices must be declared unfair or deceptive acts or practices in the business of insurance in section 4 of art. 21.21, the rules and regulations of the State Board of Insurance adopted under art. 21.21, or be defined unlawful deceptive trade practices in section 17.46 of the DTPA. TEX. INS.CODE ANN. art. 21.21, § 16. The full text of art. 21.21, section 16 reads:
Id. We address each basis for art. 21.21 liability separately.
The express purpose of art. 21.21 is to regulate trade practices in the business of insurance by defining or providing for determination of "all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices" and prohibiting such practices. TEX.INS. CODE ANN. art. 21.21, § 1 (emphasis added). Section 4 of art. 21.21 defines those practices that constitute unfair methods of competition or unfair or deceptive acts or practices. Id. at § 4. We note that unlike section 17.46 of the DTPA, discussed below, section 4 of art. 21.21 does not use the phrase "includes, but is not limited to" when defining prohibited acts. As written, art. 21.21, section 4, is an exclusive list of statutory unfair or deceptive acts or practices in the business of insurance.
Board Order 18663 was adopted by the State Board of Insurance pursuant to art.
Watson argues, however, that through Board Order 18663, Board Order 41454 is implicated.
Watson also argues that art. 21.21-2, which defines and prohibits unfair claim settlement practices, is made available as a private cause of action through Board Order 18663.
Art. 21.21, section 16 provides a private cause of action for any practice
To be sure, art. 21.21, section 16 is worded as providing a cause of action to "any person." However, for Watson to assert her cause of action against Allstate for unfair claim settlement practices, she must do so through the reasoning of Vail. Vail, an opinion delivered in 1988, followed closely after our decision in Arnold v. National County Mutual Ins. Co., 725 S.W.2d 165 (Tex.1987). Vail thus presented the question of construction of art. 21.21, section 16 in the context of an insured-insurer relationship and in light of the preexisting common law duty of good faith and fair dealing recognized in Arnold. In reaching our decision today, we are particularly mindful of the duties imposed on insurers as to their insureds. See Vail, 754 S.W.2d at 136; Arnold, 725 S.W.2d at 167. Vail is predicated upon this Court's expressed belief that a special relationship exists between an insured and the insurer. See Arnold, 725 S.W.2d at 167. Vail remains the law as to claims for alleged unfair claim settlement practices brought by insureds against their insurers.
Watson, however, is not an insured. Rather, she asserts her claims against Allstate as a third party to the contract between Allstate and its insured. The obligations imposed by art. 21.21 of the Insurance Code and Vail are engrafted onto the contract between the insurer and insured and are extra-contractual in nature. A third party claimant has no contract with the insurer or the insured, has not paid any premiums, has no legal relationship to the insurer or special relationship of trust with the insurer, and in short, has no basis upon which to expect or demand the benefit of the extra-contractual obligations imposed on insurers under art. 21.21 with regard to their insureds. Nothing in Vail suggests that the extra-contractual obligations, rights, and remedies of art. 21.21, section 16 extend to third party claimants.
We hold that Watson, as a third party claimant, lacks standing under section 16 of art. 21.21 to sue Allstate directly for unfair claim settlement practices.
In coming to our conclusion, we also note that the court of appeals incorrectly determined that Watson had standing to sue under art. 21.21 as a third party beneficiary of the automobile liability policy. 828 S.W.2d at 428. In Dairyland County Mutual Ins. Co. v. Childress, 650 S.W.2d 770 (Tex.1983), this Court held that for purposes of recovering attorney's fees under an insurance contract, a third party who has obtained a judgment against an insured is an intended third party beneficiary of the insurance contract and is entitled to enforce the contract. Dairyland does not give third party claimants standing to sue to enforce the extra-contractual obligations under art. 21.21, section 16. Therefore, Dairyland is not applicable to this case.
The court of appeals erred in reversing the trial court's judgment as to Watson's art. 21.21 claim. We reverse in part the judgment of the court of appeals as to Watson's art. 21.21 claim and affirm the remainder of the judgment of the court of appeals.
PHILLIPS, C.J., and GONZALEZ, HIGHTOWER, HECHT and CORNYN, JJ., join in this opinion.
SPECTOR, Justice, concurring.
Nov. 24, 1993
I concur in the Court's judgment, but not its opinion. I would hold that a third-party
DOGGETT, Justice, dissenting.
Nov. 24, 1993
An explicit statute and an unequivocal prior ruling of this Court once again impose no restraint on a majority determined to deny Texans any meaningful remedy for abusive insurance claims handling practices. After suffering injuries in an automobile collision, Kathleen Watson alleges she sustained only more injuries from Allstate's delay in resolving her claim and lack of good faith. The decision of the court of appeals assured Watson the protection against unfair claim settlement practices afforded by section 16, art. 21.21 of the Texas Insurance Code. 828 S.W.2d 423. Today's opinion removes that safeguard. Because this important law should be enforced, I dissent.
If only this statute had been drafted differently, the majority would not have had to go through such gyrations in once again assuming for itself a legislative role. But today's word games do more than harm third parties like Kathleen Watson. By challenging the legitimacy of Vail v. Texas Farm Bureau Mutual Insurance Co., 754 S.W.2d 129 (Tex. 1988) (finding a statutory cause of action for unfair claim settlement practices under TEX. INS.CODE ANN. art. 21.21 (Vernon Supp. 1993)), and implicitly adopting the regressive reasoning of the previously rejected writings of Justices Gonzalez and Phillips, id. at 137, 139 (Gonzalez, J., dissenting and Phillips, C.J., dissenting on rehearing), the majority has invited imminent attack on the most effective tool that Texas consumers possess to ensure that they have not paid premiums only to be subjected to abuse by their own insurers.
Texans victimized by the unfair or deceptive conduct of insurance companies have been afforded statutory protection:
TEX.INS.CODE ANN. art. 21.21, § 16 (Vernon Supp.1993). This Court has relied upon the express language of this enactment to assure protection against unfair claim settlement practices. See Vail, 754 S.W.2d 129. Such claims practices are actionable as unfair acts under art. 21.21 both because they are so defined by a regulation of the State Board of Insurance and because they can constitute a breach of section 17.46 of the Texas Business and Commerce Code (DTPA).
State Board of Insurance Order 18663, section 4(a) states that any act defined by the Insurance Code to be an unfair or deceptive act or practice is prohibited by art. 21.21. 28 Tex.Admin.Code § 21.3(a) (West 1993). One such prescribed unfair practice is "not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear." TEX.INS.CODE art. 21.21-2, § 2(d). Since there is not the slightest indication that Board Order 18663 and the definition contained in article 21.21-2, § 2(d) were to be excluded from incorporation by art. 21.21, this Court simply acknowledged that unfair claims settlement practices are among the provisions actionable under art. 21.21.
Article 21.21 would be wholly superfluous were it limited solely to rules and regulations enacted under other Code provisions that offered their own separate private cause of action. There would have been no reason to promulgate art. 21.21 if a claimant could already proceed separately under other provisions such as art. 21.21-2. We have already determined in Vail that "[t]he fact that article 21.21-2 itself does not confer a private cause of action does not preclude the incorporation of definitions contained in that article into rules and regulations promulgated by the State Board of Insurance." Vail at 134. Since by its plain terms art. 21.21 provides a cause of action for every practice determined elsewhere in the Code to be unfair, and art. 21.21-2 proscribes unfair claim settlement practices, they are actionable under art. 21.21.
Article 21.21 affords a second basis for an action for unfair claim settlement practices by its reference to section 17.46 of the DTPA, which defines "false, misleading, or deceptive acts or practices" as including, but not limited to, a list of enumerated items. TEX.BUS. & COM.CODE ANN. § 17.46 (Vernon 1987). Since the list of prohibited acts is not exhaustive, Spradling v. Williams, 566 S.W.2d 561, 564 (Tex.1978), recovery may be based upon a finding of deception in the occurrence of an unlisted act or practice. Id. This Court has already determined that a finding that an insurer's failure to exercise good faith in the handling of a claim constituted a deceptive act was sufficient under section 17.46, and has further held that "section 16 of article 21.21 incorporates any [such] unlisted practice that is determined to be false, misleading or deceptive." Vail at 135 (emphasis added).
After conceding that section 17.46 is not a comprehensive list of actionable DTPA violations, the majority somehow concludes, without any authority whatsoever, that in order to ground an unfair practices claim under art. 21.21, the conduct complained of must be specifically enumerated in section 17.46. 876 S.W.2d at 149.
The only real difference between the Vails and Watson is the type of individual making the claim; the former were insureds, while the latter is not. The benefits of art. 21.21 might well have been limited to the "insured" or the "consumer" but they are not. It guarantees a right to "[a]ny person," art. 21.21, § 2 (emphasis added), which unequivocally includes Kathleen Watson. The same statute which supported the claim by the Vails unquestionably supports the claim by Watson. Because the legislature did not authorize such discrimination, today's opinion must invent some basis for its disparate treatment of Kathleen Watson. Ironically, the majority finds support in the very opinion to which it has devoted such energy in dismembering—Vail, a decision allegedly "predicated upon this court's expressed belief that a special relationship exists between an insured and the insurer." 876 S.W.2d at 149 (citing Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987)).
Vail did no such thing. There, in a rather easy case of basic statutory interpretation, the Court read what the legislature wrote, not what we may have wanted written as the majority has now done. Today we learn for the first time that Vail was somehow decided in the shadow of Arnold's focus on the insured-insurer relationship.
But not only is this reading of Vail inapplicable to Watson, it is also plainly wrong. Our previous conclusion that Arnold was one of two "determinations pursuant to law that an insurer's lack of good faith in processing a claim is an unfair or deceptive act" is as applicable to third party claims as to those by insureds. 754 S.W.2d at 135. Any argument that Vail can be limited solely to the claims of insureds finds absolutely no basis in that decision itself; rather it represents a newly fabricated rule to deny Kathleen Watson relief.
By following the unequivocal command of what had been our law, the most recent court to address this issue has reached the precise conclusion that the majority should have
In what is only a rationalization for a decision that lacks any basis in law, the majority concludes that any third party cause of action under art. 21.21 would "undermine the insurer's duty to its insured imposed in Vail and Arnold." 876 S.W.2d at 150. This contention is based upon the erroneous assumption that recognizing such a cause of action constitutes acknowledgment of inherently conflicting "concomitant and coextensive duties" to insureds and third parties. Id. at 150. The majority even goes so far as to speculate that such "potential for conflicting duties" may have provided a reason for the legislature's "refus[al] to provide a direct cause of action for third party claimants." 876 S.W.2d at 150. But art. 21.21 reflects no such "refusal"; its use of the phrase "any person" is not only a clear directive, but certainly thwarts any suggestion that the legislature recognized the majority's imagined conflict. How disingenuous to divine legislative intent from such judicial guesswork rather than to give effect to the plain wording of a legislative enactment.
Concluding that art. 21.21 requires an insurer to refrain from unfair settlement practices does not in any way preclude its serving the interests of the insured. Indeed, engaging in fair claims settlement practices would appear very much in the interest of the insured as well as the third party. While an insurer acting in good faith will be forced to consider carefully its actions from the perspectives of both the insured and the claimant, no duties need to be compromised. An insurer simply may not act in bad faith toward a claimant in fulfilling its duty to defend its insured.
An insurer may defend against third party claims yet still fulfill the duty to act in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear. Article 21.21 only demands conduct which we have long rightfully expected from insurance companies. There was no need here to "expand our holding in Vail," 876 S.W.2d at 147; all the majority had to do was enforce a law protecting individuals from wrongdoing by the considerable power of large insurance companies. In Vail this Court declined an insurer's request to carve out of this comprehensive statute certain types of deception:
Vail at 132. Unfortunately the majority creates just such an unwarranted exception— the deception here has not been limited to the insurer; it permeates today's opinion.
GAMMAGE, J., joins in this dissent.
State Bd. of Ins., Board Order 41454 (1982) (now 28 Tex.Admin.Code § 21.203).
TEX.INS.CODE ANN. art. 21.21-2, § 2 (Vernon 1981). Like Board Order 41454, art. 21.21-2 was amended in 1991 to eliminate any frequency requirement. The amendment, effective January 1, 1992, does not apply to this case, and, in fact, is irrelevant to our analysis because we conclude that Board Order 18663 does not create a private cause of action in favor of third party claimants for violations of art. 21.21-2.
Today's opinion wrongly asserts that this provision remains unavailable even for post-amendment claimants because it was adopted pursuant to art. 21.21-2 rather than art. 21.21. 876 S.W.2d at 148. Like the balance of the majority's writing, this reasoning conflicts directly with our ruling in Vail permitting the use of definitions from art. 21.21-2 in an action under art. 21.21.
Vail, 754 S.W.2d at 136 (emphasis added). Ground (2) of Vail is based upon section 4(b) of Order 18663, which prohibits conduct "determined pursuant by law" to be an unfair act or practice. 28 TEX.ADMIN.CODE § 21.3(b) (West 1993). Vail concluded that Arnold and Aranda [v. Insurance Co. of North America, 748 S.W.2d 210 (Tex.1988)] constituted such a determination, thus giving the Vails an art. 21.21 cause of action based on section 4(b). 754 S.W.2d at 135. Watson's claim is supported by ground (1) of Vail, which includes section 4(a) of Order 18663, prohibiting unfair practices as defined by rules and regulations of the State Board of Insurance. See supra at 151. Watson also alleges ground (3) of Vail in support of her claim. However, Watson's claim does not adopt ground (2) of Vail, the only portion citing Arnold, in support of her claim.