Court Issues New Prompt Payment of Claims Decision in an Uninsured Motorist Case
By: Julie Shehane
On September 17, 2013, the district court of the Southern District of Texas (Houston division) decided the question of whether an uninsured motorist carrier’s rejected settlement offers constitute a “notice of payment of claim” that triggers the prompt-payment statute. In Terry v. Safeco Ins. Co., the Terrys were involved in an automobile accident with an uninsured motorist and demanded uninsured motorist benefits from their insurer, Safeco. No. H-10-0340, 2013 WL 5314315, at *1 (S.D. Tex. Sept. 17, 2013). Before filing suit, the parties engaged in settlement negotiations, whereby Safeco made counter-offers to the Plaintiffs’ demands. Id. After the negotiations failed, the Plaintiffs filed suit and alleged that Safeco had violated Section 542.057 of the TEXAS INSURANCE CODE, which requires insurers to pay a claim within five business days after notifying the claimant that it will pay even part of a claim. Id. at *2.
In analyzing the issue, the Court relied upon an earlier decision out of the Houston Court of Appeals that held that oral settlement offers do not constitute notices of payment of claims that trigger the prompt-payment statute. Id. at *4 citing Daugherty v. Am. Motorists Ins. Co., 974 S.W.2d 796, 796 (Tex. App.—Houston [14th Dist.] 1998). The Terrys had rejected each of Safeco’s offers, and treated the offers as counteroffers to settle – not as notices of payment. Id. at *5. The Court went on to hold that even if the settlement offers were considered notices of payment of the Terrys’ claims, the Terrys had rejected those offers. Id. As such, the five-day-payment requirement was never triggered. Id.
The Terrys then argued that Safeco’s requirement for the Terrys to accept the offers before the five-day-payment provision was triggered amounted to an impermissible condition to force the Terrys to accept a lesser amount than what they were legally entitled. Id. The Court rejected this argument as well, holding that, at the time of the settlement negotiations, the Terrys had not established any amount in which they were legally entitled. Id. As the Terrys were seeking uninsured motorist benefits, Safeco was allowed to await the judicial determination of the Terrys’ legal entitlement to the benefits before it was required to accept or reject the claim. Id. at 5. Prior court decisions in Texas have held that the “covered event” in the uninsured motorist context is not the date of the accident, but the date that the insured receives a final judgment with (1) the determination that the underlying tortfeasor’s negligence caused the accident, and (2) the amount of damages awarded to the insured. See, e.g., Wellisch v. United Servs. Auto. Ass’n, 75 S.W.3d 53, 57 (Tex. App.—San Antonio 2002, pet. denied); Hamburger v. State Farm Mut. Auto. Ins. Co., 361 F.3d 875, 880 (5th Cir. 2004). Id. at *6. As a result, the Terrys had not established their legal entitlement to any amount at the time the offers were made by Safeco, and Safeco had no duty to accept, reject or pay their claim until a judicial determination was made. Id.