Bad Faith Blog

Summary: Property Gusma Properties owned and insured was damaged in Hurricane Ike. When the insurer demanded an appraisal, Gusma hired an attorney to assist. Following the appraisal award, the insurer tendered a check to the attorney for the full amount, all of which the attorney retained. Gusma sued the attorney and the insurer to recover its losses. Gusma claimed it was entitled to prompt payment penalties from the insurer for issuing the check jointly payable to Gusma and its counsel. The Texas Court of Appeals affirmed the trial court’s ruling that Gusma was not entitled to penalties. The Court of Appeals held, on this issue of first impression, that an insurer does not “delay payment, within the meaning of the Prompt Payment provisions, when it tenders payment to the insured’s authorized counsel in the form of a negotiable instrument that is made jointly payable to both insured and its counsel.”

The insured, Weiser-Brown, had a loss of control oil well insurance policy with St. Paul. Under this policy, St. Paul is required to pay if insured suffers a subsurface loss of control on one of its oil wells. Weiser-Brown made a claim under the policy in March 2009 and St. Paul’s claims representative requested seventeen categories of information from Weiser-Brown. Within one month Weiser-Brown sent some but not all of the requested documentation to St. Paul. On September 29, 2009, St. Paul informed the insured that its independent expert had reached the preliminary conclusion that there was not a subsurface loss of control and additional information was requested from the insured, who supplied most key documents by early November. By the following February, St. Paul confirmed its earlier preliminary conclusion that there was no loss of control. Thereafter, Weiser-Brown sued St. Paul for breach of the insurance agreement and for bad faith in violation of Texas Insurance Code § 541. The insured also claimed that St. Paul was liable under the Prompt Payment statute for 18% interest on damages awarded.