United National v. AMJ May Have Insurers Seeing Red

By Amy Stewart Law

As of 2014, our Texas Supreme Court must be having the time of its life. Over the past few years, the High Court has issued a number of watershed decisions that have changed the way we think about insurance. On the heels of its decision last year in Lennar Corp. v. Markel American Insurance Co., and with the Deepwater Horizon case on the horizon, the Court is knee deep in liability policies. 
  
One question on our mind is whether the Texas Supreme Court will be asked to turn its attention to first-party policies in the near future in light of the decision issued by the 14th District Court of Appeals in United National Insurance Company v. AMJ Investments, LLC., 2014 Tex. App. LEXIS 6969 (Tex. App. –Houston [14th Dist.], June 26, 2014). There, guided by the Texas Supreme Court's own opinion in Vail v. Tex. Farm Bur. Mut. Ins. Co., 754 S.W.2d 129, 136 (Tex. 1988), the 14th Court of Appeals held that damages suffered by the insured for the insurer’s wrongful refusal to pay “in at least the amount of the policy benefits wrongfully withheld” may be trebled under the Texas Insurance Code.
  
In that case, AMJ sued United for breach of contract and violations of the Texas Insurance Code, after United failed to pay the full amount of damage sustained to a building owned by AMJ in the wake of Hurricane Ike in September 2008. After the jury found that United had knowingly violated the Insurance Code, the trial Court entered judgment trebling AMJ’s damages. United appealed, asserting that under Provident Am. Ins. Co. v. Castañeda, 988 S.W.2d 189 (Tex. 1998), “judgment cannot be rendered under the Insurance Code for amounts owed under the policy” absent an independent injury. 2014 Tex. App. LEXIS 6969 at *23.  

Debunking this long-standing myth, the 14th Court of Appeals held that while proof of an independent injury caused by an insurer’s egregious conduct can support a claim for damages under the Insurance Code in cases where the initial loss is not covered, it does not stand to reason that an independent injury is required as a predicate to recovering under the Insurance Code where the insured shows that the policy has been breached. 2014 Tex. App. LEXIS 6969 at **23, 28-29.
   
United has asked for a rehearing en banc, and it’s too soon to predict whether the Supreme Court would consider hearing an appeal if United’s motion is denied. For now, and without the presumed protection of Castañeda, insurers may feel more pressure than ever to promptly pay covered claims.