Texas Court Reduces Plaintiff's Damages
November, 2008
In Insurance Corp. of Hannover v. Polk, 2008 WL 2761259 (Tex.App.-Eastland), the Texas Court of Appeals reduced a consequential damages award by $40,000.00 in order to comply with a provision of the Texas Insurance Code prohibiting awards in excess of three times the amount of actual damages. The underlying action was brought by the owners of a thoroughbred race horse against Insurance Corporation of Hannover, for a claim related to the death of the horse. The action alleged breach of an insurance policy, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code.
Plaintiffs Judy Polk and Marcia Moore, were the owners of a thoroughbred named Smart Score. Insurance Corp. of Hannover issued Plaintiffs an equine-livestock mortality insurance policy insuring the horse for $40,000.00. The policy period ran from June 28, 2002, to June 28, 2003, and contained a thirty-day extension clause that stated: “this [i]nsurance is extended to cover the death of any animal insured occurring within thirty (30) days after the expiration date [of the policy] as the result of any accident occurring, or illness or disease manifesting itself, during the [policy period].” Id. at 1.
Smart Score fractured his right knee during the policy period, as revealed in an x-ray taken on May 31, 2003. Further x-rays of both knees on June 30, 2003, revealed that Smart Score fractured both knees. As a result, the horse underwent surgery on July 2, 2003, to repair both knees. Prior to the surgery, Hannover agreed that if Smart Score died during the surgery, his death would be covered under the policy’s thirty-day extension clause. The surgery appeared to be successful, and on July 5, 2003, Smart Score was sent to a race track in New Mexico to recover. However, on July 14, 2003, Smart Score was diagnosed with colitis. Despite several attempts to stabilize the sick horse, Smart Score went down in his stall and was euthanized the same day.
Plaintiffs sought reimbursement under the policy, asserting that Smart Score’s death was caused by the colitis, resulted from a condition that manifested itself during the policy period and, therefore, was covered under the policy’s thirty-day extension clause. They maintained that the colitis resulted directly from the surgery required for the fractured knees discovered during the policy period. Hannover denied Plaintiffs’ claim on the basis that the colitis was a “new” illness that first showed symptoms on July 14, 2003, after the expiration date of the policy. As a result, Hannover offered Plaintiffs $5,000.00 for a claim under the renewal policy. Plaintiffs refused the offer and filed suit.
At trial, Plaintiffs alleged claims of breach of contract, breach of the duty of good faith and fair dealing, and a violations of Chapter 541 of the Texas Insurance Code. Following a bench trial, the trial court awarded Plaintiffs actual damages representing the policy proceeds in the amount of $40,000.00, attorneys’ fess in the amount of $52,507.04, and additional damages in the amount of $120,000.00. In a conclusion of law, the trial court stated that Plaintiffs “were entitled to recover additional damages in the sum of $120,000.00 for [Hannover’s] knowing violations of Texas Insurance Code Chapter 541.” Id. at 3.
Hannover appealed on numerous issues, including that it was entitled to a jury trial, the legal and factual sufficiency of the evidence to support the trial court’s findings, the trial court erred in awarding $40,000.00 “policy proceeds” as damages on Plaintiffs’ extra-contractual claims and $120,000.00 as “additional damages.”
On appeal, the Court of Appeals of Texas - Eastland, found that the evidence was legally and factually sufficient to support the conclusion that Smart Score died as a result of an accident or illness that manifested itself during the policy period. Therefore, the appellate court upheld the trial court’s decision that Plaintiffs incurred $40,000.00 in actual damages by Hannover’s breach of the policy in refusing to pay the policy’s limit. The appellate court also found that there was sufficient evidence to support the trial court’s determination that Hannover violated Section 541.060(a) of the Texas Insurance Code which prohibits several unfair settlement practices. The trial court determined that Hannover’s claim handler denied the claim for $40,000.00 under the initial policy and offered $5,000.00 under the renewal policy without obtaining an opinion from a veterinarian on the issue of whether the colitis resulted from the surgery. Id. at 13. As a result, the Court of Appeals found the evidence legally and factually sufficient to support the trial court’s findings: “(1) that Hannover failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which its liability had become reasonably clear and (2) that Hannover refused to pay a claim without conducting a reasonable investigation with respect to the claim.” Id. at *14.
Despite upholding the trial court’s decision regarding the legal and factual sufficiency of the evidence on all counts, the Court of Appeals reduced the trial court’s award of $120,000.00 for additional damages on the basis that the Texas Insurance Code limits the amount of total damages recoverable to three times the amount of actual damages. Section 543.152(b) of the Insurance Code states: “[o]n a finding by the trier of fact that the defendant knowingly committed the act complained of, the trier of fact may award an amount not to exceed three times the amount of actual damages.” Based on the determination that Hannover knowingly violated Section 541.152(b), the trial court awarded $40,000.00 in actual damages and $120,000.00 in additional damages. As the Court of Appeals noted, the trial court’s award of $160,000.00 in total damages under the Insurance Code improperly quadrupled the total amount of actual damages awarded. Therefore, the Court of Appeals found that the trial court erred in calculating the total damages and reduced the amount of additional damages awarded from $120,000.00 to $80,000.00, and reduced the total sum awarded from $221,808.95 to $181,808.95. Id.
Learning Point
Under Texas law, total damages, including awards for additional damages related to unfair claims handling, may not exceed three times the actual damages. Awards for additional damages for violations of the Texas Insurance Code for false, unfair or deceptive claims practices may not increase the total award for damages to a figure in excess of three times the actual damages. Plaintiff’s seeking an award of additional damages that are three times the actual damages in addition to the actual damages are betting on a long shot that will never come in.
Back to New York CM Report of Recent Decisions (2008v3) 2008 Volume 3 Table of Contents
