AUSTIN – Numerous amicus briefs have been filed seeking to have the Texas Supreme Court rehear a Hurricane Ike lawsuit brought against USAA Texas Lloyds, asserting justices need to clear up confusion created by a past opinion. 

The Insurance Council of Texas filed the latest brief on Oct. 9, asserting that despite the high court’s “laudable goal” of distilling the rules regarding the recovery of policy benefits and the role of independent injury in the context of Insurance Code violations, the court “created unintended confusion with its opinion.”

“ICT respectfully requests that the Court clarify these issues with an opinion on rehearing and that the Court render judgment in favor of USAA in accordance with that clarification,” the brief states.

In April, justices overturned two lower court rulings and ordered that a new trial take place in a suit brought by plaintiff Gail Menchaca against USAA.

The high court ruled that both the lower and appellate courts ruled in error, and that the case will have to be re-tried.

Justices also clarified an existing precedent surrounding the issue of whether an insured individual can recover policy benefits based on jury findings that the insurer violated the Texas Insurance Code and should be paid under the policy, despite the jury's finding that that the insurer failed to comply with its obligations under the policy.

In a brief filed Sept. 29, USAA called the court’s opinion a “substantial unsettling of Texas law.”

“Commentators, practitioners, and litigants—none with a direct interest in the outcome of this case—have voiced misgivings about this Court’s opinion and judgment,” the brief states.

Case history

The case has its origins in the damage caused by Hurricane Ike's arrival on Galveston Island and the damage it caused to Menchaca's home in September 2008.

When she contacted USAA, Menchaca was informed that the damage to her home fell under the deductible for her plan. She responded by suing USAA for breach of her insurance policy and for unfair settlement practices in violation of the Texas Insurance Code.

During the subsequent trial, the jury was tasked to answer three questions.

The first question asked whether the defendant failed to follow the terms of the insurance policy with respect to the damage to Menchaca's home resulting from Hurricane Ike.

The second question focused on whether the defendant engaged in various unfair or deceptive practices.

The final question addressed the issue of whether or not the damages to Menchaca's home cost more than the deductible.

The jury response was to answer "no" to question one, "yes" to question two and to question three that the difference was $11,350.

Both the initial trial court and the court of appeals agreed to enter a summary judgment in favor of the plaintiff based on the jury's answers to questions two and three.

However, in its appeal, USAA contended that Menchaca couldn’t recover any amount of policy benefits because the jury failed to find that USAA breached its obligations under the policy, even though the jury did agree that USAA violated the Insurance Code.

USAA's argument centered on a precedent set in Provident American Insurance Co. v. Castañeda, a case in which the Supreme Court stated that an insurance company's “failure to properly investigate a claim is not a basis for obtaining policy benefits.”

This led the court to clarify its previous rulings by explaining that an insured individual cannot recover policy benefits as actual damages caused by an insurer's statutory violation.

The court chose to deny Menchaca's claim because Texas Insurance Code only allows an insured individual to recover actual damages that are the result of the insurer's statutory violation, which was not the case in USAA Texas Lloyds Co v. Gail Menchaca.

The court then affirmed the general rule that an insured individual cannot recover policy benefits as actual damages for an insurer's statutory violation if the insured has no right to those benefits under the policy.

After clarifying the ruling the court ordered a new trial that could be held in accordance with the newly established rules.

Menchaca is represented by the Houston firm Hogan & Hogan.

ICT is represented by attorney Catherine Hanna of Hanna & Plaut in Austin.

USAA is represented in part by Baker Botts attorneys Thomas Phillips and Mary Roark.

Case No. 14-0721

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