Insured Not Required to Submit Legal Bills to Insurer to Trigger Damages for Violation of Prompt Payment Statute
Monday, December 22, 2008
Northern District of Texas Holds that Insured is Not Required to Submit Legal Bills to Insurer to Trigger Damages for Violation of Prompt Payment Statute
On December 1, 2008, the Northern District of Texas held that, under Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 20 (Tex. 2007), an insured is not required to submit legal bills to its insurer in order to trigger the insurer’s liability under chapter 542 of the Texas Insurance Code, known as the Prompt Payment of Claims Act. See Trammell Crow Residential Co. v. Virginia Sur. Co., No. 3:08-CV-0501-D, 2008 WL 5062132, at *9–11 (N.D. Tex. Dec. 1, 2008) (slip op.). Prior to this opinion, no court had spoken on this narrow but significant issue.
Trammell Crow brought suit against its insurer, Virginia Surety, seeking a declaration that the insurer had a duty to defend Trammel Crow in an underlying lawsuit. Trammel Crow also sought damages for breach of contract and violations of the Texas Insurance Code. After determining that Virginia Surety owed Trammel Crow a defense, the court considered whether Virginia Surety’s wrongful rejection of its defense obligation entitled Trammel Crow to damages under the Prompt Payment of Claims Act.
Virginia Surety argued that it was not liable for damages under the Act because Trammell Crow did not submit any legal bills or invoices for expenses incurred in defending the underlying lawsuit to Virginia Surety. In short, Virginia Surety argued that, under Lamar Homes, an insurer cannot be liable under the Prompt Payment of Claims Act until it receives invoices for defense costs. The court disagreed, noting that “Lamar Homes is best understood as holding that an insurer becomes liable under the statute when it wrongfully rejects its defense obligation.” Id. at *11. Reasoning that there can be a determination of the insurer’s liability under the Prompt Payment of Claims Act without a calculation of damages, the court ultimately held that an insured is not required to submit its legal bills to its insurer in order to trigger the insurer’s liability under the Act. Id.
Prior to this case of first impression, some may have read Lamar Homes’ passing statement that “the . . . invoices are the last piece of information needed to put a value on the insured's loss,” Lamar Homes, 242 S.W.3d at 19, to require an insured to submit the invoices for its defense costs to its insurer before the insurer could be liable under the Prompt Payment of Claims Act. Trammel Crow should help resolve any uncertainty on this important issue.
If you have any questions about these or other insurance law issues, please contact John D. Gaither at 214-245-3081 or Kevin Haynes at 214-245-3073.
