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Meaning of “Claim” Addressed in Mex-Tex
12.06.04

The Texas Supreme Court recently addressed and refined the meaning of "claim" under 21.55, limiting an insurer's liability, in Republic Undw'rs Ins. Co. v. Mex-Tex, Inc., No. 03-0662 (Tex., Nov. 19, 2004).

The original dispute arose over a hail damaged roof, and the extent of repairs necessary to replace the roof with one of a "like kind and quality." After its initial investigation, Republic disputed the amount of damage, but attempted to make a "partial payment" based on the damage it attributed to the hail. Mex-Tex rejected that offer. Republic subsequently sent Mex-Tex a check for what it deemed the cost of replacing the roof with one of like kind and quality, to be affixed by ballast, as the old roof had been. Mex-Tex returned the check and Republic resent it. Mex-Tex again returned it. Republic offered to hold the money until Mex-Tex accepted it as partial payment, which Mex-Tex subsequently did. Upon trial, the court found that Republic should have paid the cost to replace the roof with one of same kind, but to be affixed mechanically, as the insured had requested. The court awarded Mex-Tex the difference in damages and also awarded 18 percent interest, under Article 21.55, on the full amount of the replacement cost, despite the tender of the lesser replacement amount by Republic.

The court of appeals affirmed the trial court's ruling. On petition for review, the Texas Supreme Court found that the trial court's determination that Republic had breached the policy, by refusing to pay the cost of the new roof proposed by the insured, was not erroneous. The court also found, however, that the 21.55 penalty should have been calculated only on the difference between the payment tendered by Republic and the full amount for replacement of the roof, from the date of tender. The court reasoned that the definition of "claim" in 21.55 -- that a first party claim made by an insured "that must be paid" by the insurer -- should be construed to allow reduction by any partial payments. The court also noted that this result "encourages insurers to pay the undisputed portion of a claim early, consistent with the statute's purpose 'to obtain prompt payment of claims made pursuant to policies of insurance.'" The court did agree, however, that the reduction would only apply if the tender of partial payment is unconditional. The court rejected Mex-Tex's claim that the payment was conditioned upon a full release, based on the evidence. Accordingly, the court reversed judgment and remanded the case for proper calculation of damages. Two justices dissented, and would have concluded that the tender of payment was not unconditional, and therefore did not satisfy Article 21.55.