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A Valid Insurance Claim is a Prerequisite to Liability Under Article 21.55
06.18.01

As Texas courts have curtailed the common law doctrine of bad faith and the availability of punitive damages, plaintiffs have increasingly turned to Article 21.55 of the Texas Insurance Code for relief. Article 21.55 establishes deadlines for insurers to acknowledge and accept or reject "first party" insurance claims; it also permits insureds to recover an eighteen percent penalty and attorney's fees from insurers who miss those deadlines.

Although Article 21.55 was enacted almost ten years ago and has been a frequent source of confusion for Texas courts ever since, the Supreme Court of Texas had never devoted substantive attention to the statute until its recent decision in Allstate Ins. Co. v. Bonner, 44 Tex. Sup. Ct. J. 736 (May 10, 2001). In Bonner, the court supplied some needed clarity to Article 21.55 jurisprudence by holding that an insurer's liability on an insurance claim is a prerequisite to the insured's recovery under the statute.

The Bonner case arose from an auto accident in which Rhonda Bonner was injured because of an uninsured motorist's negligence. Bonner first made a claim for personal injury protection ("PIP") benefits to Allstate, which Allstate promptly paid in the amount of $1,619. She next submitted a claim for uninsured motorists ("UM") benefits, but Allstate failed to acknowledge the claim within the fifteen day deadline imposed by Article 21.55. Bonner subsequently filed suit against Allstate in Travis County and asserted breach of contract and Article 21.55 claims.

The parties stipulated prior to trial that (1) Allstate did not acknowledge Bonner's UM claim within fifteen days; and (2) Allstate could offset its pre-suit payment of PIP benefits against any damages awarded on Bonner's UM claim based on the non-duplication of benefits provision in Allstate's policy.

At trial, the jury found that the uninsured motorist's negligence caused Bonner $1,000 in damages. Although Bonner conceded that she could not recover any damages on her contract claim because of the non-duplication of benefits provision, she nonetheless claimed entitlement to attorney's fees and a penalty under Article 21.55.

Bonner argued that a valid insurance claim is not a prerequisite to liability under Article 21.55 and, alternatively, the jury's findings of negligence and damages established that she had a valid UM claim. Allstate responded that a valid insurance claim is essential for Article 21.55 liability because the statute defines a "claim" as a "first party claim that must be paid" by the insurer, and permits recovery of attorney's fees and a penalty only when a "claim" is made that the insurer is "liable therefor." Allstate further argued that Bonner's UM claim was invalid because the policy's non-duplication of benefits provision relieved it from paying any UM benefits for damages that it had already paid in the form of PIP benefits.

The trial court agreed with Allstate and rendered a take nothing judgment against Bonner. On appeal, however, the Austin Court of Appeals, concluded that Bonner could recover attorney's fees under Article 21.55 based upon Allstate's failure to timely acknowledge the UM claim and the jury's findings.

After the setback in the court of appeals, Allstate filed a Petition for Review to the Supreme Court of Texas. The court granted the petition, reversed the court of appeals' opinion, and rendered judgment that Bonner take nothing. In doing so, the court adopted Allstate's position that a valid insurance claim is necessary to recover attorney's fees and a penalty under Article 21.55.

Regarding the validity of Bonner's claim, the court emphasized that a UM claim is contractual in nature. Consequently, in addition to proving that an uninsured motorist's negligence caused her damages, Bonner was also required to overcome Allstate's policy defenses, including its non-duplication of benefits provision. Because Allstate was liable on Bonner's UM claim only if she proved her damages exceeded the PIP benefits she had already received, the court concluded that she did not have a valid UM claim. Therefore, she could not recover under Article 21.55.

Thompson Coe attorney Lisa Songy represented Allstate in the trial court. Thompson Coe attorney Wade Crosnoe represented Allstate on appeal.