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Halloween is over, but the terror for insurers may continue. In Mid Century Ins. Co. of Texas v. Boyte, 2001 WL 41038 (Tex. App.–Fort Worth 2001, no pet.), the Fort Worth Court of Appeals held that a carrier could be liable for breach of a duty of good faith and fair dealing for appealing an adverse judgment.

Boyte was involved in two car wrecks in two days in January 1992. As a result of his injuries, he underwent back surgery in the Fall of 1992. Boyte sued the other two drivers involved in the accidents. He also made a claim for underinsured motorist benefits in August 1993 with his own carrier (Mid-Century), whose policy provided $100,000 in coverage.

The liability carrier involved with the second accident settled by paying Boyte its $20,000 policy limits. In April 1994, Boyte added Mid-Century to the lawsuit relating to the first accident. In April 1995, Mid-Century evaluated Boyte's damages from the first accident at $120,000, and after taking an offset for the $100,000 available liability coverage, tendered $20,000 to Boyte. The liability carrier for the driver involved in the first accident tendered its $100,000 policy limits in October 1995, leaving Mid-Century as the sole defendant.

At trial, however, the insured obtained a judgment for $200,000, rendering the UIM insurer liable for the additional $80,000 as underinsured motorist benefits. After judgment, the insured offered to settle for the remaining limits, without pre-judgment interest.

The insurer refused and countered with an offer of $23,400. The insurer then appealed, but the Court of Appeals affirmed the trial court's judgment and the Supreme Court denied review. The insured then filed a new suit for a breach of the duty of good faith and fair dealing and violations of the Insurance Code and DTPA. The jury found that Mid-Century breached the duty of good faith and fair dealing, and violated Tex. Ins. Code Art. 21.21 and the DTPA by failing to "attempt to effectuate a prompt, fair, and equitable settlement of Boyte's claim when it knew or should have known that its liability was reasonably clear."

On appeal, the insurer contended it could not be liable for bad faith by exercising its right to appeal an adverse judgment. It also argued that the relationship giving rise to the duty ended, once the original case was tried and the parties were in a debtor-creditor relationship.

The court disagreed, and found that the duty of good faith and fair dealing extended beyond judgment where the insurer violated its obligations to attempt a prompt, fair and equitable settlement once it knew or should have known that its liability was reasonably clear.

The court also reasoned that the claims continued to be based on extra-contractual and statutory duties arising from the insurer-insured relationship, and not a debtor-creditor relationship.

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