HBA-ATS H.B. 1216 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 1216
By: Moreno, Joe
Insurance
4/11/1999
Introduced



BACKGROUND AND PURPOSE 

The purpose of Article 21.21 (Unfair Competition and Unfair Practices),
Insurance Code, is to regulate trade practices in the business of insurance
by defining or providing for determination of all such practices in Texas
that constitute unfair methods of competition or unfair or deceptive acts
or practices.  Practices that constitute unfair methods of competition or
unfair or deceptive acts or practices are defined by Section 4 (Unfair
Methods of Competition and Unfair or Deceptive Acts or Practices Defined)
of Article 21.21.  Section 16 (Relief Available to Injured Parties) of
Article 21.21 authorizes any person who has sustained actual damages caused
by an unfair method of competition or unfair or deceptive act or practice
to sue the person that engages in such acts or practices.  The phrase "any
person" has been interpreted by the Texas Supreme Court to apply only in
the context of claims brought by insureds against their insurers because of
the special relationship between an insured and the insurer.  Vail v. Texas
Farm Bureau Mutual Ins. Co., 754 S.W.2d 129 (Tex.1988). 

In Allstate Insurance Co. v. Watson, 876 S.W.2d 145 (Tex. 1994), the Texas
Supreme Court faced the issue of whether Section 16 of Article 21.21
conferred upon a third party claimant a direct cause of action against an
insurer for unfair claim settlement practices.  The plaintiff, injured in a
car accident, alleged that the negligent driver's insurer had not attempted
in good faith to effectuate prompt settlement of the claims where liability
had become reasonably clear and had denied or unreasonably delayed payment
of the claims.  The court held that a third party claimant lacks standing
to sue an insurer for unfair claim settlement practices under Article
21.21.  The court reasoned that because a third party claimant has no
contract with the insurer or the insured or any special relationship of
trust with the insurer, no reasonable basis exists to extend to third party
claimants the extra-contractual obligations, rights, and remedies of
Section 16 of Article 21.21 that are imposed on insurers with regard to
their insureds.  Such an extension would undermine and compromise the
duties insurers owe to their insureds since insurers would then owe duties
of good faith and fair dealing to both the insured and a third party
claimant.  

H.B. 1216 amends Subsection 10 (Unfair Settlement Practices), Section 4,
Article 21.21, Insurance Code, to confer upon a third party claimant a
direct cause of action asserting an unfair settlement practice against an
insured who is covered under a liability insurance policy. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subsection (10), Section 4, Article 21.21, Insurance
Code, by conferring upon a third party claimant a direct cause of action
asserting an unfair settlement practice against an insured who is covered
under a liability insurance policy. 

SECTION 2.Effective date: September 1, 1999.
Makes application of this Act prospective for motor vehicle insurance
claims that accrue on or after September 1, 1999. 

SECTION 3.Emergency clause.