The last two weeks I wrote about the case, Texas Farmers Ins. Co. v. Cameron, 24 S.W.3d 386 (Tex. App. 2000). This week, I am discussing another aspect of the same case. The insureds, Alfred and Cloteal Cameron, filed a bad faith lawsuit against their carrier, Texas Farmers Insurance Company (“Texas Farmers”) in connection with their claim that arose from a fire which destroyed their home. The counts against Texas Farmers included breach of contract, breach of the duty of good faith and fair dealing, violations of the Deceptive Trade Practices Act and violations of the Texas Insurance Code.
One issue was whether Texas Farmers complied with Texas law that required it to notify the Camerons of the acceptance or rejection of the claim within a certain time period. Article 21.55, § 3(b) [now § 542.056(b)] of the Texas Insurance Code provides:
If the insurer has a reasonable basis to believe that the loss results from arson, the insurer shall notify the claimant in writing of the acceptance or rejection of the claim not later than the 30th day after the date the insurer receives all items, statements, and forms required by the insurer.
Thus, an insurer unable to accept or reject a claim within this thirty-day period must notify the insured and give the reasons for its inability. In Cameron, Poncio, the Branch Manager for Texas Farmers, testified that the Camerons’ proof of claim was dated May 1, 1995. On June 1, 1995, Farmers sent the Camerons a letter stating that it wanted to examine both of the Camerons under oath. The letter concluded:
Specifically, [Farmers], based on its investigation, believes that this fire was not an accidental fire, but rather was an apparently intentionally set fire. Because of this fact, my client will conduct a full investigation of all the facts and circumstances regarding the fire, including who might have a motive for setting the fire. [Farmers] is certainly not accusing you or any particular person of having set the fire and does not have sufficient investigation [ sic ] at this time to identify who may have set the fire. It is merely advising you of these circumstances so that you will know why its investigation may take a little longer than a normal fire loss insurance adjustment.
The Texas Insurance Code also provides:
Not later than the 45th day after the date an insurer notifies a claimant under [s]ubsection (d) of this section [ i.e., of its inability to accept or reject the claim within the thirty-day period], the insurer shall accept or reject the claim.
Forty-five days after June 1, 1995, was July 16, 1995.
Therefore, by any calculation, Farmers’ ultimate rejection of the Camerons’ claim, dated September 18, 1995, was impermissibly late. Consequently, Farmers violated the provisions of article…of the insurance code. The proof was sufficient to support the trial court’s award of damages…. [emphasis added]
For the foregoing reasons, the Court held against Texas Farmers with regard to this issue. Please keep in mind that this holding was based on Texas statutory language, and the law in other states may differ.
Please tune in next week for another discussion of bad faith.