DALLAS FEDERAL COURT REJECTS CLAIM OF INDEPENDENT INJURY, DENIES EXTRA-CONTRACTUAL DAMAGES

The Federal District Court for the Northern District of Texas recently granted summary judgment for a CGL carrier on claims brought by its insureds under Texas Insurance Code Chapter 541, modifying an opinion previously issued last October.  In Admiral Ins. Co. v. Petron Energy, Inc., 3:11-CV-2524-M, 2014 WL 798374 (N.D. Tex. Feb. 28, 2014) (slip opinion), the Northern District of Texas reprised its previous opinion issued on October 31, 2013, and modified its original holdings.  The court granted summary judgment in favor of Admiral on the insureds’ Texas Insurance Code Chapter 541 (unfair claim handling) claims, but also granted summary judgment in favor of the insureds on their Chapter 542 (prompt payment) claims.

The underlying litigation arose out of a multi-car accident.   Plaintiffs sued the named insured, Petron Energy, and its joint venture partner WPO, alleging the driver and passenger of the offending vehicle were acting in the course and scope of employment for Petron and WPO, and were intoxicated.  The vehicle was owned by a principal of Petron, and was part of his personal collection of classic cars.  Plaintiffs alleged the car collection, car shows, and related entertainment were used in the promotion of  Petron’s and WPO’s business. 

Admiral refused to defend or indemnify Petron or WPO, raising a variety of defenses, and brought this federal coverage suit to determine its duties.  Petron and WPO asserted counterclaims for breach of contract, and violations of Texas Insurance Code Chapters 541 and 542.  In its October 2013 opinion, the court found that Admiral owed a duty to defend and had breached its contract, and thus granted summary judgment for the insureds on those issues.  However, the court denied the insureds’ summary judgment on their Insurance Code Chapter 541 and 542 claims, finding Admiral’s conduct was reasonable, and they had not demonstrated an independent injury resulting from the improper denial of a defense.

In this modified opinion, the Court reviewed its prior holding on the lack of independent injury, and granted summary judgment in favor of Admiral on the Insurance Code Chapter 541 claims. The court noted that merely incurring fees in the underlying litigation was not an independent injury sufficient to support extra-contractual damages.  Nor was incurring fees in the coverage action, since filing a coverage action, by itself, is not a violation of the Insurance Code. 

However, the Court reversed its prior holding and granted summary judgment in favor of the insureds on their Chapter 542 claims, holding that 542 penalty interest is automatic when the carrier breaches its contract.  Because Admiral had not timely paid the defense costs it owed, Admiral was held liable for the 18% interest mandated by Chapter 542, as well as attorney fees.