Watson v. Allstate Insurance Co.

828 S.W.2d 423, 1991 WL 213138

• Court: Court of Appeals of Texas
• Decided: April 8, 1992
• Docket: 2-90-170-CV
• Status: Published

Opinions

OPINION

HILL, Justice.

Kathleen G. Watson appeals from a summary judgment that she take nothing in her suit against Allstate Insurance Company, the appellee. In three points of error, Watson contends that the trial court erred by striking her pleadings and granting Allstate’s summary judgment in her causes of action against Allstate for breach of the duty of good faith and fair dealing and suit for declaratory judgment, and by ruling that she is not a consumer with respect to the Deceptive Trade Practices Act and not entitled to bring an action under TexIns. Code Ann. art. 21.21 (Vernon Supp.1991).

We reverse and remand as to her action under article 21.21 of the Texas Insurance Code because we hold that a third-party beneficiary of an automobile liability policy may bring an action under that article without first proceeding directly against the named insured of the policy. We affirm as to the remainder of Watson’s claims because we hold that such a third-party beneficiary may not bring a suit against the insurer for a breach of the duty of good faith and fair dealing. The insurer has no such duty to the third-party beneficiary of an automobile liability policy since there is no special relationship between the insurer and the beneficiary. We further hold that Watson may not bring a claim under the Texas Deceptive Trade Practices Act because she is not a “consumer” seeking goods or services as defined by the DTPA; rather, she seeks insurance proceeds. Finally, we hold that Watson is not entitled to a declaratory judgment because such a declaration would not have terminated the uncertainty or controversy giving rise to the proceeding.

We may affirm a summary judgment only if the record establishes that the mov-ant has conclusively proved all essential elements of its cause of action or defense as a matter of law. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 (Tex.1979).

Watson was involved in a motor vehicle collision with M.D. Townley, an insured under a liability policy with Allstate. Watson has not acquired a judgment against Townley or otherwise established that he is legally responsible for the collision. Under its policy, Allstate is responsible to pay damages for bodily injury or property damages for which any covered person becomes legally responsible because of an auto accident.

The issue before this court is whether a potential third-party beneficiary under an automobile liability policy has any cause of action against an insurer directly without first obtaining a judgment establishing that the insured is legally responsible for the collision.

A third-party claimant has no contractual rights under an insurance policy until the liability of the covered person has been established by judgment or written agreement with the insurer. State Farm County Mut. Ins. Co. v. Ollis, 768 S.W.2d 722, 723 (Tex.1989). An insurer does not owe the duty of good faith and fair dealing to one who asserts a third-party claim, even if the third-party claimant is an insured of the same company. Caserotti v. State Farm Ins. Co., 791 S.W.2d 561, 566 (Tex.App.—Dallas 1990, writ denied). It follows that there is also no such duty as to a third-party claimant who is not an insured of that company, because the duty arises out of the special relationship between the insured and the insurer. See Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 212 (Tex.1988).

Watson contends in her point of error number one that she is an intended third-party beneficiary of Townley’s liability policy with Allstate, and that Allstate therefore owes her a duty of good faith and fair dealing. In support of her argument that an insurer owes such a duty to an intended third-party beneficiary of an automobile liability policy, Watson relies on the cases of Arnold v. National County Mutual Fire Ins. Co., 725 S.W.2d 165 (Tex.1987); Sentry Ins. v. Siurek, 748 S.W.2d 104 (Tex.App.—Houston [1st Dist.] 1987, writ ref’d n.r.e.); and Chaffin v. Trans-america Insurance Co., 731 S.W.2d 728 (Tex.App.—Houston [14th Dist.] 1987, writ ref d n.r.e.).

In Chaffin, the court held that an employer of a subcontractor on a roofing job may have a claim against the subcontractor’s insurer after securing a judgment against the insured, which is limited to the amount of the policy, but that it had no remedy under the Texas Insurance Code, nor under a common law duty of good faith and fair dealing. Id. at 732. The court held that such a duty was not available to an injured third party. Although the court held that an insurer owes a legal duty to an intended beneficiary of the policy, it did not hold that someone in Watson’s position was such an intended beneficiary, nor did it outline what such legal duty was. Id.

The Texas Supreme Court in Arnold established the duty of good faith and fair dealing between an insurer and its insured. Arnold, 725 S.W.2d at 167. It made no reference to third-party beneficiaries. Likewise, we find no reference in Sentry to third-party beneficiary claims.

Watson also relies on Dairyland County Mutual Ins. Co. v. Childress, 650 S.W.2d 770 (Tex.1983). In Dairyland, the Texas Supreme Court held that someone in Watson’s position as an intended third-party beneficiary of an automobile liability policy had the right to sue for damages on the insurance contract and recover attorney fees. Id. at 775. In that case, Childress had obtained a judgment against the insured prior to the suit against Dairyland. As we have previously noted, the supreme court subsequently restated the principle that it is necessary to obtain such a judgment before proceeding with such an action on the contract.

Watson seeks to compare her situation with that of the injured worker covered by workers’ compensation, as discussed in Ar-anda, 748 S.W.2d at 212. In Aranda, the Texas Supreme Court held that under the Workers’ Compensation Act the employee is a party to the insurance contract, and that the contract between the employee and the insurer creates the same type of special relationship that arises under other insurance contracts. Therefore, there is a duty on the part of workers’ compensation carriers to deal fairly and in good faith with injured employees in the processing of compensation claims. Id. at 212-13. Unlike the employee in Aranda, Watson, although she may be an intended beneficiary under the policy, is not part of a direct contractual relationship with the insured or the insurer as was the worker in Aranda. She therefore did not have a special relationship with Allstate as would an insured or other party contractually related to the insurer or the insured. Since the duty of good faith and fair dealing arises out of such a special trust relationship, it follows that such a duty is lacking in this case. We overrule point of error number one.

Watson contends in point of error number two that she was at least entitled to a declaratory judgment, pursuant to section 37.001 of the Texas Civil Practices and Remedies Code, declaring her to be a statutory third-party beneficiary of the automobile liability policy between Townley and Allstate. The declaration sought by Watson would not have terminated the uncertainty or controversy giving rise to the proceeding. Consequently, the trial court was under no obligation to make such a declaration. Tex.Civ.PRAC. & Rem.Code Ann. sec. 37.008 (Vernon 1986). We overrule point of error number two.

Watson urges in point of error number three that she is a consumer under the Texas Deceptive Trade Practices Act and has the right to bring an action under article 21.21 of the Texas Insurance Code. In order to be a consumer under the Texas Deceptive Trade Practices Act, Watson must have sought or acquired, by purchase or lease, goods or services. Tex.Bus. & Com.Code Ann. sec. 17.45(4) (Vernon 1987). Because Watson is seeking to acquire insurance proceeds, and they are not goods or services, she is not a consumer. English v. Fischer, 660 S.W.2d 521, 524 (Tex.1983).

Watson urges that because of the statutory mandatory automobile liability insurance scheme of the Texas Motor Vehicle Safety Responsibility Act, she sought or acquired the insurance policy furnished by Allstate to Townley. She relies on the cases of Kennedy v. Sale, 689 S.W.2d 890, 892 (Tex.1985); Flenniken v. Longview Bank and Trust Co., 661 S.W.2d 705, 707 (Tex.1983); and HOW Ins. Co. v. Patriot Financial Services of Texas, Inc., 786 S.W.2d 533, 539 (Tex.App.—Austin 1990, writ denied). HOW and Kennedy each involved cases in which the plaintiff was a consumer because he had acquired insurance services as an insured under a policy purchased by another. In Flenniken, the DTPA action arose from a transaction in which the plaintiff had purchased a residence. None of these cases hold that an unknown intended beneficiary has in some way sought or acquired goods or services and therefore is a consumer under the Act. We hold that Watson was not a consumer under the DTPA. We overrule point of error number three as it relates to a cause of action under article 21.21 of the Insurance Code in the capacity of a consumer under the Texas Deceptive Trade Practices Act.

Watson also argues in point of error number three that she could have brought a cause of action under article 21.21, § 16 of the Texas Insurance Code for violation of certain board rules because such an action may be brought by “a person,” and such person is not required to be a consumer as defined by the DTPA. We agree that under 21.21, § 16 one does not have to be a consumer to bring an action such as that brought by Watson.

As we understand Watson’s claim under article 21.21, § 16 of the Texas Insurance Code, she is contending that Allstate was in violation of the State Board of Insurance rule respecting unfair claim settlement practices contained in 28 Tex.Admin.Code sec. 21.203(4) (West 1988). That section provides that an insurer commits an unfair claim settlement practice when, with such frequency as to indicate a general business practice, it does not attempt in good faith to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear. Id.

Allstate’s liability under the terms of its policy with its insured was for damages for bodily injury or property damage for which any covered person becomes legally responsible because of an accident. Our reading of the State Insurance Board rule as applied to Allstate would be that if it as a general business practice fails to make prompt, fair, and equitable settlements of the claims of third parties where its liability to those parties has become reasonably clear, it has committed an unfair claim settlement practice. If in fact it has committed an unfair claim settlement practice, Allstate would be liable to any person who has suffered actual damages as a result of Allstate’s practice. Watson has alleged that she is such a person. Consequently, if Allstate has engaged in such a practice and Watson has suffered actual damages as a result, Watson may recover those damages from Allstate under the terms of article 21.21, § 16.

Allstate did not move for summary judgment based on any contention that as a matter of law it did not engage in such practices or that Watson had not suffered any damage as a result. Instead, Allstate alleged in its motion that Watson had no claim under article 21.21 because such a claim must be related to the “business of insurance.” We agree with Allstate that a claim brought under article 21.21 must be related to the “business of insurance” because section 1(a) of article 21.21 states that the purpose of the act is to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the McCarran-Perguson Act, ch. 20, 59 Stat. 38 (1945) (codified as amended at 15 U.S.C. secs. 1011-1015 (1982 & Supp. I 1983)). We also agree with Allstate’s contention that federal law is controlling in the interpretation of what constitutes the “business of insurance.” See Fry v. John Hancock Mutual Life Insurance Co., 355 F.Supp. 1151, 1153 (N.D.Tex.1973).

In determining whether the practice sought to be regulated constitutes the “business of insurance,” we must consider the following three criteria:

1. whether the practice being considered has the effect of transferring or spreading a policyholder’s risk;

2. whether the practice is an integral part of the policy relationship between the insurer or insured; and

3. whether the practice is limited to entities within the insurance industry.

Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). We hold that an insurance company’s practices in the settlement of its claims arising from the policy between itself and its insured meets all three of these criteria and constitutes the business of insurance.

Allstate asserts that the business must be directly related to the insured to constitute the “business of insurance,” relying on SEC v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969) and Malley-Duff & Associates v. Crown Life Ins. Co., 734 F.2d 133, 134 (3rd Cir.), cert. denied, 469 U.S. 1072, 105 S.Ct. 564, 83 L.Ed.2d 505 (1984). In SEC, the United States Supreme Court stated that “Statutes aimed at protecting or regulating this relationship, [the relationship between the insurance company and its insured] directly or indirectly, are laws regulating the ‘business of insurance.’ ” SEC, 393 U.S. at 460, 89 S.Ct. at 568 (emphasis added). In Malley-Duff the Court stated that the federal act only exempted “ ‘the business of insurance,’ i.e. primarily the insurer-insured relationship.” Malley-Duff, 734 F.2d at 134 (emphasis added). Although in SEC the Court stated that the federal statute — the McCarran-Ferguson Act — was an attempt to assure that the activities of insurance companies in dealing with their policyholders would remain subject to state regulation, the overall opinion indicates that the Court does not limit the “business of insurance” solely to those activities that directly involve the policyholder.

We hold that the prompt, fair, and equitable settlement of claims made by third parties arising out of the policy between the insurer and its insured is so closely related to the policy as between the insurer and the insured so as to constitute the “business of insurance.”

In its motion for summary judgment, Allstate relied on the cases of Hart v. Aetna Casualty and Surety Company, 756 S.W.2d 27 (Tex.App.—Amarillo 1988, no writ) and Chaffin, 731 S.W.2d at 728. In Chaffin, the court held that a person who might bring a suit under article 21.21 of the Texas Insurance Code did not include one who was neither an insured or beneficiary of the policy. The court specifically held that the plaintiff was not a third-party beneficiary of the insurance contract. Id. at 731. In this case Watson is a third-party beneficiary of the insurance contract. Hart did not involve a claim brought under article 21.21 of the Texas Insurance Code. Hart, 756 S.W.2d 27. We sustain Watson’s third point of error as it relates to her cause of action brought under article 21.21 of the Texas Insurance Code for violations of orders of the State Board of Insurance.

We reverse the judgment that Watson take nothing in her claim brought under article 21.21 of the Texas Insurance Code and remand that cause to the trial court for trial. The remainder of the judgment is affirmed. Costs are charged three-fourths to Watson and one-fourth to Allstate.