18 Percent Statutory Fee Penalty Request In An Insurance Claim
In Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456 (5th Cir. 1997) the insured, John Higginbotham, owned a car, which he had insured through State Farm. Id. at 458.
The car was stolen, and later recovered. Id.
Higginbotham filed a claim to collect proceeds under his policy.
However, State Farm rejected the claim after determining the loss was not accidental and therefore not covered under his policy.
State Farm informed Higginbotham of this decision nearly five months after he made his initial claim. Id.
Higginbotham filed suit, alleging multiple theories of recovery, including that State Farm had breached its contract with him and violated article 21.55 of the Insurance Code. Id.
Higginbotham requested the 18 percent penalty provided for by the statute. Id.
The district court bifurcated the issues and the contract dispute went to trial. Id.
The jury returned a verdict in Higginbotham's favor and awarded him $ 30,000 in contract damages. Id.
Higginbotham claimed he should be awarded fees, including 18 percent statutory damages under article 21.55, on his breach of contract claim. Id.
The court ordered State Farm to pay Higginbotham the 18 percent statutory damages, but then later retracted that order. Id.
Higginbotham appealed that retraction. Id.
On appeal, Higginbotham claimed that the trial judge erred in awarding and then retracting the 18 percent statutory fee.
The Fifth Circuit agreed with Higginbotham's claim stating,
A wrongful rejection of a claim may be considered a delay in payment for purposes of the 60-day rule and statutory damages.
More specifically, if an insurer fails to pay a claim, it runs the risk of incurring this 18 percent statutory fee and reasonable attorneys' fees.
In sum, State Farm took a risk when it chose to reject Higginbotham's claim.
State Farm lost when it was found liable for breach of contract.
Therefore, it must pay this 18 percent per annum interest and reasonable attorneys' fees. Id. at 461.
The Fifth Circuit reached this conclusion by reviewing both the statute's plain language and 21.55's statutory predecessor, article 3.62 of the Texas Insurance Code. Id.
The Fifth Circuit recognized that courts that interpreted article 3.62 consistently found that an insurance company's good faith defense did not relieve the insurer from liability for damages for late payment, as long as the insurer is finally found liable for the claim.
Gumpp v. Philadelphia Life Ins. Co., 562 S.W.2d 885, 889 (Tex. Civ. App. - San Antonio 1978, no writ);
Key Life Ins. Co. of South Carolina v. Davis, 509 S.W.2d 403, 405 (Tex. Civ. App. - Beaumont 1974, no writ);
First Nat. Life Ins. Co. v. Vititow, 323 S.W.2d 313, 316 (Tex. Civ. App. - Texarkana 1959, writ dism'd).