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.