Texas Fourteenth Court of Appeals: Texas Policyholders Dealt a Better Hand

The Fourteenth Court of Appeals recently held that injuries independent from underpaid policy benefits are not required under the Insurance Code when the policyholder also establishes a breach of contract. [1] Why are insurance companies not happy with the decision? Insurance companies typically argue that in the absence of an independent injury, judgment cannot be rendered under Chapter 541 for amounts owed under the policy. Why is this decision important for policyholders? Policyholders subject to this jurisdiction can potentially receive three times the amount of insurance proceeds wrongfully denied or underpaid under Chapter 541 without having any separate or independent injuries.

Chapter 541 of the Texas Insurance Code was created to prohibit the frequent unfair or deceptive acts or practices that occur in the business of insurance. [2] Under Chapter 541, a policyholder can bring a private cause of action for actual damages against an insurance company for violating any of the statute's unfair practices or acts. [3] Once actual damages are established, an insured is entitled to recover up to three times the actual damages if an insurance company knowingly violates Chapter 541. [4]

The question is what are "actual damages" under Chapter 541? Previously, insurance companies interpreted Chapter 541 damages to their advantage by requiring an injury separate and apart from the policy benefits. However, the Fourteenth Court of appeals threw a wrench into their damages interpretation by clarifying what is considered actual damages under Chapter 541.

In United National Insurance Co. v. AMJ Investments LLC, AMJ alleged that United knowingly underpaid its claim for storm damage to an office building. [5] The jury agreed with AMJ and found that United breached the insurance contract and violated Chapter 541 of the Texas Insurance Code. [6] The jury awarded $300,000 for both causes of action. [7] AMJ was required to elect one of the theories on which to recover the $300,000 and it elected Chapter 541. The jury subsequently awarded an additional $1,000,000 in treble damages since it found United knowingly violated Chapter 541. [8]

On appeal, United argued that AMJ could not recover its Chapter 541 claim because its conduct did not cause AMJ injury independent of the breach of contract injury. [9] However, the Fourteenth Court of Appeals disagreed with United's theory and found that the absence of an independent injury does not foreclose liability for a violation Chapter 541 when a policyholder pleads and proves its claim was covered under an insurance contract. [10] Instead, an insurance company's unfair refusal to pay the insured's claim causes damages as a matter of law in at least the underpaid policy amount. [11] Ultimately, the Court concluded that an independent injury is not required as a predicate to recovering damages for certain 541 violations when the policyholder also alleges and proves a breach of contract. [12]

What does this mean for policyholders? This decision is fantastic news for policyholders in Texas. Insurance companies – we hope – will feel more inclined to pay claims without the shelter of the independent injury requirement. It is too early to tell whether other Texas courts will adopt this practical interpretation of law, but this is a step in the right direction for protecting individuals from the insurance industry's abusive delay tactics.


[1] United National Insurance Company v. AMJ Investments, L.L.C., No. 14-12-00941-CV, 2014 WL 2895003 (Tex. App.—Houston [14th Dist.] June 26, 2014, no. pet. h.).

[2] TEX. INS. CODE § 541.001.

[3] TEX. INS. Code § 541.151.

[4] TEX. INS. Code § 541.152.

[5] United, 2014 WL 2895003 at *1.

[6] Id at *3.

[7] Id.

[8] Id.

[9] Id at *8.

[10] Id at 9.

[11] Id.

[12] Id.