NORTHERN DISTRICT OF TEXAS DETERMINES THAT THIRD PARTY JUDGMENT CREDITORS CANNOT BRING BAD FAITH CLAIMS AGAINST INSURER
Recently, the United States District Court for the Northern District of Texas granted an insurer’s Partial Motion to Dismiss regarding a third party’s bad faith and Texas Insurance Code causes of action. In Companion Prop. & Cas. Ins. Co. v. Opheim, 3:14-CV-0752-G, 2014 WL 4209586 (N.D. Tex. Aug. 26, 2014) Companion Property & Casualty Insurance Company sued Charles Opheim, Kevin Dillingham, and his businesses to resolve a dispute arising out of a policy issued by Companion. Companion issued a general liability policy to defendants Dillingham and Constructure, Inc. In 2009, Constructure contracted with Charles Opheim to renovate and add a second floor to Opheim’s home. However, the roof was removed and water damaged the interior of the home during a rainstorm and damaged the home.
Opheim and Constructure sued each other on their contract and submitted their dispute to arbitration, which resulted in an award for Opheim for damages. After a court entered the final judgment on the arbitrator’s award, Opheim submitted a copy of the award and final judgment to Companion.
Companion sued Opheim and sought a declaration that of its rights and duties pursuant to the insurance policy issued to Dillingham and Constructure. Opheim brought counterclaims for breach of contract, common law bad faith, and various causes of action under the Texas Insurance Code. The Court analyzed Companion’s Motion to Dismiss Opheim’s counter-claims pursuant Federal Rule 12(b)(6). The Court noted that a third-party claimant becomes a third-party judgment creditor when he obtains a judgment against an insured; however, third parties lack standing to sue insurers for unfair claim settlement practices under the Texas Insurance Code due to the Texas Supreme Court’s concern about creating conflicting duties for insurance companies between insureds and third parties. Further, the Court noted that the Texas Insurance Code defines “claim” as a “first-party claim”.
The Court further noted that Texas has never recognized a common law cause of action for breach of good faith and fair dealing where the insurer fails to settle third party claims against an insured. As such, the Court dismissed all of Opheim’s bad faith claims.