Phelps Appellate Win Enforces Insurers’ Right to Intervene in Suits Against Their Adjusters
Phelps secured an appellate win that confirms Texas first-party property insurers have the right to intervene in a lawsuit against their adjusters. This is the first recorded opinion from a Texas appellate court that allows insurers to intervene to protect their contractual right to appraisal even when they are not named in the suit.
The Thirteenth Court of Appeals’ decision sets important precedent. It allows insurers to step in if policyholders file suit only against adjusters, particularly if the insurer accepts responsibility for the adjusters in storm claims under the Texas Insurance Code. This reinforces insurers’ abilities to rely on their policies when insureds bring claims against their adjusters.
The case involved a claim for damage under a homeowner’s policy. After Certain Underwriters investigated the claim, the insureds disputed the amount of loss and sent pre-suit demand letters to Underwriters’ third-party administrator (TPA) and independent adjuster (IA). Underwriters advised the insureds that they accepted any liability the TPA and IA may have had under Tex. Ins. Code § 542A.006. Underwriters also invoked appraisal to contractually determine the amount of loss dispute.
The insureds did not name an appraiser in response to Underwriters’ appraisal demand, and instead filed a lawsuit naming only the TPA and IA as defendants. The suit asserted causes of action for common law bad faith (which the Texas Supreme Court does not recognize for adjusters) and violations of the Texas Insurance Code.
Because the policy required appraisal to trigger the insureds’ entitlement to policy benefits, and Underwriters chose to accept the responsibility of their adjusters, Underwriters intervened into the lawsuit and asked the court to compel appraisal.
The trial court struck Underwriters’ intervention in the suit and denied their motion to compel appraisal twice. Each time, Phelps petitioned the appellate court on Underwriters’ behalf and won.
In its final decision, the appellate court answered two questions:
- The insureds claimed to have “waived all claims for policy benefits” and brought suit only against the insurers’ adjusters, asserting claims for bad faith and violations of the Texas Insurance Code. Can an insurer intervene and invoke its contractual defenses when the insureds sue only third-party adjusters?
- Tex. Ins. Code § 542A allows insurers “to accept whatever liability an agent might have to the claimant for the agent's acts or omissions related to the claim.” Can an insurer elect to accept its adjusters’ liability when the insurer is not named in the suit?
The court ruled “yes” to both.
Because Chapter 542A “explicitly allows an insurer to make an election ‘before a claimant files an action,’” the appellate court held that the code “does not apply only to insurers who are named defendants in a lawsuit.”
The court found Underwriters had a justiciable interest in the lawsuit, because a judgment in the insureds’ favor would likely lead to an action against Underwriters, given their statutory election of responsibility, and Underwriters would have been able to invoke appraisal and defend the claims if they had been named as defendants. The court found the claims were “factually premised on Underwriters’ insurance policy and Underwriters’ rejection of the Insureds’ claim” and refused to evaluate the adjusters’ “liability in a vacuum.” Because the insureds’ claims against the adjusters were “inextricably interwoven with Underwriters’ insurance policy,” the court permitted Underwriters to intervene in the lawsuit.
The insureds moved for reconsideration en banc by all six justices on the Thirteenth Court of Appeals, rather than a three-judge panel, but the court denied their request.
Demonstrating the importance of the court’s decision, the Thirteenth Court of Appeals cited this decision in a subsequent case, In re Trisura Ins. Co. There, the court held both that the insurer was entitled to intervene into an insured’s suit against its adjusters, and, because the insurer had elected to accept responsibility under the Texas Insurance Code, the trial court had a “mandatory duty” to dismiss the insureds’ action against the adjusters with prejudice.
This is the first Texas appellate court to permit insurers to intervene in a lawsuit against adjusters in which the insured asserted only bad faith claims and disavowed policy benefits. This is also the first Texas appellate court to follow the Fifth Circuit’s holding that an insurer’s election of responsibility under Tex. Ins. Code § 542A “eviscerates any claim against an agent.” The court also held, for the first time, that the insurer does not need to be a named defendant to effectively make a statutory election.
Paige Jones and Blake Bailey led the Phelps team, which included insurance lawyers William de los Santos and Julien Petit.