New Texas Supreme Court Case ~ USAA V Menchaca

For many years, homeowners in the state of Texas have sought policy benefits from their homeowners insurance companies.  Most of these revolved around allegations that their home was damaged during a storm, whether it be a hailstorm, severe windstorm, or tropical disturbance such as a hurricane.  When these claims were adjusted, many of these homeowners chose to file lawsuits alleging that they had been paid insufficiently, or not at all, for their claims.

In the traditional lawsuit which was filed, there were primarily two causes of actions. The primary cause of action was for breach of the contract of insurance policy. The principal issue in this cause of action was whether or not the policy benefits were properly adjusted under the claim for damages arising out of the storm. The policy was either breached or it was not. The insurance industry has for many years taken the position that in the absence of a breach of contract, the insured was unable to seek damages in the second cause of action for “extra-contractual” damages. There are many ways to allege these type of damages but primarily one way to describe this second cause of action as a breach of the duty by the insurer of good faith and fair dealing with it’s insured.

It was within this second cause of action where the most monies were sought, including for mental anguish, up to treble damages or punitive damages, attorneys fees, and allow the plaintiff’s attorneys who handle these matters to apply pressure to the insurance companies in order to settle them favorably towards the homeowners.

We now have a Texas Supreme Court case which has decided the rules for handling these matters moving forward.  Many commentators are presently examining this opinion for what may be truly taken from the courts new ruling. Because of this there will be some degree of uncertainty in the forthcoming years. However, the primary issue seems to have been answered favorably to the insurers by stating that absent a breach of contract, the insured will not be able to present a cause of action for the more lucrative allegation for extra-contractual damages.

The new Rules are as follows:

Five Rules that Govern the Relationship between Contractual and Extra-Contractual Claims in the Insurance Context:

First, as a general rule, an insured cannot recover policy benefits as damages for an insurer’s statutory violation if the policy does not provide the insured a right to receive those benefits.

Second, an insured who establishes a right to receive benefits under the insurance policy can recover those benefits as actual damages under the Insurance Code if the insurer’s statutory violation causes the loss of the benefits.

Third, even if the insured cannot establish a present contractual right to policy benefits, the insured can recover benefits as actual damages under the Insurance Code if the insurer’s statutory violation caused the insured to lose that contractual right.

Fourth, if an insurer’s statutory violation causes an injury independent of the loss of policy benefits, the insured may recover damages for that injury even if the policy does not grant the insured a right to benefits.

Fifth, an insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.

For many years the firm of Thomas M. Fountain Associates has handled hundreds if not thousands of lawsuits involving the existence of insurance policies. Our law firm has represented the interests of client insurance company in these types of cases. We would suggest and recommend discussing this new case with counsel having experience in the insurance arena before proceeding with any litigation.

The law firm of Thomas M Fountain & Associates, P. C. is an AV Preeminent rated law firm located in The Woodlands, Texas which is in the greater Houston metropolitan area. Thomas M Fountain has 35 years of experience upon which the firm’s clients draw when necessary. The firm prides itself on being proactive rather than reactive. 

For more information see our Website at or call (281) 296-6500. 

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Thomas M Fountain & Associates PLLC

Thomas M Fountain & Associates PLLC