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Texas Insurers: Don’t Forget ‘Excessive Demand Doctrine’

Texas Law360
May 1, 2015

By Todd M. Tippett
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With the onslaught of recent hail and other weather related litigation,[1] insurance carriers routinely see excessive and unreasonable settlement demands in statutorily required presuit notice letters. The “excessive demand doctrine” protects a Texas insurance carrier from having to pay the insured’s attorneys’ fees if the court determines that the insured’s demand was unreasonable.[2] Simply put, the doctrine provides that an insurance carrier should not be forced to choose between: 1) paying an unreasonable demand made in bad faith; or 2) risk suffering the opposing party’s attorneys’ fees.

The Texas excessive demand doctrine is an affirmative defense and applies to an award of attorneys’ fees and court costs.[3] In all situations, awarded attorneys’ fees must be both reasonable and necessary to the litigation. However, if an insured acts unreasonably and in bad faith when claiming damages that are not owed, have not been incurred, or are not due, pursuant to the excessive demand doctrine an insured may be waiving its rights to attorneys’ fees and court costs.[4] The purpose of the doctrine is judicial economy in that excessive and unreasonable demands cause unnecessary and excessive litigation costs, including attorneys’ fees and court costs.[5]

One property insurance carrier is testing the Texas excessive demand doctrine. In United Services Automobile Association v. Hayes,[6] a Texas appellate court will soon determine whether an insured’s excessive presuit settlement demand precludes an insured from recovering attorneys’ fees it might otherwise be entitled to under the Texas Deceptive Trade Practices Act, the Texas Insurance Code and/or Chapter 38 of the Texas Civil Practice and Remedies Code.

The Hayes litigation involves a disputed first-party property insurance claim arising from Hurricane Ike. The insured claimed that high winds “unsealed” a significant number of roof shingles such that the entire roof needed replacement, as well as other minor exterior damage. The insurance carrier issued an estimate totaling $24,025.27 for repair costs and issued payment.

A dispute arose when the insured disagreed with the insurance carrier’s assessment of damage. As a result, the insured retained counsel. The insured’s counsel sent the insurance carrier a presuit settlement demand totaling more than $600,000, including:

  • $323,000.86 in economic damages[7]
  • $50,000.00 in mental anguish damages
  • $248,667.24 for expenses, including attorneys’ fees, which you should note will increase as we prepare this case for trial.

At the time of this demand, the insured had incurred only $952.50 in actual legal fees and court costs.

At trial, the insured claimed only $52,743.35 in actual repairs ($24,025.27 of that amount included proceeds already tendered by the insurance carrier) and presented no claim for mental anguish. The insured also presented a claim for attorneys’ fees. The jury determined that the insurance carrier breached the policy and awarded the insured $20,000 in economic damages. Additionally, the jury awarded minor amounts for various violations of the Texas Insurance Code. The jury also awarded the insured $237,500 as reasonable attorneys’ fees through trial.

In response to the jury’s verdict, the insurance carrier filed a motion for judgment notwithstanding the verdict. The insurance carrier asserted that considering the excessive presuit demand, the excessive demand doctrine precluded the insured from recovering attorneys’ fees. The insurer noted that the jury’s economic damages award was a mere 6.2 percent of the $323,000.86 demanded for economic damages. Furthermore, through trial testimony, the insurance carrier showed that at the time of the demand the insured had incurred only $952.50 in actual legal fees and court costs, which was well less than 1 percent of the $248,667.24 the insured had demanded for such costs. Lastly, the insured testified that it had no idea counsel had made such a high presuit settlement demand.

Applying the excessive demand doctrine, the trial court refused to award any attorneys’ fees, finding that the $237,500 attorneys’ fee award was not justified because of the excessive presuit demand. Accordingly, the court awarded $0 in attorneys’ fees.

The insured’s counsel has appealed the trial court decision. The argument is fully briefed, oral arguments occurred on April 29, 2015, and a decision is expected soon.

The issues presented are reminiscent of Ware v. United Fire Lloyds, which seems to have set a very persuasive precedent.

In Ware v. United Fire Lloyds, a property insurance dispute arose from a Hurricane Ike claim.[8] The insured made a presuit demand totaling $245,000. The insurance carrier offered to settle for $9,653.00 (in addition to $12,197.81 previously tendered). The jury returned a verdict finding $7,833.01 in additional actual damages, and despite agreeing to a 40 percent contingency fee, the insured’s counsel requested $133,497.00 in attorneys’ fees. The trial court, however, awarded only $3,133.20, after: 1) finding the $245,000 demand excessive; and 2) additional finding the $133,497.00 claim for attorneys’ fees at trial as “excessive, and unreasonable and largely unnecessary.”[9] Specifically, the trial court found that the insured and his attorneys “acted unreasonably and in bad faith in claiming damages from Ike when those damages had been caused by either flooding [excluded under the policy] or by Rita; and such a claim constituted an excessive demand and was unreasonable.”[10] The appellate court agreed and upheld the findings.

Given the result in Ware, it can be expected that the First Court of Appeals will uphold the trial court’s ruling in Hayes. Based on this strong precedent, Texas insurers should consider asserting the excessive demand doctrine as an affirmative defense when faced with unreasonable and excessive presuit demands brought in bad faith.

And as to the policyholder attorneys making such excessive demands, the lesson is clear … be careful what you ask for.

—By Todd M. Tippett, Zelle Hofmann Voelbel & Mason LLP

Todd Tippett is a partner at Zelle Hofmann Voelbel & Mason LLP in the firm’s Dallas, Texas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Over the last few years, the number of hail damage lawsuits that are filed across Texas has been staggering. This is especially true for recent storms that occurred in McAllen, Amarillo and Dallas. See Steven J. Badger, "What The Hail™ Is Going On In Texas?," Law360, December 19, 2013.

[2] Ware v. United Fire Lloyds, 2013 WL 1932812, No. 09-12-00061-CV (Texas App. – Beaumont, May 15, 2013).

[3] Kurtz v. Kurtz, 154 S.W.3d 12, 21 (Tex. App. 2004).

[4] Id.

[5] Ware, 2013 WL 1932812 at *8.

[6] No. 01-14-00133-CV (Tex. App.—Houston [1st Dist.]), opinion pending.

[7] According to the pleadings, the entire home is appraised at $144,000. Nevertheless, they demanded $323,000.86 in economic damages.

[8] Ware, 2013 WL 1932812.

[9] Id. at *8.

[10] Id. at *3.

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