Texas Court Upholds Right to Intervene and Enforce § 542A.006
The Thirteenth Court of Appeals, in a group of significant decisions for property insurers in Texas, granted mandamus relief to Certain Underwriter’s at Lloyd’s, London and Trisura Insurance Company, reinforcing the right of insurers to intervene in first-party bad faith lawsuits brought exclusively against independent adjusters. The ruling confirms that insurers who elect liability under Texas Insurance Code § 542A.006 maintain a justiciable interest in the outcome, even if plaintiffs attempt to exclude them from litigation.
Those appeals arose after a troubling rise in lawsuits targeting only independent field adjusters in Texas trial courts on negligence claims despite longstanding statutory authority that allows insurers to assume liability for their agents and obtain dismissal of adjuster claims. Plaintiffs and their attorneys appear to be using this tactic to avoid policy-based defenses as well as manufacturing potential paths to attorney’s fees where they would not otherwise be recoverable. The appellate court decisions deliver a strong reaffirmation against this type of procedural gamesmanship by property damage plaintiff lawyers.
Plaintiffs Tried to Sidestep the Insurer
In In re Certain Underwriters, the property owners submitted a hail damage claim to Lloyd’s. Following disputes over the scope of damage and a requested appraisal, Lloyd’s elected to assume liability for any alleged wrongdoing by its third-party administrator and independent field adjuster. This formal action is clearly permissible under § 542A.006 of the Texas Insurance Code.
On the same day Lloyd’s sent its election letter, the property owners filed suit only against the TPA and adjuster without naming the insurance company as a party to the suit. The plaintiffs’ omission laid the groundwork for a lenghty procedural battle. Lloyd’s filed a plea in intervention and moved to compel appraisal. The trial court denied both and struck the plea, compelling the insurer to seek mandamus relief.
Insurer’s Right to Intervene Is Clear
The Court of Appeals held that Lloyd’s had a legal right to intervene and that they lacked an adequate remedy on appeal which warranted mandamus relief. Additionally, the appeals court found that the trial court abused its discretion by denying the insurer’s legal right in the case.
Significantly, the In re Certain Underwriters opinion rejected the plaintiffs’ argument that the statute only applied when insurers are named in the lawsuit. The court emphasized that § 542A.006 allows insurers to accept liability before the suit is filed, which necessarily implies the insurer may not yet be a party. This perspective reinforces the Legislature’s intent to streamline litigation and protect insurers from duplicative and bad-faith claims against adjusters. The opinion further recognized that the insurer had a justiciable interest: they had contractually reserved rights under the policy, including the right to appraisal, and they faced direct exposure based on the pre-suit election of liability. Shortly after the In re Certain Underwriters opinions, the Thirteenth Court of Appeals issued two more opinions in In re Trisura Insurance and similarly concluded that the trial court abused its discretion by denying Trisura’s motion to compel appraisal while also directing the trial court to dismiss the field adjuster with prejudice.
Strategic Lessons for Insurers
Insurers and their counsel can takeaway several strategies when facing first-party bad faith claims in Texas:
- Timing Matters – File § 542A.006 Elections Promptly: In this matter, the election was submitted minutes before the complaint was filed, which was found effective and binding even though the insurer was not named a party.
- Intervene to Protect Policy Rights: Often, contractual defenses cannot be invoked by adjusters. Where liability is accepted, insurers can move to intervene and assert their policy rights directly.
- Challenge Adjuster-Only Suits: The court’s ruling undeniably affirms that plaintiffs cannot plead around the statute by disclaiming breach of contract. If the conduct at issue arises from claim handling, insurers can assert a justiciable interest.
- Mandamus May Be Required: If trial courts remain reluctant to dismiss adjusters (as they were in the Hidalgo County Courts in these cases), these opinions provide support for mandamus when insurers are excluded from suits where they have legal exposure.
Why This Matters
While a few more similar cases remain pending on appeal, these decisions are a welcome development for carriers as plaintiffs employ increasingly creative strategies to circumvent well-settled Texas law. It upholds the structure and purpose of the statute, and affirms that insurance coverage disputes must be resolved with all parties at the table.
As plaintiffs test the boundaries of Texas bad faith litigation, partnering with experienced counsel, who understand the statute and actively monitoring how it is applied in court, is essential for protecting business interests. Our team in Texas works diligently to defend carriers, TPAs, and insurance adjusters, ensuring that policy rights are preserved, liability is appropriately allocated, and litigation tactics do not sidestep the law.
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