United States: Failure To Accept Or Deny Claim Within 15 Days Of Receipt Of Adequate Information Warranted Statutor

Last Updated: January 4 2016
Article by Jennifer E. Michel and Jaime F. Landry

Case:  Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins. Co.
United States Court of Appeals for the Fifth Circuit
No. 13-20442, 801 F.3d 512 (5th Cir. 9/16/15)

Weiser-Brown Operating Company experienced an event during drilling operations on its Viking No. 1 well in August 2008. Seven months later, in March 2009, Weiser-Brown notified its carrier, St. Paul, it would be making a control of well claim. St. Paul acknowledged the claim and appointed an adjuster to investigate it. On March 9, 2009, the adjuster requested needed information from Weiser-Brown. Some information was sent within a month. On June 9, 2009, the adjuster acknowledged what had been received but noted the need for further required documentation. On September 29, 2009, the adjuster advised Weiser-Brown an independent expert had preliminarily concluded there had been no subsurface loss of control, but requested additional information for consideration and requested Weiser-Brown's advice if the conclusion was believed incorrect. Weiser-Brown sent additional documents, the last of which was sent on November 6, 2009.

On February 8, 2010, the adjuster advised the expert had not changed his opinion and continued to believe there had not been a well out of control. The correspondence and two subsequent letters requested Weiser-Brown's response and that they provide any information and documentation to support their position. On April 26, 2010, Weiser-Brown advised they were studying the matter and would respond shortly. On June 7, 2010, they provided a response, challenging the neutrality and conclusion of the expert. On June 23, 2010, St. Paul acknowledged receipt of the response and advised it was being provided to the expert for review and comment. Weiser-Brown filed suit against St. Paul on July 16, 2010.

The suit alleged breach of the insurance policy by refusing to provide coverage for the well control event, and sought 18% interest and attorneys' fees for violation of Section 542.056(a) of the Prompt Payment Statute. On January 19, 2012, Weisner-Brown amended its suit to add a claim for bad faith under the Texas Insurance Code.

The jury found Weiser-Brown had not complied with the policy's submissions requirements, but that St. Paul had waived compliance with those conditions, found coverage and awarded damages of $2,290,457.03. Compliance with the Prompt Payment Statute was submitted to the Court for decision. The Court determined St. Paul had breached Section 542.056(a) of the Prompt Payment Statute by failing to accept or reject Weiser-Brown's claim within 15 days of receiving "all items, statements and forms required by the insurer to secure final proof of loss." As no further documents were requested from the insured after those provided on November 6, 2010, the Court determined the insurer needed no further documents as of that date, requiring St. Paul to advise of its decision on acceptance or rejection of the claim within 15 days. As a result, interest on the damages in the amount of 18%, totaling $1,232,328.14, was awarded beginning 15 days after November 6, 2010, as well as attorneys' fees. However, the District Court dismissed the bad faith claims of Weiser-Brown, finding no supporting evidence, as the denial of coverage was premised on resolution of a complicated coverage issue.

An appeal followed. The Fifth Circuit noted it was conceded St. Paul did not accept or reject the claim until after the lawsuit was filed, such that the adjuster's letter advising of the expert's decision was not considered a rejection of the claim. The Court noted the statute does not define what is required to constitute a final proof of loss. In reviewing jurisprudence, the Fifth Circuit noted the information required was to allow a determination of whether a covered loss occurred, not to determine the extent of the loss. The Court found the "information and documentation 'required by the insurer to secure final proof of loss' under Section 542.056 will depend on the facts and circumstances involved in a given case." It further held that it is the information which allows a determination that "the loss falls within the coverage terms of the policy," that is required to constitute final proof of loss.

Here, the Fifth Circuit found no error in the District Court's determination that this point was reached on November 6, 2010, as thereafter, no further information was requested from Weiser-Brown (until after suit was filed). The request that the insured respond and provide additional information if it disagreed with the decision of the expert was not a request for further information. During the litigation, St. Paul identified three pieces of information it claimed were needed and never received, each of which was rejected by the District Court as not required for a coverage determination. These included checks showing payment of the invoices submitted, proof of the claimed insurable interest, and engineering data relied on to prove its loss. The first two were not considered by the District Court to be relevant to a determination of coverage, but rather were relevant to quantification of amounts owed if there was coverage. The District Court further declared the insurer could not point after the fact to missing information which did not preclude the formulation of its coverage decision to suggest a determination of coverage was not yet required. The Fifth Circuit agreed and affirmed the award of 18% legal interest accruing from 15 days after the last documents were sent and attorneys' fees.

The Fifth Circuit also concurred that a bona fide coverage dispute existed requiring analysis of complex subsurface geological conditions. In so holding, the Court noted Weiser-Brown itself did not decide to pursue coverage for 7 months, such that it could not be said that coverage was obvious or that St. Paul had no reasonable basis on which to deny the claim. The Fifth Circuit affirmed the District Court Judgment in all respects.

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