The USAA v. Menchaca opinion, which has been eagerly (and anxiously) awaited by insurers and insureds was released today.

The Texas Supreme Court reversed and remanded the judgment in the policyholder’s favor in this Hurricane Ike case.  The jury had determined there was no breach of contract, but found an Insurance Code violation, including an unfair or deceptive practice and an unreasonable investigation.  The jury awarded Plaintiff $11,350 in damages.

In reversing the judgment, the Court announced the five following important principles governing breach of contract/Insurance Code claims.  First, an insured cannot recover policy benefits as actual damages caused by an insurer’s statutory violation absent a finding that the insured had a contractual right to the benefits under the policy.  Second, an insured who establishes a right to receive benefits under the policy can recover those benefits as actual damages under the Insurance Code if the insurer’s statutory violation causes the loss of 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 the 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. And 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.