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reasonable and thus not recoverable. The doctrine does not bar recovery of attorney's fees
expended before the excessive demand. Id. The doctrine accordingly limits the amount of fees
recoverable. See, e.g., Wayne v. AVA Vending, Inc., 52 S.W.3d 412, 417-18 (Tex. App.–Corpus
Christi 2001, review denied). The rule is intended to “temper” the notion that a defendant is
responsible for attorneys’ fees in the first instance based upon the failure of the defendant to
accept a reasonable offer to settle and thus prevent the need of the claimant to have to pay for the
services of an attorney. Id. The excessive demand doctrine protects a party from having to pay
attorneys fees due to the inability of the defendant to settle based on an unreasonable demand.
Id. (citing Allstate Ins. Co. v. Lincoln, 976 S.W.2d 873, 878 (Tex. App.–Waco 1998, no writ).
The rule is a corollary to allowing the recovery of attorneys’ fees. Thus, like the
standards governing the determination of whether fees are reasonable and necessary, Arthur
Anderson & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997), the excessive demand
rule is applicable to the statutory claims asserted here under the Insurance Code. The excessive
demand concept existed prior to the enactment of the Insurance Code provisions at issue. Thus,
those provisions were enacted with the legislature’s knowledge of this rule. The legislature took
no action in enacting the Insurance Code provisions at issue to in any way indicate the
abrogation or inapplicability of this doctrine of reasonableness. The Texas courts have clearly
held that this common law rule applies to statutory bases for the recovery of attorney’s fees, such
as section 38.001. Findlay, supra note 3, at 58 (applying doctrine to article 2226, the predecessor
to section 38.001 of the Texas Civil Practices and Remedies Code). The rule has also been
extended to contractual attorneys’ fees provisions which, like the Insurance Code provisions
here, provide for the payment of “reasonable attorneys’ fees” if suit is required regarding the
duties under the contract. AVA, supra note 6, at 417-18 (“It seems inherently logical that this
doctrine should also apply when a demand is made and the right to attorneys fees is based on a
provision of the contract.”). Indeed, as will be discussed more fully below, the Beaumont Court
of Appeals has expressly held that the rule applied to the predecessor of section 542.060(a).
First Texas Prudential Ins. Co. v. Smallwood, 242 S.W. 498, 504 (Tex. Civ. App.–Beaumont
1922, no writ).
In First Texas Prudential Ins. Co. v. Smallwood, 242 S.W. 498, 504 (Tex. Civ. App.–
Beaumont 1922, no writ), the Beaumont Court of Appeals addressed whether the excessive
demand rule applied to article 4746 of the Texas Revised Civil Statutes, a predecessor statute to
section 542.060(a). Article 4746 allowed for the recovery of attorneys fees and a 12% penalty if
a carrier if a life, health or accident carrier failed to pay a claim within thirty days of its being
presented. The court there held that the excessive demand rule applied, and, as a result, the
Plaintiffs was not entitled to either an award of attorneys fees or a statutory penalty, similar to
that set forth in section 542.060, explaining:
We cannot believe that it was the intention of our Legislature, by enacting article
4746, to permit a beneficiary in an insurance policy to recover the penalty and
attorney's fee specified in the article in all suits where recovery for any amount
may be had, regardless of whether the amount of the demand be excessive or not.
We find nothing in the language employed in the article which would seem to
compel such a construction, and in the absence of such language, we are not
inclined to so construe the statute.