                              REVISED
                 United States Court of Appeals,

                           Fifth Circuit.

                           No. 96-20238.

             John HIGGINBOTHAM, Plaintiff-Appellant,

                                   v.

   STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-
Appellee.

                           Jan. 21, 1997.

Appeal from the United States District Court for the Southern
District of Texas.

Before REYNALDO G. GARZA, JONES and DeMOSS, Circuit Judges.

     REYNALDO G. GARZA, Circuit Judge:

     John Higginbotham brought suit against State Farm Mutual

Automobile   Insurance   Company    alleging    both    contractual   and

extra-contractual causes of action.       After the contractual claim

was tried, Judge Lee Rosenthal of the Southern District of Texas,

Houston Division granted summary judgment in favor of the defendant

on plaintiff's extra-contractual claims.       After assessing attorney
fees, Judge Rosenthal proceeded to award and then retract an 18

percent statutory fee against the defendant.           Plaintiff appeals

both the summary judgment and the retraction of this fee.             We

affirm in part and reverse and remand in part.

                             BACKGROUND

     John Higginbotham owned a used 1988 Porsche 911 for which he

had purchased insurance from State Farm Mutual Automobile Insurance

Company under policy number 7504-618-D01-53E.          In short, the car

was stolen on June 8, 1993, from an unsecured parking lot next to
Higginbotham's residence.       The Porsche was ultimately recovered

later that day, but it had been severely damaged by whomever had

taken the vehicle.    It was discovered approximately 25 miles away

from Higginbotham's apartment complex, and it was stripped of its

top, seats, interior and exterior trim, and any untraceable parts

of value.    The stripping operation was conducted in such a manner

so as not to damage or destroy mechanical connections, wiring

harnesses, or the engine.

     Naturally, Higginbotham reported the theft of his vehicle to

State Farm on June 9, 1993, and made a claim for proceeds under his

policy.   The policy specifically provided coverage for direct and

accidental    loss   to   an   automobile.    Upon   conclusion   of   its

investigation, State Farm determined Higginbotham's "loss was not

accidental and therefore not a covered loss under [his] policy."

State Farm informed Higginbotham of this decision on November 19,

1993, five months after his initial claim.

     Higginbotham filed suit in state court in Harris County,

Texas, asserting breach of contract for State Farm's failure to pay

damages resulting from the theft and vandalism to his Porsche.

State Farm removed the suit to federal court on the basis of

diversity.    After removal, Higginbotham amended his complaint to

assert additional causes of action for violations of the Texas

Deceptive Trade Practices Act ("DTPA"), violations of the Texas

Insurance Code under article 21.21, negligence, and breach of the

duty of good faith and fair dealing.         Higginbotham also contended

that State Farm had violated article 21.55 of the Insurance Code

and requested imposition of an 18 percent penalty fee provided for
by the statute.     State Farm filed a motion for summary judgment

seeking relief from Higginbotham's extra-contractual claims, but

the court denied the motion without prejudice.                     The parties then

filed a joint motion to bifurcate and requested separate trials for

the contract claim and extra-contractual claims.                   The joint motion

was granted and the breach of contract issue went to trial.                       The

jury returned a verdict in favor of Higginbotham and awarded him

$30,000, the amount of his coverage.

     State Farm then filed, and the court granted, an amended

motion     for   partial        summary        judgment       on     Higginbotham's

extra-contractual causes of action.              After granting State Farm's

motion, the district court heard evidence on the various fees that

Higginbotham should be awarded on his breach of contract claim.

After    deliberating    its    decision,      the    court    entered    an    order

requiring State Farm to pay Higginbotham, inter alia, the 18

percent statutory       fee    imposed    by    article   21.55      of   the   Texas

Insurance Code. State Farm next filed a motion for reconsideration

complaining of this 18 percent fee.             The court granted the motion

and retracted the statutory fee.           Judge Rosenthal entered a final

judgment that same day.         Higginbotham timely filed his notice of

appeal from this final judgment.

                                  DISCUSSION

I. Extra-contractual claims

     In his first point of error, Higginbotham argues that the

district court erred by granting partial summary judgment on his

bad faith claim in favor of State Farm.              The standard for reviewing

a summary judgment is well established. The movant has the initial
burden of showing that because of the absence of genuine issues of

material fact, it is entitled to judgment as a matter of law.           The

critical issue in this appeal is whether State Farm proved that, as

a matter of law, it acted in good faith in denying Higginbotham's

claim.

       Under Texas law, there is a duty on the part of the insurer

to deal fairly and in good faith with an insured in the processing

of claims.     Arnold v. National County Mut. Fire Ins. Co., 725

S.W.2d 165, 167 (Tex.1987).         A cause of action for breach of the

duty of good faith and fair dealing exists when the insurer has no

reasonable basis for denying or delaying payment of a claim or when

the insurer fails to determine or delays in determining whether

there is any reasonable basis for denial.        Id.   In order to sustain

such   a   claim,   the   insured   must   establish   the   absence   of   a

reasonable basis for denying or delaying payment of the claim and

that the insurer knew, or should have known, that there was no

reasonable basis for denying or delaying payment of the claim.

Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 213 (Tex.1988).

The insured must prove that there were no facts before the insurer

which, if believed, would justify denial of the claim.          State Farm

Lloyds Ins. v. Polasek, 847 S.W.2d 279, 284 (Tex.App.—San Antonio

1992, writ denied). However, insurance carriers maintain the right

to deny questionable claims without being subject to liability for

an erroneous denial of the claim.          St. Paul Lloyd's Ins. v. Fong

Chun Huang, 808 S.W.2d 524, 526 (Tex.App.—Houston [14th Dist.]

1991, writ denied) (citing Aranda, 748 S.W.2d at 213).         A bona fide

controversy is sufficient reason for failure of an insurer to make
a prompt payment of a loss claim.   Id.   As long as the insurer has

a reasonable basis to deny or delay payment of a claim, even if

that basis is eventually determined by the fact finder to be

erroneous, the insurer is not liable for the tort of bad faith.

Lyons v. Millers Casualty Insurance Co., 866 S.W.2d 597, 600

(Tex.1993).

      Here, State Farm denied Higginbotham's claim based on a

number of suspect facts it discovered during its investigation. It

was these facts which provided a reasonable basis for denial.

     Higginbotham was associated with Tommy Vander, the owner of

Luxury Auto Unlimited (LAU).     LAU was a luxury car repair shop

which specialized in Porsches and other luxury cars.   Higginbotham

was listed as a purchaser with buyer's privileges extended to LAU

for car auctions.      In fact, Vander and Higginbotham regularly

attended automobile auctions to purchase damaged automobiles for

repair and resale.   Vander pled guilty in 1991 to felony theft when

he was arrested for driving a stolen Porsche with a completely

different vehicle identification number from a Porsche which had

been completely burned.

     When Higginbotham began parking the Porsche at his complex, he

would normally leave the car in a parking lot surrounded by a fence

and secured access gate.    However, approximately two weeks before

the theft, he began parking it in an unsecured lot near the

complex, even though both he and his girlfriend claimed to have had

prior auto break-ins from the unsecured lots at the apartment

complex.      The manager and assistant manager of Higginbotham's

complex both stated that Higginbotham's girlfriend complained that
on June 4, 1993 (four days before the theft) Higginbotham's car had

been stolen and that this was justification for a late move-out

notice.

     Higginbotham's       Porsche     was     recovered     25     miles    from

Higginbotham's apartment complex, but only 1.6 miles away from

Vander's shop.        The car was stripped in a manner so as not to

damage or destroy mechanical connections, wiring harnesses, or the

engine.    Pro Technik, Porsche specialists hired by State Farm to

investigate Higginbotham's claim, concluded that approximately two

auto technicians with proper tools would require at least eight

hours to strip the Porsche in the manner that it had been left.

Higginbotham's car was discovered approximately six hours after it

had last been seen by Higginbotham.

     Higginbotham rebuts these facts by claiming that State Farm

pursued a targeted investigation so as to make him look like an

accomplice.      He    cites    a   number   of    cases   which   uphold   the

proposition    that      an    "outcome      determinative"      investigation

constitutes bad faith.        He refers to a number of instances in which

State Farm allegedly refused to cooperate and merely was looking

for excuses not to pay Higginbotham.              However, none of the facts

Higginbotham presents contradicts the facts set out above and,

unlike the cited cases, State Farm did perform a fairly detailed

investigation that began early on and without any preconceived

notions.   Although the investigation didn't become so detailed as

to "catch the bad guys," it continued until there was enough

evidence to give State Farm a reason to look twice and reasonably

deny Higginbotham's claim.
     We     are     far    from    pointing      fingers    and     claiming        that

Higginbotham was actually an accomplice in stealing his car, but

given the undisputed facts set out in the record, State Farm had a

reasonable basis to dispute the validity of Higginbotham's claim.

There was a bona fide dispute between the parties which justified

State Farm's failure to pay Higginbotham.                   As a matter of law,

State Farm did not act in bad faith.

         In his second point of error, Higginbotham contends the

district court erred in granting summary judgment in favor of State

Farm with respect to his negligence claim.                  Although the law has

imposed a duty on the insurer to act in good faith and deal fairly

with the insured, there is no duty beyond the contract itself.                        In

order for a tort duty to arise out of a contractual duty, i.e.

negligent failure to perform a contract, the liability must arise

"independent       of    the   fact   that   a   contract     exists    between      the

parties."       United Serv. Auto. Assn. v. Pennington, 810 S.W.2d 777,

783 (Tex.App.—San Antonio 1991, writ denied).                     If a defendant's

conduct    is     actionable      only   because   it   breaches       the    parties'

agreement, as is the case here, the claim is solely contractual in

nature.    In fact, in absence of the duty to act in good faith and

deal fairly the only other duty imposed on an insurance company,

under Texas law, is the duty to exercise ordinary care and prudence

in considering an offer of settlement within the policy limits.

G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544,

548 (Tex.Comm'n App.1929, holding approved). In essence, Texas law

does not recognize a cause of action for negligent claims handling.

French    v.     State    Farm     Insurance     Co.,   156     F.R.D.       159,   162
(S.D.Tex.1994).

         Higginbotham next argues that the district court erred in

granting summary judgment on his DTPA and Insurance Code violation

claims.       The provisions of the DTPA and Insurance code are not

exclusive, but are in addition to any other procedures or remedies

provided for in any other law.              Persons who are victims of unfair

or deceptive insurance practices may have a cause of action under

the    DTPA,    Article     21.21     of    the   Insurance         Code,    or    both.

Higginbotham asserts causes of action under both.                     Although these

claims are individual causes of action which do not depend on each

other for support, Texas courts have clearly ruled that these

extra-contractual      tort    claims       require    the    same    predicate         for

recovery as bad faith causes of action in Texas.                             Emmert v.

Progressive      County     Mutual    Insurance       Co.,    882    S.W.2d       32,    36

(Tex.App.—Tyler 1994, writ denied) (see State Farm Lloyds, Inc. v.

Polasek, 847 S.W.2d 279, 282 n. 2 (Tex.App.—San Antonio 1992, writ

denied)).      Plainly put, an insurer will not be faced with a tort

suit    for    challenging    a    claim     of   coverage     if    there    was       any

reasonable basis for denial of that coverage.                  Emmert, 882 S.W.2d

at 36.

        Since State Farm was found not to have acted in bad faith, it

is clear we must defer to the Texas courts and affirm the lower

court's summary judgment for State Farm and against Higginbotham on

his claims for violations of the DTPA and the Insurance Code.

II. Texas Insurance Code Article 21.55

       Higginbotham contends that Judge Rosenthal erred in awarding

and    then    retracting    the     18    percent    per    annum    statutory         fee
available under Texas Insurance Code article 21.55.                  State Farm

argues that Judge Rosenthal's decision should stand for three

reasons.    First, it claims that Higginbotham waived his article

21.55 claim because it wasn't included in his notice of appeal.

Second, it claims that Higginbotham waived his right to statutory

penalties by failing to adduce any evidence to support such a

recovery.     Finally, it claims that Higginbotham's arguments and

cases are based on an old statute, article 3.62, which has been

repealed.

A. Notice of Appeal

       State Farm asserts that Higginbotham's 21.55 claim was not

included in his notice of appeal and, as such, should not be an

issue before us.        It cites Capital Parks, Inc. v. Southeastern

Advertising    and    Sales   System,     Inc.,   30   F.3d   627,    630   (5th

Cir.1994), a case in which we found that a motion for leave and

reconsideration was not properly before us because it was filed

after the lower court entered a final judgment and the appellant

only   appealed      from   the   final   judgment.      Central      Parks   is

distinguishable from the present case in that, here, Higginbotham

appealed from a final judgment in which the order granting State

Farm's motion for reconsideration was filed before final judgment

was entered.      Obviously, State Farm's reliance on this case was

misplaced and its argument moot because Higginbotham appealed from

a final judgment which included in its parameters the lower court's

order granting State Farm's motion for reconsideration. Thus, this

issue is properly before us.

B. 21.55 elements
        State Farm next argues that Higginbotham failed to prove all

the elements of his 21.55 claim.          Article 21.55 § 3(f) states, in

relevant part, as follows:

     If an insurer delays payment of a claim following its receipt
     of all items, statements, and forms reasonably requested and
     required, as provided under Section 2 of this article, for a
     period specified in other applicable statutes or, in the
     absence of any other specified period, for more than 60 days,
     the insurer shall pay damages and other items as provided for
     in Section 6 of this article.

Higginbotham made a claim for proceeds on June 9, 1993.           State Farm

chose to reject Higginbotham’s claim, which necessarily means it

failed to pay within 60 days of its receipt of all necessary

paperwork, as specified by § 3(f). The evidence in the record

clearly   reveals   that   21.55    was    violated.     Thus,    State   Farm

subjected itself to section 6 damages, including the 18 percent per

annum fee and reasonable attorneys’ fees.

C. TEXAS INSURANCE CODE ARTICLE 3.62

     No case has interpreted 21.55 with regards to the issue of

timely notification of rejection of a claim.           Therefore, we look to

cases interpreting the statutory predecessor to 21.55, that being

article 3.62 of the Texas Insurance Code, for guidance.             Case law

interpreting 3.62 clearly states that an insurance company's good

faith   assertion   of   defense    does    not   relieve   the   insurer   of

liability for penalties for tardy payment, as long as the insurer

is finally judged liable.          See Key Life Insurance Co. of South

Carolina v. Davis, 509 S.W.2d 403, 405 (Tex.Civ.App.—Beaumont 1974,

no writ). However, there may be no liability for statutory damages

if it is subsequently determined, by litigation, that the claim in

question is invalid and not payable.         TEX.INS.CODE ANN. art. 21.55
§ 3(g).

      A wrongful rejection of a claim may be considered a delay in

payment for purposes of the 60-day rule and statutory damages.

More specifically, if an insurer fails to pay a claim, it runs the

risk of incurring this 18 percent statutory fee and reasonable

attorneys’ fees.   In sum, State Farm took a risk when it chose to

reject Higginbotham’s claim.     State Farm lost when it was found

liable for breach of contract.      Therefore, it must pay this 18

percent per annum interest and reasonable attorneys’ fees.

     Judge Rosenthal erred when she retracted the statutory damages

provided for by article 21.55. This issue is reversed and remanded

so that the lower court can determine the additional amount of

money owed to Higginbotham for the 18 percent per annum penalty and

reasonable attorneys’ fees.

                              CONCLUSION

     Accordingly, based on the foregoing reasons, we AFFIRM the

summary judgment in favor of the defendant, but REVERSE and REMAND

Judge Rosenthal's retraction of the penalty imposed by Texas

Insurance Code article 21.55 with instructions to calculate the

amended award.
