Opinion
Civil Action No. 3:02-CV-0657-K.
November 8, 2004
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant's Motion for Partial Summary Judgment on Plaintiff's Extra-Contractual Causes of Action, filed August 25, 2004. After consideration of the motion, response, summary judgment proof, and the applicable law, the Court grants the motion and dismisses Plaintiff's extra-contractual claims, because Plaintiff has failed to raise a genuine issue of material fact regarding alleged bad faith or any misrepresentation by Defendant. Additionally, Defendant is entitled to summary judgment on Plaintiff's claim for exemplary damages because Plaintiff has not prevailed on any of his claims that could support such an award.
I. Factual and Procedural Background
Plaintiff Charles McManus ("McManus") obtained a homeowners insurance policy from Defendant State Farm Lloyds ("State Farm") which was effective from June 5, 2000 through June 5, 2001. The policy covered all risks of physical loss to McManus' premises, unless excluded by Section I of the policy.
McManus reported a plumbing leak to State Farm on or about July 24, 2000. That same day, State Farm's claims handler Mary Ann Hadden ("Hadden") called McManus to discuss his claim. The next day, State Farm began to investigate McManus' claim by contacting Perks Plumbing Company ("Perks") to schedule plumbing tests at the property. On July 31, 2000, Hadden met with McManus to examine his home and take his recorded statement. The following day, Perks performed water pressure and drain line leak tests at the property. On August 3, 2000, Hadden informed McManus' wife that State Farm was hiring George Perdue Associates ("Perdue") to perform a causation inspection at their property. Around that same time, Hadden wrote McManus a letter informing him that State Farm was reserving its right to deny coverage, and pointing out various policy exclusions.
On September 1, 2000, State Farm received Perdue's report in which he concluded there was no evidence to suggest the condition of McManus' foundation was related to or affected by the plumbing leak. Hadden states in her affidavit that nothing in State Farm's claim file contradicted Perdue's findings. On September 23, 2000, Hadden and Perdue met with the McManuses at their residence to discuss Perdue's findings and how he reached his conclusions. On that same day, Hadden sent McManus a letter denying his claim. McManus testified that neither Hadden or Allen Pitts (the agent who sold him the policy) made any misrepresentations to him related to the policy or in connection with the handling of his claim.
McManus filed suit against State Farm in state court on February 14, 2002, alleging breach of the insurance contract and various extra-contractual claims. State Farm removed the case to this Court on March 29, 2002. McManus' breach of contract claim was tried before a jury on October 6-8, 2004. The jury found that State Farm had not breached its contract with McManus, and thus rendered a verdict in State Farm's favor. Prior to trial, the Court informed the parties that State Farm's Motion for Partial Summary Judgment on Plaintiff's Extra-Contractual Causes of Action would be granted. The Court's reasons for granting partial summary judgment are now set forth herein.
II. Summary Judgment Standard
Summary judgment is appropriate when the pleadings, affidavits and other summary judgment evidence show that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2551 (1986). The moving party bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 322-25, 106 S.Ct. at 2551-54. Once a movant makes a properly supported motion, the burden shifts to the nonmovant to show that summary judgment should not be granted; the nonmovant may not rest upon allegations in the pleadings, but must support the response to the motion with summary judgment evidence showing the existence of a genuine fact issue for trial. Id. at 321-25, 106 S.Ct. at 2551-54; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-57, 106 S.Ct. 2505, 2513-14 (1986). All evidence and reasonable inferences must be viewed in the light most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993 (1962).
III. State Farm's Motion for Partial Summary Judgment
State Farm contends that summary judgment should be entered and McManus' claims for breach of the duty of good faith and fair dealing and under the Texas Deceptive Trade Practices Act ("DTPA"), Tex. Ins. Code Arts. 21.21, 21-21-2, 21.55 should all be dismissed. State Farm further argues that McManus' claim for exemplary damages also fails as a matter of law and must be dismissed.
A. Bad Faith
An insurer breaches its duty of good faith and fair dealing by failing to settle a claim where the insurer knew or should have known that it was reasonably clear the claim was covered. State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448 (Tex. 1997); Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56 (Tex. 1997). An insurer's liability for the tort of bad faith is distinct from its liability under its insurance contract. Lyons v. Millers Casualty Ins. Co. of Texas, 866 S.W.2d 597, 600 (Tex. 1993). Insurance carriers retain the right to deny questionable claims without being liable for bad faith, even if the insured's loss is ultimately found to be covered under the policy. Id.; Higginbotham v. State Farm Mutual Automobile Ins. Co., 103 F.3d 456, 459 (5th Cir. 1997). Thus, the issue of bad faith centers not on whether the claim was valid but whether the insurer's conduct was reasonable in rejecting the claim. Lyons, 866 S.W.2d at 601. To prevail on a bad faith claim, "the insured must prove that there were no facts before the insurer which, if believed, would justify denial of the claim." Higginbotham, 103 F.3d at 459, citing State Farm Lloyds Inc. v. Polasek, 847 S.W.2d 279, 284 (Tex.App.-San Antonio 1992, writ denied). As long as the insurer has a reasonable basis for denying or delaying payment of a claim, it will not be subject to bad faith liability. Id.; Lyons, 866 S.W.2d at 600.
State Farm asserts that there is no evidence showing that it breached its duty of good faith and fair dealing. Specifically, State Farm states that there is no evidence that if failed to conduct a reasonable and thorough investigation, that the engineering report relied on by State Farm was incomplete, that the engineering firm engaged to produce the report was biased, or that State Farm knew the engineering firm was biased. Additionally, State Farm argues that there is no proof showing that it denied coverage for McManus' claim when it knew or should have known that its liability on that claim was reasonably clear, and that although there existed a bona fide coverage dispute, such a dispute does not alone demonstrate bad faith. See Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 17-18 (Tex. 1994) (disagreement as to whether loss is covered will not support a judgment for bad faith).
McManus responds that summary judgment on his bad faith claim is not proper because State Farm knew Perdue would conduct an unobjective review of their property that would ultimately favor State Farm. Therefore, McManus maintains that it was not reasonable for State Farm to rely on Perdue's report in denying his claim. Specifically, McManus points to evidence that over the past five to seven years, Perdue has conducted over 1,000 investigations for State Farm. He further states (mostly in a conclusory fashion) that Perdue did not know a number of things that were significant to his investigation and report, and therefore State Farm's reliance on the Perdue report was unreasonable. See Plaintiff's Response at ¶ 17.
For legal support, McManus relies on State Farm Lloyds v. Johns, 1998 WL 548887 (Tex.App.-Dallas 1998, no pet.). In Johns, the insurer denied the claim based upon an engineer's report that, like here, the insured claimed was an "outcome-oriented investigation." 1998 WL 548887 at *3. Citing Nicolau, 951 S.W.2d at 448, the court reiterated that reliance on an expert report does not necessarily shield the carrier from bad faith liability if there is evidence that the report was not objectively prepared or that the insurer's reliance on the report was unreasonable. Id. Thus, the Johns court stated that "it is necessary for us to consider in detail the circumstances surrounding State Farm's reliance" on the report. Id.
After reviewing the circumstances surrounding State Farm's reliance on Perdue's report here, and comparing them to the circumstances noted by the court in Johns, the Court finds that Johns is distinguishable. There, after receiving the engineer's report suggesting that the cause of the loss rendered it uncovered, the insured engaged her own engineer to investigate and prepare a report. Id. at *5. The second engineer ("Reed")'s report contradicted the report prepared by Kenneth Bitting ("Bitting"), the engineer originally hired by the insurer. Id. The court there noted that after receiving the Reed report, State Farm did not pursue a third opinion, ask Bitting to reinspect the house, interview Reed or otherwise attempt to reconcile the dispute between the two experts. Id. at *6. Also, the record reflected that State Farm had no procedure for resolving conflicting expert opinions. Id. Instead, the court found that the claims adjuster "simply chose between the two reports, choosing the report that would support denial of the claim, even though he had no engineering expertise that would qualify him to objectively evaluate the reports." Id.
The evidence in Johns further showed that State Farm's own records corroborated the homeowner's testimony that her foundation problems developed relatively quickly, which was inconsistent with Bitting's opinion. Id. at *5. Finally, another conflict in State Farm's own records was apparent in that another adjuster had inspected the insured's property for purposes of an underwriting review shortly before the claim was made, and noted no foundation problems (except for some settlement of the chimney), whereas an inspection by the adjuster who handled the claim a few months later showed extensive settlement problems. Id. at *4. All of this evidence was presented in addition to evidence that Bitting's engineering firm had received substantial fees for conducting investigations on behalf of State Farm. Under these circumstances, the court in Johns decided that a reasonable jury could have concluded that State Farm acted unreasonably in relying on the Bitting report and denying the claim.
Here, McManus relies on proof that Perdue receives a large volume of business from State Farm without much more. He has not provided summary evidence comparable to the evidence relied upon by the homeowner in Johns, who presented substantial evidence showing that State Farm's engineer's report was unreliable beyond the mere fact that the engineer received many assignments from State Farm. McManus has not set forth evidence showing that prior to the coverage determination, he engaged his own engineer to produce a report concerning the damage to his home, nor has he shown he provided such information to State Farm. Although McManus provided expert testimony at trial, he has not shown on summary judgment that at the time of State Farm's coverage decision, the facts showed a conflict in expert opinions. Further, McManus has submitted no evidence that when State Farm considered his claim, it failed to reconcile conflicting facts that could have supported coverage. Additionally, there is no evidence that the purported deficiencies of Perdue's report that McManus cites were known to State Farm at the time it denied coverage. Thus, unlike the insured in Johns, McManus has not raised a material fact issue whether State Farm's reliance on Perdue's report was unreasonable. See Johns, 1998 WL 548887 at *3. Standing alone, the evidence that Perdue receives substantial revenues from State Farm is not sufficient to raise a genuine issue of material fact whether State Farm acted reasonably in denying McManus' claim. State Farm is entitled to judgment as a matter of law on McManus' bad faith claim.
B. DTPA and Tex. Ins. Code Art. 21.21
Under the Texas Deceptive Trade Practices Act ("DTPA") and the Texas Insurance Code, a consumer may maintain an action where a person uses a false, misleading or deceptive trade practice that is enumerated in either statute and relied upon to the consumer's detriment. Tex. Bus. Com. Code Art. 17.50(a)(1) (4); Tex. Ins. Code Art. 21.21.
In his deposition, McManus admitted that no one at State Farm misrepresented anything to him during either the sale of the policy or the handling of his claim. On summary judgment, McManus has presented no other evidence that would show that State Farm acted falsely or deceptively in its dealings with him. Moreover, even if it were found that State Farm should have paid McManus' claim, without any proof of deceptive activity McManus would be left with only a breach of contract cause of action. A mere breach of contract is not a false, misleading or deceptive act that constitutes an actionable misrepresentation under the DTPA or Art. 21.21. Rocky Mountain Helicopters, Inc. v. Lubbock County Hospital Dist., 987 S.W.2d 50, 53 (Tex. 1998); Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 14-15 (Tex. 1996). Accordingly, McManus' evidence supporting his breach of contract claim is not sufficient to forestall summary judgment on his claims under the DTPA or Tex. Ins. Code Art. 21.21. There is no genuine issue of material fact in the record concerning these claims, and they must be dismissed.
C. Tex. Ins. Code Art. 21.21-2
State Farm moves for summary judgment on this claim of unfair settlement practices, arguing that such a claim brought by an insured is not legally cognizable. McManus does not address this argument in his summary judgment response. The Court agrees that Tex. Ins. Code Art. 21.21-2 does not provide for a private cause of action and instead provides administrative remedies that the Texas Department of Insurance may pursue. Perez v. Blue Cross Blue Shield of Texas, Inc., 127 S.W.3d 826, 834 (Tex.App.-Austin 2004, rev. denied), citing Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 148-49 (Tex. 1994). Accordingly, this claim should be dismissed.
D. Tex. Ins. Code Art. 21.55
This section of the Texas Insurance Code requires insurers to pay a covered claim within 60 days of receiving all "items, statements and forms reasonably requested and required" of the insured, or otherwise the insurer must pay damages to the insured in the amount of 18 percent of the claim plus reasonable attorneys' fees. Tex. Ins. Code Arts. 21.55(3)(f), 21.55(6). Here, the jury found that the damage to McManus' home was not covered by the policy. Therefore, this claim is dismissed as moot.
E. Exemplary Damages
Finally, State Farm argues that the Court should dismiss McManus' claims for exemplary damages. Because all of McManus' underlying claims that could potentially support an award of exemplary damages have been dismissed, McManus' claim for exemplary damages should be summarily dismissed as well.
IV. Conclusion
For the reasons stated herein, Defendant's Motion for Partial Summary Judgment on Plaintiff's Extra-Contractual Causes of Action is granted. McManus' extra-contractual claims are hereby dismissed with prejudice. Judgment will be entered by separate document.
SO ORDERED.