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rebuking insured's claims as to the deficiencies in an expert's report because the insured provided no evidence “that such inspectors usually do [differently] in the process of completing an investigation”
Summary of this case from Thompson v. Zurich American Ins. Co.Opinion
Civil Action No. 3:00-CV-2428-M
July 2, 2002
MEMORANDUM ORDER AND OPINION
On February 26, 2002, Defendant filed its Motion for Summary Judgment, asserting that Plaintiffs can present no evidence showing that Defendant is liable for the causes of action alleged by Plaintiffs. Having considered the Motion, the Court is of the opinion that it should be GRANTED.
A. Background
Plaintiff Lora Maynard ("Maynard") has brought a bad faith insurance suit on behalf of herself and as next friend to her minor children Heather Maynard and John Darrell, alleging that Defendant failed to timely investigate, cover, and remediate mold contamination in her family's home. At the time of the events at issue in this case, Lora Maynard had a homeowner's insurance policy with Defendant State Farm. The policy covered damage sustained due to "[a]ccidental discharge, leakage or overflow of water . . . from within a plumbing . . . system." However, it did not cover damage attributable to "wear and tear, deterioration or loss caused by any quality in property that causes it to damage or destroy itself." On October 2, 1998, Maynard filed a claim with State Farm, complaining of water leaks in the bathroom, plaster cracks, and mildew infestation in her home. At Defendant's instruction, she hired Rodger's Plumbing, which found a leak at the commode closet lead bend under the bathroom floor, and repaired it. Defendant then hired J. Michael Turner of Olden Associates to inspect the building and determine whether the leak caused the problems of which Maynard complained. Turner inspected the house on November 23, 1998, and prepared a written report of his findings dated December 21, 1998. In the report, Turner acknowledged that Maynard had a bathroom leak, and that Plaintiffs' house had mildew in several areas and water damage. However, Turner attributed the mildew and water damage to poor drainage under Plaintiffs' house, not to the bathroom leak. In reaching this conclusion, Turner relied, in part, on the fact that no "heave dome," a common occurrence at a location "with a large concentration of moisture due to a water leak," existed in the area of the leak. Instead, Turner attributed the problems in Plaintiffs' house to "characteristics of the soil in the area and the close proximity of the large trees to the west foundation," which caused "transpiration of moisture from the soil under the foundation" and resulted in "a differential movement in the floor [of the house]." He found the floor movement created "the visible exterior and interior damages to the home." Based on Turner's report, Defendant denied coverage of Maynard's claim, concluding that the damage was not due to the plumbing leak, but instead to poor drainage and foundation movements.
On November 23, 1999, Maynard filed a second claim with State Farm, asserting that, while making repairs to her bathroom, she broke through a rotted floor, revealing extensive water damage. Maynard hired two plumbing companies, Metroplex Leak Line Locators and Lavon Plumbing Leak Detection, both of which found leaks in the kitchen sink drain arm. Defendant sent another inspector, Alan F. Koos, to Plaintiffs' home on December 15, 1999. Koos confirmed the drain arm leak and found that water damage he observed under the house "corresponds with leakage from the kitchen drain line as well as poor drainage conditions." He concluded that, while the drain arm leak "contributed to the decay of the wood substructure," the foundation damage to the house was the result of "settlement of the foundation."
On January 26, 2000, State Farm advised Maynard that its investigation indicated that, although the plumbing leak did not cause or contribute to the home's foundation movement, it did cause some rotting to the kitchen and bathroom subfloor and that State Farm would prepare an estimate for the repair of the damage. On January 27, 2000, State Farm sent Maynard the estimate for the damage, along with a check for $3,893.95. At various points in time, State Farm also advanced Maynard sums for damage to the contents of her home, after she submitted personal property forms itemizing the contents she needed replaced or repaired. Additionally, Defendant placed Maynard and her children in a hotel, and provided them with Alternative Living Expenses (ALE). Plaintiffs allege, however, that the hotel was in an inconvenient location, and caused unnecessary gasoline and cellular phone expenses.
Plaintiffs aver that during the family's absence from the home, rats entered the structure through the hole in the bathroom and littered the floor and furniture with feces. Plaintiffs assert that Maynard's children suffered respiratory problems and other illnesses due to the mold infiltration and rat infestation in their home, and that Maynard repeatedly complained to State Farm about these problems and requested that it pay her family's medical expenses. She hired McDaniel Pest Control to perform an extermination on January 28, 2000. Additionally, on March 6, 2000, Maynard requested that State Farm pay for an inspector to come to her home and examine the mold to determine the extent of the infiltration and the health risks the presence of the mold might cause to her family. Despite the infestation in the home, however, Maynard and her children returned to live there in early March 2000, apparently because she had only $963.50 left from the ALE money provided by Defendant and she felt that amount was not sufficient to cover the costs necessary for her family to continue to reside in the hotel.
On March 9, 2000, shortly after the family returned to the home, Maynard's six year old daughter, Heather, was hospitalized with meningitis. Plaintiffs assert that this disease is commonly transmitted through rat feces. In the meantime, certain contractors working on Plaintiffs' house became ill, allegedly due to the conditions within the home, and filed claims against Maynard and State Farm.
Plaintiffs explain that, because State Farm refused to hire an inspector to examine the mold in their home, Maynard eventually contacted the U.S. Environmental Protection Agency to discuss her family's health complaints and the mold infestation. Upon the EPA's recommendation, Maynard hired and paid for John Hulla, an industrial hygienist, to inspect her home. Hulla came to Maynard's home on March 11, 2000, and collected samples of the mold for analysis. Testing of these samples confirmed that Plaintiffs' home was contaminated with several different types of mold, some of which were capable of causing adverse health effects. Hulla recommended that the house undergo remediation to remove the mold.
Maynard faxed State Farm a copy of Hulla's report, which she received in early May 2000, and, on May 9, 2000, State Farm hired its own certified industrial hygienist to evaluate the mold infestation. Mark Hickey of Industrial Hygiene and Safety Technology, Inc. inspected the home on May 11, 2000, and furnished a written report on August 30, 2000. Like Hulla, Hickey found the house to be contaminated with several different types of mold.
The estimate Hickey gave for the cost of the remediation exceeded the value of the limits remaining on the State Farm policy. Thus, on June 7, 2000, State Farm paid Maynard the balance of her dwelling coverage limits, $70,406.45. Additionally, State Farm paid out a total of $34,042.68 under Maynard's personal contents coverage based on the personal property inventory forms she submitted in support of her losses.
On October 18, 2000, Plaintiffs filed a Petition in state court, alleging that Defendant violated Article 21.21 of the Texas Insurance Code. Plaintiffs averred that Defendant violated this provision in two ways: first, Defendant allegedly misrepresented an insurance policy by:
Plaintiffs also requested additional damages under Article 17.50 (b)(1) of the Texas Business and Commerce Code for Defendant's alleged knowing and intentional violation of Article 21.21 of the Insurance Code.
(a) making an untrue statement of material fact;
(b) failing to state a material fact that is necessary to make other statements made not misleading, considering the circumstances under which the statements were made;
(c) making a statement in such manner as to mislead a reasonably prudent person to a false conclusion of a material fact;
(d) making a material misstatement of law; or
(e) failing to disclose any matter required by law to be disclosed, including a failure to make disclosure in accordance with another provision of this code.
TEX. INS. CODE ANN. ART. 21.21 § 4 (11) (Vernon 2001). Plaintiffs also urged that Defendant violated Article 21.21 by committing any or all of the following unfair settlement practices:
Plaintiffs quote these provisions in their Petition, but attribute them to "Art. 21.21, § 10, et seq., of the Texas Business and Commerce Code." However, these are actually found in Article 21.21 § 4 (11) of the Texas Insurance Code.
i) misrepresenting to a claimant a material fact or policy provision relating to coverage at issue;
ii) failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear;
iii) failing to attempt, in good faith, to effectuate a prompt, fair, and equitable settlement under one portion of a policy of a claim with respect to which the insurer's liability has become reasonably clear in order to influence the claimant to settle an additional claim under another portion of the coverage, provided that this prohibition does not apply if payment under one portion of the coverage constitutes evidence of liability under another portion of the policy;
iv) failing to provide promptly to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or for the offer of a compromise settlement of a claim;
v) failing within a reasonable time to:
(A) affirm or deny coverage of a claim to a policyholder; or
(B) submit a reservation of rights to a policyholder;
vi) undertaking to enforce a full and final release of a claim from a policyholder when only a partial payment has been made;
vii) refusing to pay a claim without conducting a reasonable investigation with respect to the claim.
Id. § 4 (10). Plaintiffs assert that they have sustained damages as a result of Defendant's violation of Article 21.21. These include economic damages for replacement of the contents of Plaintiffs' home, for expenses related to "unnecessary moving, transportation, lodging, cleaning, repair and maintenance," and for lost income and medical expenses. Furthermore, Plaintiffs seek damages for mental anguish, and for court costs and attorneys' fees.
In their Petition, Plaintiffs attribute these provisions to Article 21.21 § 16 of the Texas Insurance Code. In actuality, they are found in § 4 (10) of the Code. Section 16 is relevant to this suit, however, because it is the civil enforcement provision for § 4, allowing persons such as Plaintiffs who have sustained damages as a result of a party's having engaged in violations of § 4 to bring suit.
B. Analysis
A court may grant a motion for summary judgment when "there is no genuine issue as to any material fact." GeoSouthern Energy Corp. v. Chesapeake Operating Inc., 274 F.3d 1017, 1020 (5th Cir. 2001). A factual issue is material when "its resolution could affect the outcome of the action," and a "dispute about a material fact is `genuine' . . . if the evidence is such that a reasonable jury could return a verdict for the non[-]moving party." Id. (internal quotation marks omitted). In determining whether any genuine issue of material fact exists, a court must view the evidence presented in the light most favorable to the non-movant, and draw all reasonable inferences in the non-movant's favor. Id. If the moving party establishes that no genuine issues of material fact exist, "the burden shifts to the non[-]moving party to show that summary judgment is not appropriate." Provident Life Accident Ins. Co. v. Goel, 274 F.3d 984, 991 (5th Cir. 2001) (internal quotation marks omitted). To defeat a summary judgment motion, the nonmoving party must "go beyond the pleadings and by her own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Id.
The Court first finds that Plaintiffs have presented nothing more than blanket allegations that Defendant violated any provisions of Article 21.21 § 4 (10) or (11) other than § 4(10)(ii), failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear, and (vii), refusing to pay a claim without conducting a reasonable investigation with respect to the claim. Plaintiffs did not state in their Response that Defendant misrepresented the insurance policy at issue in any way, therefore foreclosing a claim under Article 21.21 § 4 (11). Furthermore, Plaintiffs have not provided any basis for the Court to find that Defendant violated any subsections of § 4 (10) other than the two noted above. Therefore, at the outset, the Court grants summary judgment in favor of Defendant on Plaintiffs' claims other than Article 21.21 § 4 (10)(ii) and (vii).
Although Plaintiffs refer in their Response to certain alleged misrepresentations made by the State Farm agent assigned to Maynard's claim, specifically, that he offered additional ALE money but withdrew the offer, and that he denied receiving Maynard's request for an industrial hygienist, Plaintiffs have not shown that these misrepresentations relate in any way to the terms of Maynard's insurance policy. Thus, they do not serve to support a claim under Article 21.21 § 4 (11).
On this subject, the Court notes that Defendant has an apparent misunderstanding as to what Plaintiffs must prove to prevail on Article 21.21 § 4 (10) claims. Defendant argues in its Motion, and again in its Reply, that, to prevail on claims for any of the unfair settlement practices listed under § 4 (10), Plaintiffs must present evidence that State Farm had no reasonable basis for denying the insurance claim at issue. However, this is incorrect, because (a) the "no reasonable basis" standard was rejected by the Texas Supreme Court in Universe Life Insurance Co. v. Giles, 950 S.W.2d 48 (Tex. 1997); and (b) even when the standard was operative, it only applied to claims arising under the common law tort of bad faith and Article 21.21 § 4 (10)(ii), "failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear," not to the other unfair settlement practices listed in § 4 (10).
In Giles, the Texas Supreme Court reasoned that the "no reasonable basis" standard was unnecessarily difficult to apply, because it required a plaintiff in a bad faith case to prove "the absence of a reasonable basis to deny the claim, a negative proposition." Id. at 51. Thus, the court determined that a better standard was the "reasonably clear" standard found within the text of § 4 (10)(ii). See id. at 55-56. The court explained that the "reasonably clear" standard was superior to the "no reasonable basis" standard in that it "recasts the liability standard in positive terms, rather than the current negative formulation." Id. Thus, this Court will apply the "reasonably clear" standard in its determination of whether Plaintiffs' § 4 (10)(ii) claim can survive summary judgment.
Plaintiffs have presented some evidence, however, pertaining to whether State Farm reasonably investigated Maynard's 1998 claim. In their Response to the Motion, Plaintiffs urge that Mr. Turner of Olden Associates, hired by State Farm to investigate the claim, "conducted only the most cursory and superficial examination of [Maynard's] home." Plaintiffs state, "although he acknowledged mildew damage, stress cracks and other water damage and stains, he reached his opinion without reviewing construction documents or moving any wall or floor covers. . . . [Furthermore,] no chlorine testing was ever done to determine the source of the water." Indeed, Turner's report confirms that "[o]ur investigation does not include a review of the construction documents, removal of the wall or floor coverings, or destruction and/or material testing of the structural components." However, although Plaintiffs point out that Turner did not perform these tasks, they present no evidence that such inspectors usually do those things in the process of completing an investigation.
Plaintiffs have not, however, presented evidence of a § 4 (10)(ii) violation in relation to the 1998 claim, as there is no evidence that liability for the claim was ever reasonably clear. See Giles, 950 S.W.2d at 55-56.
On this issue, Plaintiffs rely on State Farm Lloyds Insurance Co. v. Nicolau, 951 S.W.2d 444 (Tex. 1997), in which the Texas Supreme Court found an insurer liable for bad faith for relying on an inspector's report that was inadequate and not objectively prepared. However, Nicolau is distinguishable from this case, because in Nicolau the plaintiffs presented testimony from a foundation repair contractor that the report at issue was based on inadequate information, and elicited testimony from at least two other experts as to specific inaccurate conclusions in the report. Here, Plaintiffs have proffered no testimony from any qualified individual as to whether Turner's investigation was adequate. Although Plaintiffs submitted the May 2000 report from Hickey, the industrial hygienist hired by State Farm, in which Hickey notes that he tested the standing water under the house for chlorine, that fact alone does not demonstrate that Turner's failure to do so was unreasonable.
More importantly, Plaintiffs have not shown that Turner's omissions, even if unreasonable, were a producing cause of their damages. See, e.g., Wellisch v. United Servs. Auto. Ass'n, ___ S.W.3d ___, 2002 WL 83735, at *4 (Tex.App.-San Antonio 2002, no pet. h.) ("To recover damages under either the common law or the Insurance Code and DTPA, the violations must be a `producing cause' of the insured's damages."). A producing cause is an "efficient, exciting or contributing cause." Rourke v. Garza, 530 S.W.2d 794, 801 (Tex. 1975). Although "[n]either reliance nor foreseeability are necessary elements of recovery," a plaintiff must prove that "the damages were factually caused by the defendant's conduct." Crawford Co. v. Garcia, 817 S.W.2d 98, 101 (Tex.App.-El Paso 1991, writ denied). Plaintiffs have presented no evidence that a leak — either the bathroom leak discovered by Rodger's Plumbing in 1998, some other undiscovered leak existing in 1998, or the kitchen leak discovered in 1999 — caused the water damage and mold present in Plaintiffs' home at the time Maynard filed her first claim with State Farm in 1998. In fact, the only evidence in the record establishes that there was just one leak in 1998, the bathroom leak discovered by Rodger's Plumbing, and that the leak did not cause the damage. Thus, Plaintiffs have not supported their assertions and conclusory statements with actual evidence linking Turner's alleged failures to the damages they are claiming. Therefore, the Court grants summary judgment in favor of State Farm as to the issue of whether it is liable for unreasonable investigation of Plaintiffs' 1998 claim.
As for the claim filed by Maynard in 1999, Plaintiffs have attempted to demonstrate in their Response to Defendant's Motion that either State Farm failed to reasonably investigate the claim, or that Defendant failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of the claim after Defendant's liability had become reasonably clear. The Court finds, however, that Plaintiffs have presented no evidence of a violation of Article 21.21 § 4 (10)(ii), refusing to pay a claim without conducting a reasonable investigation, because the evidence is uncontradicted that Defendant never refused to pay the claim. In fact, the evidence, even when viewed in a light most favorable to the non-movant, shows that Defendant paid Plaintiffs the full amount of the claim, within the limits established by Maynard's insurance policy.
Moreover, the Court finds that no genuine issue of question of fact exists as to whether Defendant failed to "effectuate a prompt, fair, and equitable settlement of" the 1999 claim after Defendant's liability became reasonably clear. Even when viewed in a light most favorable to Plaintiffs, the evidence shows that, at the earliest, Defendant's liability for the mold infiltration did not become reasonably clear until Hulla issued his report on the extent of the mold damage and its possible relationship to the kitchen leak. As soon as Defendant received that report, it hired its own industrial hygienist, Hickey, to investigate the mold, and, after receiving Hickey's report, determined that it should cover the mold damage to the extent of Maynard's policy limits. Thus, the evidence actually reveals that Defendant did seek to effectuate a prompt, fair, and equitable settlement when its liability for the mold damage became reasonably clear.
Although Koos's December 15, 1999 investigation of Plaintiffs' home revealed that at least a portion of Plaintiffs' water damage was caused by the kitchen leak, Koos's report did not address the cause of the mold and mildew in the house.
C. Conclusion
In conclusion, the Court finds that Plaintiffs have not presented evidence as to Defendant's violations of any of the provisions of Article 21.21 § 4 (10) or (11). Therefore, the Court GRANTS Defendant's Motion for Summary Judgment.
On April 30, 2002, Defendant filed a Motion to Strike Appendix in Support of Plaintiffs' Response to Defendant's Motion for Summary Judgment and Specific Objections to Summary Judgment Evidence. In the Motion, Defendant argued that the Court should strike Plaintiffs' entire appendix because it does not comply with Local Rule 56.5(c), which requires that "[a] party whose . . . response is accompanied by an appendix must include in its brief citations to each page of the appendix that supports each assertion that the party makes concerning the summary judgment evidence." Defendant also specifically objected to certain portions of the appendix primarily on the grounds of hearsay and lack of personal knowledge. Having considered the Motion, the Court is of the opinion that it should be GRANTED in part and DENIED in part. While the Court concurs with Defendant that Plaintiffs submitted their appendix and brief in incorrect form, failing to number each page of the appendix consecutively and citing to whole exhibits instead of individual page numbers (which made the Court's consideration of the appendix more difficult than it ought to have been), the Court declines to order the drastic remedy of striking the appendix in its entirety. However, the Court has reviewed the evidence in the appendix specifically objected to by Defendant, and finds that Defendant's objections to those items should be sustained. Therefore, the Court did not consider those excerpts when making its determination as to the disposition of Defendant's summary judgment motion.
On June 4, 2002, Plaintiffs filed a Motion for Nonsuit in relation to the claims of Lora Maynard's minor children, Heather Maynard and John Darrell. Defendant filed a Response to this Motion, and the Court requested additional briefing from Plaintiffs on the reason for their nonsuit request. Plaintiffs explain in their Brief in Support of the Motion that they are requesting dismissal of the children's claims because they have not been able to fully develop the medical evidence and testimony necessary to establish Heather Maynard's claim for damages. However, the Court finds that, because Plaintiffs do not have viable claims under Article 21.21, the extent and nature of the minor children's damages is irrelevant. Thus, the Court DENIES Plaintiffs' Motion for Nonsuit.
SO ORDERED.