Opinion
NO. CA-C-02-359-H
January 22, 2004, Decided . January 22, 2004, Filed
For Pedro Ramirez, Paulita Ramirez, Plaintiffs: Abraham Moss, Attorney at Law, Corpus Christi, TX.
For State Farm Lloyds, Defendant: Ricky H Rosenblum, Attorney at Law, San Antonio, TX.
Pedro Ramirez, Paulita Ramirez, State Farm Lloyds, Rick R Rosenblum, Abraham Moss, Interested Partys, Pro se.
ORDER REGARDING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
Came on this day to be considered Defendant State Farm Lloyds' ("State Farm") motion for summary judgment. This is a civil action brought by Plaintiffs Pedro Ramirez and Paulita Ramirez ("the Ramirezes") against State Farm arising out of an insurance coverage dispute related to damages to the Plaintiffs' home caused by mold. Specifically, the Plaintiffs averred the following causes of action: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; (3) violations of Texas Insurance Code arts. 21.21(4) and 21.55; and (4) violations of the Texas Deceptive Trade Practices Act (DTPA).
I. FACTUAL AND PROCEDURAL HISTORY
The instant action centers around the Plaintiffs' Texas Standard Homeowner's Policy No. 83-P5-1037-7 ("the Policy"), which was issued by Defendant State Farm. The Policy insured the Ramirezes' residence against property damage, with liability limits of $ 90,800.00 for damage to the dwelling and $ 54,480.00 for a loss to contents within the dwelling. On or about April 5, 2001, Plaintiffs reported water damage at their house resulting from various household appliance leaks and wind-driven rain. State Farm subsequently assigned an adjuster, Gwen Foskey, to the Ramirezes' claim, and launched an investigation into the matter. As part of the claim investigation, State Farm hired a variety of independent contractors - P.E. Service, Valley Wide Restoration Services ("Valley Wide"), and unnamed plumbing and air conditioning contractors - to estimate the cost of the damages. Based on these itemized estimates, State Farm identified seven different water sources causing damage, assigned a unique claim number to each of the seven sources, and on or about December 28, 2001 issued payments to the Plaintiffs totaling $ 72,922.80. At this time, State Farm subtracted the applicable deductible from each of the seven payments.
Less than two months later, on or about February 20, 2002, Plaintiffs' provided State Farm with an additional repair estimate prepared by Unique Numerous Investments Remediation Services ("UNI"). In response to this report, State Farm met with the Plaintiffs' representatives, at which time State Farm determined that the estimated cost to repair the Ramirezes' residence exceeded the stated policy limit. As a result of this determination, in February of 2002 Defendant State Farm issued another payment to the Plaintiffs, in the amount of $ 17,878.00, for the amount remaining under the Policy's liability limit for damages to the dwelling. State Farm made it clear that this amount included reimbursements for the deductibles subtracted from previous payments and that it represented a final resolution of the claim(s). On or about April 22, 2002, State Farm received a letter from the Plaintiffs' counsel objecting to State Farm's resolution of the claim(s), and demanding additional payments totaling $ 273,484.46 . State Farm refused to submit to this demand, and the Plaintiffs, in turn, filed suit.
Plaintiffs ultimately lowered their claim for damages to $ 151,335.83. Pls.' Resp. to State Farm Lloyds Mot. for Summ. J. Ex. A, Aff. of C.B. Thomas ("Thomas Aff.").
The instant action was originally filed in the district court of the 117th Judicial District, Nueces County, Texas on July 3, 2002. Shortly thereafter, on August 19, 2002, Defendant State Farm filed a notice of removal pursuant to 28 U.S.C. § 1446(a), alleging jurisdiction based on diversity of citizenship and jurisdictional amount. On June 19, 2003, Defendant State Farm filed this motion for summary judgment.
II. STANDARD OF REVIEW
Under FED. R. CIV. P. 56(c), the Court should grant summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). Summary judgments involve a shifting burden of proof. First, the movant bears the burden of informing the Court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). "An issue is 'material' if it involves a fact that might affect the outcome of the suit under the governing law." Burgos v. Southwestern Bell Tel. Co., 20 F.3d 633, 635 (5th Cir. 1994) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986)). Next, the nonmovant may respond by presenting affirmative evidence, setting forth specific facts, to show the existence of a genuine issue of material fact. Celotex Corp., 477 U.S. at 322-23. In evaluating a summary judgment motion, this Court "is required to resolve all reasonable doubts and draw all reasonable inferences in favor of the nonmovant, and then determine whether the movant is entitled to judgment as a matter of law." Burgos, 20 F.3d at 635 (citing Wells v. Gen. Motors Corp., 881 F.2d 166, 169 (5th Cir. 1989), cert. denied, 495 U.S. 923, 110 S. Ct. 1959, 109 L. Ed. 2d 321 (1990)).
III. ANALYSIS
Defendant State Farm bases its motion for summary judgment on the grounds that it fully discharged its duty under the Policy by paying the Plaintiffs an amount equal to the liability limits under the Policy. The Court agrees. However, with respect to the Plaintiffs' claim for breach of action based on Alternative Living Expenses ("ALE"), the Defendant has failed to show the absence of a genuine issue of material fact.
A. Breach of Contract
1. Limit of Liability
Under Texas law, construction of insurance contracts is governed by the general rules of contract interpretation. Tex. Farmers Ins. Co. v. Murphy, 996 S.W.2d 873, 879, 42 Tex. Sup. Ct. J. 998 (Tex. 1999). As with contracts generally, the construction of an unambiguous insurance contract is a question of law. Coker v. Coker, 650 S.W.2d 391, 393, 26 Tex. Sup. Ct. J. 368 (Tex. 1983). A contract provision will not be deemed ambiguous merely because, as is the case here, "the parties advance conflicting contract interpretations." Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 465, 42 Tex. Sup. Ct. J. 130 (Tex. 1998) (citation omitted). If the written policy is worded so that it can be given only one construction, it will be enforced as written. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938, 28 Tex. Sup. Ct. J. 55 (Tex. 1984).
With regard to the liability of the insurer, "the provisions of the [insurance] contract govern the measure of the insured's recovery." State Farm Fire & Cas. Co. v. Griffin, 888 S.W.2d 150, 156 (Tex. App.-Houston 1994, no writ) (citation omitted). Here, the Policy repeatedly and indisputably limits State Farm's liability for damage to the dwelling to $ 90,800.00. See Stipulation of the Parties No. 2 (Clerk's Dckt. # 35). The crux of the dispute between the two parties, then, lies not in any disagreement over the amount of the liability limit, but rather, in its meaning. Specifically, the Plaintiffs are contending that the liability limit set forth in the contract is not an absolute limit, but a per-claim limit. And since State Farm originally opened seven claims, the Plaintiffs' argument continues, the liability limit on the Policy is seven times the $ 90,800.00 figure, or $ 635,600.00. Defendant State Farm maintains, on the other hand, that the $ 90,800.00 amount is absolute. As Defendant explains in its motion for summary judgment, "The Policy insures against loss, not claims." Def.'s Mot. for Summ. J. (Clerk's Dckt. # 27) at 10. The Court finds that both the plain language of the contract and Texas case law support the Defendant's position.
As noted above, the Policy's Declaration Page clearly lists the "limit of liability" for "Coverage A Dwelling" on the Ramirezes' policy as $ 90,800.00. Turning next to the terms of the Policy itself, the key language is found in the "Loss Settlement" provision. See Def.'s Mot. for Summ. J. Ex. A, Texas Homeowners Policy - Form B (hereinafter "HO-B"). The relevant language reads:
"Coverage A Dwelling," by the terms of the Policy, covers the "dwelling on the residence premises." Def. Mot. for Summ. J., Ex. A, Texas Homeowners Policy - Form B at 1 (emphasis in the original).
4. Loss Settlement. Covered property losses are settled as follows: . . .
We will pay only the actual cash value of the damaged building structure(s) until repair or replacement is completed. Repair or replacement must be completed within 365 days after loss unless you request in writing that this time limit be extended for an additional 180 days. Upon completion of repairs or replacement we will pay the additional amount claimed under replacement cost coverage, but our payment will not exceed the smallest of the following:
(1) the limit of liability under this policy applicable to the damaged or destroyed building structure(s);
(2) the cost to repair or replace that part of the building structure(s) damaged, with material of like kind and quality and for the same use and occupancy on the same premises; or
(3) the amount actually and necessarily spent to repair or replace the damaged building structure(s).
HO-B at 6 (emphasis added).
Neither the Declarations Page nor the Policy itself supports the Plaintiffs' theory that the liability limit applies per-claim. Meanwhile, the Policy specifically states that with regard to Coverage C, which covers personal injury, the limit of liability represents the maximum possible payment "for all damages resulting from any one occurrence." Id. at 10 (emphasis in original). Additionally, the language pertaining to Coverage D, dealing with medical payments to others, makes it clear the limit of liability applies to "all medical expenses payable for bodily injury to one person as the result of one accident." Id. at 10 (emphasis in original). Absent that kind of specific language, there exists no reason to assume the parties intended the Policy to contradict the general rule related to liability limits, which states: "Insurance coverage seeks to indemnify the insured up to the amount of the policy, the objective being that the insured should neither reap economic gain nor incur a loss if adequately insured." Vest v. Gulf Ins. Co., 809 S.W.2d 531, 534 (Tex. App.-Dallas 1991) (emphasis added) (citing Crisp v. Sec. Nat'l Ins. Co., 369 S.W.2d 326, 328, 6 Tex. Sup. Ct. J. 583 (Tex. 1963)).
While not on its own dispositive, the Defendant's insertion of the most recent Nueces County Appraisal District valuation of the Plaintiffs' home, which was $ 77,659.00, does confirm that an award of $ 205,236.91, as stated in Plaintiffs' second remediation and construction estimate, would result in egregious economic waste. Stipulation of the Parties Nos. 29, 31.
The Plaintiffs, on the other hand, point to the Policy's fire loss provision as evidence of a provision specifically worded the way Defendant maintains the "Loss Settlement" clause should be interpreted. As cited by the Plaintiffs, the fire loss clause reads: "Each time there is a loss to any building insured under Coverage A (Dwelling), the amount of insurance applicable to that building for loss by fire will be reduced by the amount of the loss." Pls.' Resp. to State Farm Lloyds' Mot. for Summ. J. at 8. Read alone, this provision would seem to lend weight to the Plaintiffs' contention that when State Farm intends an aggregate limit, it explicitly states one. However, the sentence following the one quoted by the Plaintiffs undercuts this notion: "As repairs are made, the amount of insurance will be reinstated up to the limit of liability shown on the declarations page." HO-B at 5. Thus, the fire loss provision is not one with an aggregate limit of liability; rather, it states a regenerative one -- i.e., the limit falls as damage occurs and rises as repairs are made. Far from supporting the Plaintiffs' position, the fire loss provision represents a third instance in the Policy where Defendant has seen fit to provide explicit language when it wants the phrase "limit of liability" in the clause to differ from the its plain meaning. No such language exists in the parts of the Policy relevant in the instant case. Thus, the Court finds that the limit of liability language is not ambiguous and does not apply on a per-claim basis.
As a result, the Policy entitled the Plaintiffs to the smallest of two amounts: either (1) the limit of liability or (2) the cost to repair or replace the covered premises. According to the Plaintiffs' most recent estimate, the replacement cost of their dwelling would be $ 130,610.00 -- a figure larger than the Policy's limit of liability. Thomas Aff. at 2. Because Defendant fulfilled its contractual obligation by paying the smaller of the two options, $ 90,800.00, the stated limit of liability, Defendant is entitled to judgment in its favor as a matter of law as to Plaintiffs' property loss cause of action.
For present purposes, the third option listed in the Policy - the amount actually and necessarily spent on repairing the premises - is irrelevant, as no money has yet been expended on repairs. HO-B at 6.
2. Alternative Living Expenses
Plaintiffs also allege that Defendant breached the Policy by failing to make payments sufficient to satisfy the additional living expenses ("ALE") clause. Specifically, Plaintiffs allege that they have incurred "various expenses" covered by ALE for which they have yet to be reimbursed by the Defendant, and that the Defendant has wrongfully refused to pay the sixth month of the lease Plaintiffs were forced to sign due to the uninhabitable state of their home. Pls.' First Am. Compl. (Clerk's Dckt. # 23) at 4. Plaintiffs first requested ALE payments on January 3, 2002. Def. 's Mot. for Summ. J. Ex. B, Decl. of Walt Dunham in Supp. of State Farm Lloyds' Mot. for Summ. J. ("Dunham Aff.") at 3. Defendant State Farm, in turn, began issuing ALE payments to the Ramirezes later that month. Id. Ultimately, Defendant paid a total of $ 12,345.12 in ALE to the Plaintiffs. Id. The relevant portion of the Policy reads as follows:
2. LOSS OF USE:
If a loss caused by a Peril Insured Against under Section I makes the residence premises wholly or partially untentantable, we cover:
a. additional living expense, meaning any necessary and reasonable increase in living expense you incur so that your household can maintain its normal standard of living.
. . .
The total limit of liability for all loss is 20% of the Coverage A (Dwelling) limit of liability. This is additional insurance and does not reduce the Coverage A (Dwelling) limit of liability. . . .
Payment will be for the reasonable time required to repair or replace the damaged property. If you permanently relocate, payment will be for the reasonable time required for your household to become settled.
HO-B at 2-3 (emphasis in original). "When terms of an insurance policy are unambiguous, they are to be given their plain, ordinary and generally accepted meaning unless the instrument itself shows that the terms have been used in a technical or different sense." Ramsay v. Maryland Am. Gen. Ins. Co., 533 S.W.2d 344, 346, 19 Tex. Sup. Ct. J. 164 (Tex. 1976) (citations omitted).
As noted above, Defendant paid Plaintiffs for ALE costs between January and July of 2002, which included the first 5 months of the new lease signed by the Plaintiffs. Dunham Aff. at 3. These benefits were terminated on July 31, 2002. Id. Defendants move for summary judgment on the bases that: (1) ALE damages are limited to expenses incurred; (2) Plaintiff has not shown the residence premises to be untenantable; and (3) Plaintiffs' continued failure to commence remediation of their home was unreasonable. While the Court agrees with the principle espoused by the Defendant in its first point of contention - namely, that ALE damages are limited to incurred expenses - it fails to see its applicability here. Plaintiffs allege a breach occurred when Defendant failed to pay incurred, not speculative, ALE, including the sixth month of their new lease. Pls.' First Am. Compl. at 3-4. Moreover, future ALE costs can be recovered as consequential damages in a breach of contract action. State Farm Lloyds v. Fitzgerald, 2000 Tex. App. LEXIS 5307, 2000 WL 1125217, *6 (Tex. App.-Austin Aug. 10, 2000).
See United Servs. Auto. Ass'n v. Gordon, 103 S.W.3d 436 (Tex. App.-San Antonio 2003).
The Court finds the Defendant's perfunctory contention that ALE is not owed because the Plaintiffs have failed to show their home to be untenantable to be equally unavailing. Neither the Policy nor a controlling court has defined untenantability. Defendant urges the Court to adopt the definition recently put forth by the Southern District of Texas, which stated: "an untenantable home is one which cannot be used for the purposes for which it is intended and cannot be restored, using ordinary repairs, without unreasonable interruption of the occupancy." Flores v. Allstate Tex. Lloyd's Comp., 229 F. Supp. 2d 697, 700 (S.D. Tex. 2002) (citations omitted). Given the prevalence of this standard in other jurisdictions, the degree to which it gives the term its plain meaning, and the manner with which it seems to mesh with Texas law, the Court finds that definition to be apt.
Unfortunately for the Defendant, however, the Court's adoption of this standard does not carry with it an endorsement of State Farm's present posture with respect to this issue. Simply put, Defendant's argument is inconsistent with its actions: for five months, following numerous inspections and reports, State Farm made ALE payments to the Plaintiffs. That is, for at least five months Defendant conceded the Ramirezes' home was untenantable. Thus, Defendant has not shown an absence of a genuine issue of material fact on untenantability.
Lastly, Defendant also seems to be contending that Plaintiffs' requests for ALE exceeded the "reasonable time required to repair or replace the damaged property," and thus, that Defendant has satisfied its ALE obligation. While it is clear from the record that Plaintiffs failed to begin repairs on their home for at least six months, that lag time is not so unreasonable that it justifies summary judgment. Moreover, Defendant's summary judgment evidence is insufficient to show a true absence of a genuine issue of material fact on the reasonableness of the Plaintiffs' delay. Thus, summary judgment on the breach of contract claim regarding ALE payments is inappropriate.
B. Duty of Good Faith and Fair Dealing
"[A]n insurer breaches its duty of good faith and fair dealing by denying [or delaying payment on] a claim when the insurer's liability has become reasonably clear." State Farm Fire & Cas. Comp. v. Simmons, 963 S.W.2d 42, 44, 41 Tex. Sup. Ct. J. 371 (Tex. 1998) (citing Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56, 40 Tex. Sup. Ct. J. 810 (Tex. 1997)). Evidence showing a bona fide coverage dispute, as the Defendant has presented here, demonstrates the absence of bad faith. State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448, 40 Tex. Sup. Ct. J. 794 (Tex. 1997). Indeed, having established that State Farm is not liable to the Plaintiffs in excess of the Policy's limit of liability, there is no point at which it could have become "reasonably clear" to State Farm that its liability exceeded that limit. Provided an insurer has a reasonable basis for denying or delaying a claim, it cannot be held liable for the tort of bad faith even in instances where the insurer's decision is ultimately held to be erroneous. Lyons v. Millers Cas. Ins. Co., 866 S.W.2d 597, 600, 37 Tex. Sup. Ct. J. 241 (Tex. 1993). While "the issue of bad faith focuses not on whether the claim was valid, but on the reasonableness of the insurer's conduct in rejecting the claim," surely a rejection of an invalid claim is reasonable. In the instant action, State Farm's decision not to pay in excess of the limit of liability was valid. Moreover, Plaintiffs do not contend that the payments made were anything less than prompt. See Def.'s Mot. for Summ. J. Ex. F, Oral Dep. of Paulita Ramirez at 97:22-25, 98:1.
Lyons, 866 S.W.2d at 601.
For similar reasons, the Defendant's decision not to inquire as to the replacement cost does not represent bad faith. State Farm was obligated under the agreement to pay the smallest of either the limit of liability or replacement cost. HO-B at 6. Once Defendants determined that the replacement costs would exceed the limit of liability, it paid the maximum amount it owed under the Policy, $ 90,800.00. In such a situation, the Court fails to see the necessity of a replacement cost evaluation, especially in light of Plaintiffs' own estimate: $ 130,610.00. Thomas Aff. at 2. As a result, Plaintiffs' duty of good faith and fair dealing claim fails as a matter of law, and summary judgment on this issue in favor of the Defendant is appropriate.
C. Texas Insurance Code and DTPA Violations
Plaintiffs' claims based on Texas Insurance Code articles 21.21(4) and 21.55 and the DTPA (TEX. BUS. & COMM. CODE § 17.50) are all related to State Farm's refusal to compensate them in excess of the limit of liability. All of these claims require the same factual predicate as bad faith causes of action; that is, an unreasonable coverage denial or delay. Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 460 (5th Cir. 1997) (citing Emmert v. Progressive County Mut. Ins. Co., 882 S.W.2d 32, 36 (Tex. App.-Tyler 1994, 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."). At bottom, "an insured may not prevail on claims under article 21.21 of the Texas Insurance Code or the DTPA if the court concludes that the insured has no cause of action for breach of the duty of good faith and fair dealing." Watson v. State Farm Lloyds, 56 F. Supp. 2d 734, 736 (N.D. Tex. 1999) (citing Higginbotham, 103 F.3d at 460). Consequently, Plaintiffs' claims based on the Texas Insurance Code and the DTPA fail as a matter of law, and summary judgment is appropriate.
It is therefore ORDERED that Defendant State Farm Lloyds' motion for summary judgment on Plaintiffs' breach of contract claim regarding the limit of liability for Coverage A be, and it is hereby, GRANTED.
It is further ORDERED that Defendant State Farm Lloyds' motion for summary judgment on Plaintiffs' breach of contract claim regarding Alternative Living Expenses be, and it is hereby, DENIED.
It is further ORDERED that Defendant State Farm Lloyds' motion for summary judgment on Plaintiffs' breach of the duty of good faith and fair dealing, Texas Insurance Code, and DTPA claims be, and they are hereby, GRANTED.
SIGNED AND ENTERED this 22nd day of January, 2004.
HARRY LEE HUDSPETH
SENIOR UNITED STATES DISTRICT JUDGE