Laypeople, and some of their lawyers, believe that if they are not promptly
paid exactly what they want on a claim without question, it is sufficient to
establish a bad faith claim. In Texas, at least, the insured must prove that
the insurer breached the contract and acted in a conscious way to deprive the
insured of the benefits of the contract. Failure to produce proof defeats a bad
faith claim.
In Anderson v. American Risk Ins. Co., Inc., 2016 Tex. App. LEXIS
6538 (Tex. App. Houston 1st Dist. June 21, 2016), Vanessa Anderson appealed
from the trial court's rendition of summary judgment in favor of American
Risk Insurance Company, Inc. (ARIC). Anderson brought contractual and
extracontractual claims against ARIC related to an insurance coverage dispute
that arose after her house was damaged during a storm. After paying the
appraisal award, ARIC moved for summary judgment on all claims. The trial court
granted summary judgment and rendered a take-nothing judgment.
Facts
Anderson's residence in Spring, Texas, was covered by an ARIC homeowners
insurance policy. During a storm on June 12, 2012, a tree fell through the roof
of her home. All told, one bedroom and one bathroom were destroyed by the tree,
and the home had no water, power, or air conditioning.
ARIC's summary judgment evidence showed that within 3 days of the tree
falling, Steve Mazey inspected the property on behalf of ARIC. Mazey estimated
the total loss at $58,784.05.
From June to September 2012, ARIC made a series of payments to Anderson
totaling $52,475.22. Anderson lived at the apartment complex Marquis at
Woodlands from August 11, 2012, through October 10, 2012. According to her
affidavit, she accrued late fees because ARIC was slow to reimburse her, though
she was "very prompt about submitting" receipts.
On November 8, 2012, Anderson sent a demand letter to ARIC seeking $300,000
to settle her claims: $200,000 for actual damages, $25,000 for mental anguish,
and $75,000 for attorney fees and expense amounts that had nothing to do with
the falling tree. ARIC did not pay, and she filed suit, asserting claims for
breach of contract; breach of the common law duty of good faith and fair
dealing; various violations of Chapter 541 of the Texas Insurance Code and
Deceptive Trade Practices Act (DTPA); and violations of the prompt payment
provisions set forth in Chapter 542 of the Texas Insurance Code.
ARIC invoked its right to appraisal, as provided for under the policy. After
many delays, some caused by her appraiser, an award was rendered and ARIC
issued checks to Anderson on August 8, 2014, in payment of the appraisal
award.
ARIC further asserted that it was entitled to judgment as a matter of law on
the extracontractual claims because there was a bona fide dispute about the
amount of covered damages, and Anderson's alleged damages are barred by the
economic loss rule. Finally, ARIC argued that no genuine issue of material fact
existed on the misrepresentation and fraud claims because Anderson had not
identified any particular false representation that she relied on to her
detriment.
Analysis
Anderson contended that the trial court erred in granting summary judgment
in favor of ARIC because of material issues of breach of contract. In her
petition, Anderson alleged that ARIC was liable for breach of contract because
it failed "to pay appellant's benefits relating to the cost to
properly repair" her property. ARIC argued that it was entitled to
judgment as a matter of law on Anderson's breach of contract claim because
the claim was precluded by ARIC's appraisal award payment.
The Texas Supreme Court has long recognized the validity of appraisal
provisions, which provide a means to resolve disputes about the amount of loss
for a covered claim. When an insurer makes timely payment of a binding and
enforceable appraisal award, and the insured accepts the payment, the insured
is estopped by the appraisal award from maintaining a breach of contract claim
against the insurer.
The undisputed evidence showed that ARIC invoked the appraisal process, as
provided for under the policy, to determine the value of Anderson's claim.
Both parties appointed appraisers and agreed on an umpire. By August 1, 2014,
the appraisal award was set. One week later, ARIC tendered payment of the
appraisal award after accounting for the deductible, prior payments, and policy
limits. Accordingly, the summary judgment record conclusively showed that ARIC
fulfilled its obligations under the contract.
The fact that ARIC did not pay the amount of the award earlier, alone, did
not raise a fact issue on Anderson's claim for breach of contract. The
court of appeal concluded that the trial court correctly rendered summary
judgment in favor of ARIC on Anderson's breach of contract claim.
Extracontractual Claims
The summary judgment evidence demonstrated that the parties participated in
the appraisal process and that an appraisal award was determined on August 1,
2014. It was undisputed that ARIC issued checks in full payment of the
appraisal award on August 8, 2014—well within the timeliness requirements of
the statutes. Because the summary judgment evidence conclusively demonstrated
that ARIC fully and timely paid the appraisal award, Anderson was precluded
from maintaining her prompt payment claim as a matter of law.
Breach of the Duty of Good Faith and Fair Dealing
Anderson alleged that ARIC breached its common law duty of good faith and
fair dealing "by denying [Anderson's] claims or inadequately adjusting
and making an offer on [Anderson's] claims without any reasonable basis,
and by failing to conduct a reasonable investigation to determine whether there
was a reasonable basis for these denials." ARIC argued on appeal, as it
did in the trial court, that it is entitled to judgment as a matter of law on
Anderson's common law bad faith claim because there was no breach of
contract, and even had there been, there was a bona fide dispute about
coverage.
Under Texas law, an insurer has a duty to deal fairly and in good faith with
its insured in the processing and payment of claims. An insurer breaches this
duty of good faith and fair dealing if the insurer knew or should have known
that it was reasonably clear that the claim was covered, but denies or
unreasonably delays payment of the claim. However, absent a breach of contract,
the insured cannot maintain a common law bad faith claim in Texas unless the
insurer commits some act so extreme that would cause injury independent of the
policy claim or fails to timely investigate the insured's claim. Evidence
establishing only a bona fide coverage dispute does not demonstrate bad
faith.
Here, ARIC's payment of all covered damages extinguished any breach of
contract claim arising from the dispute. Thus, to avoid summary judgment on her
common law bad faith claim, Anderson had the burden to raise a genuine issue of
material fact that ARIC committed some act so extreme that would cause injury
independent of the policy claim or failed to timely investigate her claim. The
summary judgment evidence demonstrates only a bona fide dispute about the
amount necessary to compensate Anderson for covered damage to her home. Within
15 days of receiving notice of a claim, insurers are required to acknowledge
receipt of the claim, commence investigation of the claim, and request items
and forms that the insurer reasonably believes, at that time, will be required
from the claimant. Undisputed summary judgment evidence shows that on June 15,
2012—3 days after Anderson reported the claimed loss—a representative of ARIC
inspected the property.
In sum, because Anderson's breach of contract claim failed, and she
failed to show that ARIC caused her to suffer some injury independent of her
policy claim or failed to timely investigate her claim, the court concluded
that there was no genuine fact issue on Anderson's common law duty of good
faith and fair dealing claim, and thus, the trial court did not err in
rendering judgment as a matter of law on this claim in favor of ARIC.
Conclusion
To assert the tort of bad faith, the plaintiff must prove that the insurer
acted intentionally to deprive her of the benefits of the contract. The
evidence presented established that the insurer acted to thoroughly investigate
her claim within days of her first report and to pay her claim promptly as it
determined, and then paid the difference between its finding and an appraisal
award. Although it has been said that "no good deed goes unpunished,"
the court protected ARIC, but it was required to defend itself at trial and in
the appellate court for doing everything right.
© 2016 Barry Zalma, Esq., CFE