Duty Of Good Faith And Fair Dealing

What if someone in Dallas, Fort Worth, Grand Prairie, Arlington, Irving, Richardson, Hurst, Euless, Bedford, or somewhere else in Texas, thinks the insurance company is denying their claim for insurance benefits for the wrong reason? Can anything be done? As with so many legal answers – it depends.
The Texas Supreme Court issued an opinion in 1993, in the case styled, Golda A. Lyons v. The Millers Casualty Insurance Company of Texas, that helps with the above question. As the court stated, “This case presents us with the opportunity to clarify the method by which Texas courts should conduct legal sufficiency review of factfindings of bad faith against an insurer.”
Here are the facts:
After a windstorm, Golda Lyons submitted a claim to Millers Casualty Insurance Company of Texas (Millers), her homeowners insurance carrier, for damage to the brick veneer and outside back staircase of her house. Following an investigation, Millers denied Lyons’ claim. Lyons sued for breach of contract and breach of the duty of good faith and fair dealing. The essence of this controversy is that while Lyons claims the damage to her house was caused by the windstorm, a covered peril, Millers claims that it was caused by settling of the foundation, an excluded peril.
Lyons testified at trial that during the storm, she heard something banging on the outside of the house. She later discovered that bricks within the external veneer were cracked and loose and that the back staircase was standing “out of kilter.” According to Lyons and two of her neighbors, this damage did not exist before the storm. The storm also knocked over a tree in Lyons’ yard, which had fallen away from the residence. Another tree located inches from the damaged staircase remained standing.
Millers hired a reconstruction expert who inspected the house. He concluded the damage was not caused by the storm, rather by settling and shifting of the foundation. He based his conclusion on several cracks he found in the foundation and the absence of any indication of impact between a tree and the house. He also noted the staircase was rotted. Millers denied the claim after receiving the written report.
When Lyons protested the denial of her claim, Millers hired a registered professional engineer specializing in damage and failure analysis to reinspect the property. His conclusion was identical to the original conclusion.
Lyons hired an expert who theorized that the damage was caused by the storm. She then sued Millers for various violations of the Texas Deceptive Trade Practices Act and for breach of the duty of good faith and fair dealing. A jury found in favor of Lyons on the breach of the duty of good faith and fair dealing issue.
In its analysis of this case the court stated that “A cause of action for breach of the duty of good faith and fair dealing is stated when it is alleged that there is no reasonable basis for denial or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay.”
In this case Lyons must prove:
(1) the absence of a reasonable basis for denying or delaying payment of the benefits of the policy and (2) that the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.
This court reversed the jury’s finding that Millers had violated its duty of good faith and fair dealing. The court pointed out that in determining this issue the question is not whether or not the insurance company was wrong in denying the claim, but on the reasonableness of the insurer’s conduct in rejecting the claim. The court stated, “… Lyons offered no evidence that the reports of Millers’ experts were not objectively prepared, or that Millers’ reliance on them was unreasonable, or any other evidence from which a factfinder could infer that Millers acted without a reasonable basis and that it knew or should have known that it lacked a reasonable basis for its action.”
An experienced Insurance Law Attorney is needed in these types of cases. It is necessary to look into the actions of the insurance company in its investigation of the claim and compare these actions to what courts have ruled in other similar situations.