Fire Insurance Claims

No one in Grand Prairie, Weatherford, Arlington, Aledo, Fort Worth, Mansfield, Dallas, Irving, Garland, Mesquite, or any other place in Texas likes the though that they will be involved in a fire claim. But for some people it happens. So, what should you expect from the insurance company if it does happen? Here is one example of what can happen when a fire claim is made.
This case was decided in 1991, by the Corpus Christ Court of Appeals. The style of the case is, Automobile Insurance Company of Hartford Connecticut v. David Davila and Donna Davila. David and Donna sued Automobile Insurance Company of Hartford Connecticut (Hartford) for bad faith after a denial of insurance benefits following a fire loss. A jury found in David and Donna’s favor and Hartford appealed. This court modified the judgment in favor of David and Donna. Here is some background.
The Davilla’s house burned in November, 1985. The police were at the house at the time the fire was discovered. Hartford conducted an investigation and denied the claim.
As part of reviewing the bad faith claim, the court discussed this area of the law in its opinion. The Texas Supreme Court in other cases, has said that the existence of a duty on the part of insurance companies to deal fairly and in good faith with their insureds is based on a special relationship which exists between the insurance company and its insured pursuant to a contract for insurance. This “special relationship” between the insured and the insurer imposes a duty to investigate claims thoroughly and in good faith, and to deny those claims only after an investigation reveals there is a reasonable basis to do so. In this special relationship, an insurance carrier is held to that degree of care and diligence which a man of ordinary care and prudence would exercise in the management of his own business.
From a legal sense, a claim for breach of good faith and fair dealing is stated when it is alleged that there is no reasonable basis for denial of a claim or delay in payment or failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay. Whether there is a reasonable basis for denial must be judged by the facts before the insurance company at the time the claim was denied.
The Texas Supreme Court has set forth a two part test for the violation of the duty of good faith and fair dealing. An insured who asserts that his insurer has breached the duty of good faith and fair dealing must establish (1) the absence of a reasonable basis for denying or delaying of payment of policy benefits and (2) that the insurer knew or should have known that there was no reasonable basis for denying the claim or delaying payment. This test requires both an objective determination of whether a reasonable insurer under similar circumstances would have denied the claimant’s benefits and whether the carrier knew or should have known that there was no reasonable basis to deny the claim. In explaining the second element, the Texas Supreme Court has stated, “This element will be met by establishing that the carrier actually knew there was no reasonable basis to deny the claim or delay payment, or by establishing that the carrier, based on its duty to investigate, should have known that there was no reasonable basis for denial or delay.”
The evidence in this case showed that the fire originated in the upstairs master bedroom in a closet with a common wall with the bathroom, there was wiring in that wall associated with a whirlpool motor in the bathroom, and the most intense charring from the fire was in that wall in the area of the wiring. The evidence also showed David arrived at the house five to ten minutes before Donna arrived with her son John and his friend Joe. Immediately before the discovery of the fire, Donna, David, and John were in the master bedroom and Donna alone was removing clothes from the closet. During this time, David and Donna were fighting and David called the police to remove John and Joe, who was upstairs. Once Officer Rios arrived, David went downstairs to let him in, leaving Donna and John alone upstairs. David and Officer Rios went upstairs, and then back downstairs to escort Joe out of the house. While David and Officer Rios were downstairs and after they had let Joe out of the house, Donna and John discovered the fire and started yelling.
David and Officer Rios ran upstairs. They saw a fire, which John was attempting to extinguish, in the closet, and heard Donna yelling that David was burning her clothes. David called out the window to another police officer to call the fire department. From the initial attempts to extinguish the fire until the fire department arrived, Donna and David accused each other of setting the fire. No one knew how the fire started and no one admitted to starting the fire or seeing anyone else start it. From these facts, a trier of fact could reasonably find that it would have been virtually impossible for David to set the fire.
Further, in order to infer that David set the fire, one would have to go against common sense and believe that David called the police to witness the fire and that he somehow managed to set the fire while the police were there without anyone seeing him do it. Also, one would have to believe that John stood by while David set fire to Donna’s clothes and that David burned Donna’s clothes, probably knowing that his own clothes and the house would be burnt in the process.
There was likewise, evidence tending to show that Hartford failed to determine whether it had a reasonable basis for denying the Davila’s claim. Although the whirlpool motor adjacent to the closet wall with the most charring and the breaker box for the motor was on the closet wall with the most charring, none of the investigators asked whether the whirlpool had been used on the night of the fire. The investigator ruled out the whirlpool motor and wiring because David never told him that it had been used. The adjuster acknowledged that David did tell him that he had used the motor, but it was well after the investigation and Hartford did not do anything with the information. Also, despite the fact that the wiring was exposed in the closet and David repeatedly asked that the motor and the wiring be investigated, neither was ever investigated by an electrician.
Further, the evidence indicated that when Hartford began investigating the claim, they proceeded with the assumption that someone, probably David, set the fire. One investigator said “you always suspect arson.” The investigator also told Officer Rios that he just knew that someone set the fire but he did not know who and that he could see that no one else did. The basis of the assumption was the counter-accusations of Donna and David regarding starting the fire. Hartford seized on the substance of the accusations and failed to look beyond them into the circumstances of the situation and recognize that the accusations could have been retaliatory or made in anger.
Additionally, Hartford admitted that it was inconclusive regarding the cause of the fire and could not say what caused the fire to start. Nevertheless, the fire was reported as “intentionally set by the application of open flame to contained clothing.” Such is the evidence that Hartford proceeded with a mind set that arson had occurred and, without thorough investigating other possible fire sources, concluded that David had set the closet on fire.
These cases involving fires and the investigation afterward are very fact specific. It is important to get an experienced Insurance Law Attorney involved in any fire case where the insurance company is not accepting responsibility right away.