Denials – Don’t Wait To File A Lawsuit

Arlington insurance lawyers know it is a mistake when a lawsuit is not filed asap after a claim is denied. A 1998, Corpus Christi Court of Appeals case illustrates this well. The style of the case is, Pena v. State Farm Lloyds.
This is an appeal from a summary judgment. Here is some relevant information.
The Penas purchased their home in July 1989. The single-story house was built in 1939 with a pier-and-beam foundation system, and a basement. The home’s hardwood floor was installed in 1939 without sub-flooring or a vapor barrier. In 1987, the then-owner, Ward Thomas, Jr., added a bathroom to the master bedroom at the rear of the house. The bathroom sits on a concrete slab foundation. Thomas never experienced any problems with the foundation or plumbing. After purchasing the home, the Penas obtained homeowner’s insurance coverage from State Farm.
In October 1991, the Penas came home from a vacation and discovered the hardwood floor throughout their home had buckled or cupped severely. Upon inspection, they discovered a leaking water heater pipe had allowed steam to escape into the basement directly beneath the hardwood floor. They then filed a claim for the damage. State Farm acknowledged the claim on October 21, 1991, and assigned it claim number 53-N305-844.
In November 1991, Jim Wiethorn of Haag Engineering studied the damage to the floor and confirmed to State Farm that the water heater leak had been the cause. He noted that fungal growth was present on the underside of the wooden planks. He told State Farm that reasonable repairs for the hardwood floor consisted of sanding and refinishing. State Farm issued a check on December 20, 1991, for the recommended repairs.
The Penas were unable to find any contractor willing to perform such repairs. All of the contractors that looked at the floor determined it was damaged to such an extent, it would continue to buckle after every period of rainy weather. The contractors recommended the Penas install sub-flooring and a vapor barrier, in addition to replacing the floor.
On August 10, 1993, Mr. Pena contacted State Farm, explained that the disbursement of December 1991 was insufficient to cover the needed repairs to the floor, and requested additional funds to replace the floorboards under the replacement coverage provided for in the policy. The claim was finally denied on May 11, 1994.
On October 21, 1991, the Penas filed a claim for damages caused by movement of the slab foundation under the master bathroom. State Farm assigned it claim number 53-N305-923. When Wiethorn inspected the hardwood floor in November 1991, Mr. Pena pointed out various cracks in the bathroom walls as well as roof and floor separations where the bathroom addition joined the original structure of the home. Wiethorn concluded that the water heater leak in the basement could not have caused the slab foundation and structural damage, but he performed only a cursory investigation to determine other causes. State Farm denied the slab foundation claim on January 16, 1992, on the basis that the water heater leak had not affected the foundation and the roof problems were the result of “improper roof detailing.”
Over the next four years, the slab foundation problems were investigated by four groups of engineers and handled by seven different claims representatives. It was determined that the foundation had moved, and leaks in the bathroom plumbing were discovered. Plumbing tests were authorized in late 1993. Several leaks were discovered and reported to State Farm on December 20, 1993. State Farm sent the Penas a draft to make plumbing repairs, and indicated the foundation claim was continuing.
State Farm assigned the claim for the damaged, leaking roof claim number, 53-N313-378, and made a payment for the roof damage on December 8, 1993.
On October 18, 1993, the Penas made additional damage claims for the plumbing leaks and slab foundation movement, and State Farm assigned them claim number 53-N313-382.
On January 11, 1994, State Farm hired Charlie Bellah, a professional engineer, to investigate the slab foundation and structural damages to the home caused by the plumbing leaks. Bellah’s report in March 1994, supported by another report from Wiethorn, concluded the plumbing leaks had caused no damages. On March 31, 1994, State Farm finally denied the Penas’ slab foundation claims.
In November 1994, State Farm informed the Penas that their homeowner’s policy would not be renewed unless the roof was repaired within six months. When the policy was canceled six months later, the stated reason was that the Penas had filed more than three claims in a three-year period.
On March 17, 1995, the Penas sued State Farm, alleging breach of the duty of good faith and fair dealing, violations of the Texas Insurance Code and Deceptive Trade Practices–Consumer Protection Act (DTPA), and for additional policy benefits.
Limitations begin to run on an insurance policy when the loss is denied. The Penas’ homeowner’s policy provides that suit must be brought against State Farm within two years and one day after the cause of action accrues.
In its motion for summary judgment, State Farm contended that the Penas’ claim for damages for slab foundation movement and roof damage (claim number 53-N305-923) was denied on January 16, 1992. As to the floor damage claim filed in October 1991, State Farm asserted only that a payment was made on December 20, 1991. Because suit was filed in March 1995, more than two years and one day after the denial letter of January 1992, State Farm asserted that the Penas’ suit on these claims must be denied. State Farm further contended, without citation to statute, that a two-year statute of limitation applied to the Penas’ tort claims for bad faith.
Claim number 53-N305-844, for the slab foundation, was expressly denied on January 16, 1992. However, the Penas made an additional claim for damages related to the slab foundation on October 18, 1993, and that claim was assigned number 53-N305-382. The summary judgment evidence submitted by State Farm establishes that both claims were for damages caused by slab foundation movement. State Farm conceded the claims were essentially the same as they arose from the exact same source, the slab foundation movement, and concerned a continuing problem.
Timely claims for additional payments may begin the statute of limitations running anew. The Penas’ second claim in October 1993, for damages related to the slab foundation movement was filed within two years of the January 1992 denial of their first claim. At that time, State Farm investigated the claim and made a payment on it. Requests for additional payments were finally denied in March 1994. The Penas filed suit well within two years of March 1994 when State Farm denied coverage for most of the slab foundation claim.
Because the slab foundation problems were essentially on-going, and its subsequent reinvestigation of and partial payment for the same reported problems, it appears the denial of the October 1991 claim was effectively reconsidered and withdrawn by State Farm, thus resetting the starting date for limitations to March 31, 1994.
After receiving State Farm’s payment for the floor in December 1991, the Penas sought additional monies in August 1993. State Farm finally denied all claims related to the floor and the water leak damage in May or October 1994. Because they filed suit against State Farm on March 17, 1995, the two-year statute of limitations clearly did not run as to the Penas’ complaints concerning the floor.
The court concluded the Penas’ claims for additional policy benefits were not barred by either the statute of limitations or the policy provisions regarding the timely filing of suit.