Treble Damages

Dallas insurance lawyers have to know when treble damages are available in a case. A 1998, Dallas Court of Appeals helps to understand factors that will get those damages. The style of the case is, State Farm Lloyds v. Johns.
Johns house was built in 1964. Johns moved in in 1972. In the summer of 1990, Johns noticed evidence of extensive foundation problems including door misalignment, cracks in walls, and a slopping floor. Repairmen discovered two plumbing leaks under the house. Johns filed a claim with State Farm. State Farm concluded the foundation problems were caused by natural soil movement. The State Farm policy excluded damage cause by ordinary settlement and denied the claim.
Johns filed suit for violations of the DTPA and Texas Insurance Code. Johns won at trial and State Farm appealed.
The Texas Supreme Court has previously held that a claimant has the burden of proving the insurer knew or should have known the claim was covered.
In this case, State Farm argued they had a professional engineer, Mr. Bitting, issue a report supporting their position. The Texas Supreme Court has ruled that an insurer’s reliance on an experts report does not automatically foreclose bad faith recovery, if there is evidence that the report was not objectively prepared or the insurer’s reliance on the report was unreasonable. In this case, the following evidence was presented:
– Mr Bitting believed that foundation problems rarely occurred because of plumbing leaks.
– Mr. Bitting’s work came from State Farm and other insurance companies.
– Mr. Bitting’s firm had received increasing amounts of business from State Farm over the previous years.
– Johns was present during Mr. Bitting’s inspection and she felt that she was not getting a “fair shake” from State Farm – Johns had the plumbing system inspected again and found a second leak.
– The location of the second leak was in the bath in the master bedroom where the most severe distress was found.
– Johns hired her own expert who concluded that the foundation stress was caused by plumbing leaks, swelling the soil under the slab foundation causing the foundation to “heave” upward creating a dome shape.
– Johns forwarded her expert’s report to State Farm. Mr. Bittings report doubted any leaks existed.
– State Farms adjuster testified that State Farm had no procedure for resolving opposing or conflicting expert opinions on the cause of foundation damage.

This court found that State Farm’s reliance on Mr. Bitting’s report was unreasonable and State Farm denied the claim after it knew or should have known that it was reasonably clear that the claim was covered. The evidence showed that when confronted with the report from a geo-technical engineer contradicting Mr. Bittings opinion, State Farm continued to insist that Mr. Bittings opinion was correct, did not seek a third opinion, did not require Mr. Bitting to re-inspect the house, did not require soil testing, and did not interview the engineer which Johns had retained. Furthermore, State Farm assigned the claim to an adjuster who did not understand that the policy unambiguously covered foundation damage resulting from a plumbing leak and thought the claim should be denied.
This court believed the above was sufficient evidence to support a “knowing” violation. “Knowingly” means “actual awareness of the falsity, unfairness or deception of the act or practice made the basis of the claim for damages.” In other words, a person must think to himself at some point, “Yes, I know this is false, deceptive or unfair to him but I am going to do it anyway.” In this case, the adjuster testified that he knew State Farm had no procedures for resolving disputes between experts, that he had no expertise to evaluate engineering reports, but yet he chose to believe Mr. Bitting’s reports. In addition, the adjuster erroneously testified that the policy did not provide any coverage for foundation damage, that he knew that he did not investigate Mr. Bitting’s qualifications, that he was also aware that Mr. Bitting usually concluded foundation damage occurred from settlement rather than from plumbing leaks, and that he was aware that Johns claimed to have discovered a second plumbing leak but did not request that Mr. Bitting or any other engineer re-inspect the house.