For insurance lawyers this post points out an area where frequent mistakes are made. This has to do with the pleading standards in Federal Court and necessity of pleading proper facts to support a claim in Federal Court.
A 2020, opinion from the Northern District of Texas, Fort Worth Division, illustrates this problem. The opinion is styled, Benjamin Lester, Et Al. v. Unitrin Safeguard Insurance Company.
Lester was insured by Unitrin at a time when Lester suffered a hail damage loss to his property. A claim for benefits was made and Unitrin denied the claim based on its assertion that the damage to Lester’s roof is simple wear and tear.
Lester filed suit alleging various violations of the Texas Insurance Code. Unitrin filed a Rule 12(b)(6) Motion to Dismiss alleging that Lester’s pleading do not meet Rule 8(a)(2) requirements which require “a short and plain statement of the claim showing that the pleader is entitled to relief.” According to the 5th Circuit, the purpose of the Rule is to give the defendant fair notice of the claim and the grounds upon which it rests.
Unitrin argues that Lesters’ claim for breach of the common law duty of good faith and fair dealing should be dismissed because they failed to plead specific facts to support their claim. The Court agreed, stating a cause of action for breach of the duty of good faith and fair dealing is stated when it is alleged that there is [I] no reasonable basis for denial of a claim or delay in payment or [II] a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay.
Here, Lester fails to plead facts to show that Unitrin lacked a reasonable basis to conclude that the damage was caused by wear and tear instead of the storm. Lester’s claim that Unitrin should have known the damage was caused by the storm because the damage was “significant, and that the storm caused “openings in the roof through which water intruded and damaged the interior of the building. However, they never explain why such openings could not have been caused by wear and tear. Consequently, Lester failed to satisfy Rule 8’s pleading requirements, and their claim for breach of the duty of good faith and fair dealing must be dismissed.
Unitrin argues that Lesters’ claim under Texas Insurance Code, Section 541.060(a)(1) should be dismissed because it relates to “alleged misrepresentations that occurred after the alleged loss, or the storm.” The court agrees. Section 541.060(a)(1) provides a cause of action against an insurer for “misrepresenting to a claimant a material fact or policy provision relating to coverage at issue.” Under Texas law, post-loss statements regarding coverage are not misrepresentations under the Insurance Code. The misrepresentation must be about the details of a policy, not the facts giving rise to a claim for coverage. Because Lesters’ Section 541.060(a)(1) claim relates solely to post-loss representations about the cause of the damage, such claim must be dismissed.
Unitrin argues that the remaining Texas Insurance Code claims should be dismissed because Lester failed to plead facts to support these claims. The court agrees. Section 541.060(a)(2)(A) provides a cause of action for “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.” As stated above, Lester alleged no facts to support the conclusion that Unitrin’s liability was reasonably clear. Consequently, such claim should be dismissed. Section 541.060(a)(7) provides a cause of action against an insurer for “refusing to pay a claim without conducting a reasonable investigation with respect to the claim.” Lester has not pleaded any facts regarding how Unitrin’s adjuster’s investigation was unreasonable other than that the adjuster arrived at what Lester alleges is the wrong conclusion regarding the cause of the damage. Instead, Lester states conclusions such as, “Although the storm caused significant damage to the property, Defendant’s adjuster did not document any storm related damage to the roof.” Consequently, such claim should be dismissed.
Section 541.060(2)(5) provides several causes of action against insurers involving delays in settlement, in explaining the basis of a claim denial, and in the affirmation or denial of coverage. The second amended complaint’s only mention of delay appears in the conclusory statement that Unitrin violated Section 541.060(2)(5) by “unreasonably delaying the investigation, adjustment, settlement offer and prompt resolution of Plaintiffs’ claim.” Consequently, such claim should be dismissed. Section 541.151(2) provides a cause of action for certain unlawful deceptive trade practices if the person bringing the action shows that the person relied on the act or practice to the person’s detriment. Lester pleaded no facts related to reliance. However, instead, Lester pleads only that “Plaintiffs relied on Defendant and Defendant’s assigned adjuster to properly adjust the claim regarding the Property and to be issued payment to fix such damage, which did not happen and has not been rectified to date.” Because Lester failed to plead facts to support their Section 541.060(2)(5) claim, such claim should be dismissed.