Bad Faith And Breach Of Contract

The general rule in first party insurance cases is that in order to recover for bad faith insurance causes of action and insured must first prove a breach of the insurance contract.  There is an exception to this rule.  The exception is discussed in this July, 2018, opinion from the United States 5th Circuit.  The opinion is styled, Glen Moore v. Allstate Texas Lloyd’s.

This case is an appeal from a summary judgment granted in favor of Allstate.  The case resulted from a lawsuit filed in State Court and the removed to Federal Court by Allstate.  This court sustained the ruling in favor of Allstate.

Moore alleged his property “suffered incredible damage due to storm related conditions.”  Moore alleged there were a “laundry list of perils, which Allstate would not cover under the claim.”

Moore sued Allstate asserting breach of contract and extra-contractual claims, violations of the Texas Insurance Code, and DTPA causes of action.

The trial court found that Moore failed to explain “what happened or the nature of, or even the extent of, the damages his property allegedly incurred;” what Allstate “did or failed to do that he alleges made the inspections inadequate;” or “the date on which he made his claim or explain why he says Allstate’s response was untimely.”  The court further explained that Moore failed to allege “the exact nature of of the contract, including a statement as to Allstate’s obligations under the contract, how Allstate failed to comply with its contractual obligations, and how that damaged Moore.”  At most, the court observed, Moore’s “complaint seems to be that he did not get paid as much as he things he should have been paid, but he has not alleged any facts to show that Allstate breached a contract between them.”

This court then set out to clarify the relationship between contract claims under an insurance policy and tort claims under the Insurance Code.  The Texas Supreme Court has announced the following five rules:

First – as a general rule, an insured cannot recover policy benefits as damages for an insurer’s statutory violation if the policy does not provide the insured a right to receive those benefits.
Second – an insured who establishes a right to receive benefits under the insurance policy can recover those benefits as actual damages under the Insurance Code if the insurer’s statutory violation causes the loss of the benefits.
Third – even if the insured cannot establish a present contractual right to policy benefits, the insured can recover benefits as actual damages under the Insurance Code if the insurer’s statutory violation caused the insured to lose that contractual right.
Fourth – if an insurer’s statutory violation causes an injury independent of the loss of policy benefits, the insured may recover damages for that injury even if the policy does not grant the insured a right to benefits.
And fifth – an insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.
In this case, Moore never established or alleged facts in his pleadings that Allstate had breached the insurance contract.