Lawyers who handle bad faith insurance cases will usually tell you that it is not necessarily easy to explain but as it relates to “bad faith” you know it when you see it.This is discussed a little bit in a 2020 opinion from the Western District of Texas, San Antonio Division, case styled, Jorge A. Alvarez v. State Farm Lloyds.
This is a lawsuit wherein State Farm is sued for violations of the Texas Insurance Code among other things.
Alvarez claims he suffered damage to his clay tile roof caused by hail and wind storms on or about April 25, 2016. This damage was noticed on February 27, 2018, and reported to State Farm. An inspection was performed with experts for Alvarez being present. The adjuster, Santos, did not identify any wind or hail damage to the roof. He observed “many damaged clay tiles,” and noted that the “damage to the tile is not consistent with wind or hail.” Santos determined that cracks on the tiles begin on the upper left corner of the tiles, and start at the nail fastener and then work down or down and across the tile. He did not note any spatter on tile or exterior elevations but did note “mech damage to furnace caps that is not the result of hail.” Santos showed Mrs. Alvarez photos to explain how he reached his conclusions. He recommended that the Alvarezes “contact the tile manufacturer or distributor of the tile to address uniform damage to the tiles” based on the damage he observed. Mrs. Alvarez “expressed understanding” but then had to leave before Santos could draft his letter describing the results of the inspection, so he left the letter at the front door when he finished writing it.
The claims denial letter concluded that the damage to the roof tiles was “caused by inherent vice and / or latent defect of the tile.” The letter states that Santos’s inspection “revealed no accidental direct physical damage to the clay tile roof,” but did reveal “rusted fastners and wear, tear and / or deterioration of the roof” as well as “evidence of inherent vice and / or latent defect of the tile.” The letter concluded that because this loss falls within the insurance policy’s exclusionary language, State Farm is unable to make payment for any damage described, citing the relevant provisions of the policy.
An expert hired by State Farm concluded that the cracked and broken roof tiles on the Alvarez roof were the result of deficient installation means and methods, corroded tile nails, expansion and contraction of the tiles, and foot traffic. It also noted dents on the roof vent caps on the Alvarez roof, and concluded that the dents were caused by hail but were cosmetic and did not result in any functional damage to the roof vents. It also observed indentations on exterior window accents and trim on the Alvarez home, but concluded that these were the result of manufacturing and/or construction defects, not hailstone impacts.
The claim was denied and State Farm was sued for bad faith.
State Farm moved for summary judgment on this allegation.
State Farm argues that it is entitled to summary judgment because Alvarez cannot show that State Farm acted unreasonably. Alvarez responds that reasonableness is a question of fact for the jury, and that he has produced sufficient evidence that State Farm acted unreasonably in its denial of his claim.
Under Texas law, an insurer will not be faced with a tort suit predicated on bad faith under either common law or statute for challenging a claim of coverage if there was any reasonable basis for denial of that coverage. Thus, for a plaintiff to prevail on a bad faith claim, “the insured must establish the absence of a reasonable basis for denying or delaying payment of the claim and that the insurer knew, or should have known, that there was no reasonable basis for denying or delaying payment of the claim.” Put another way, the “insured must prove that there were no facts before the insurer which, if believed, would justify denial of the claim.” Texas courts have consistently held that a bona fide coverage dispute is not evidence of an insurer’s unreasonableness; to the contrary, a “bona fide controversy is sufficient reason for failure of an insurer to make a prompt payment of a loss claim.” “As long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith.”
Contrary to Alvarez’s claim, courts routinely determine as a matter of law that undisputed record evidence establishes an insurer had a reasonable basis for denying or delaying a claim payment.
The facts in this case establish a reasonable basis for State Farm’s denial of Alvarez’s insurance claim. Alvarez merely points to facts that constitute a bona fide coverage dispute.
The Court granted State Farm’s motion on the issue of bad faith.