Exactly what is “bad faith” in the context of insurance claims? This issue is addressed in a 2022 opinion from the Northern District of Texas, Dallas Division. The opinion is styled, Robert Casey v. State Farm Lloyd’s.
Casey sued State Farm over his dissatisfaction of his claim against his homeowners insurance policy issued by State Farm. The lawsuit alleged various violations including, breach of the duty of good faith and fair dealing. The facts can be gleamed from reading the case. A motion for summary judgement case filed by State Farm. The Court granted State Farm’s motion.
Under Texas law, an insurer has a duty to deal fairly and in good faith with its insured in the processing and payment of claims. A breach of the duty of good faith and fair dealing is established when: (1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.
Whether an insurer’s liability has become reasonably clear is a question of fact. On the other hand, evidence establishing only a bona fide coverage dispute does not demonstrate bad faith. Stated another way, an insurer will not be faced with a tort suit for challenging a claim of coverage if there was any reasonable basis for denial of that coverage.
Moreover, extra-contractual tort claims pursuant to the Texas Insurance Code require the same predicate for recovery as a bad faith claim under a good faith and fair dealing violation. When an insured joins claims under the Texas Insurance Code with a bad faith claim, all asserting a wrongful denial of policy benefits, if there is no merit to the bad faith claim, there can be no liability on statutory claims. The court, therefore, examines Casey’s extra-contractual claims for violations of Chapter 541 of the Texas Insurance Code, and breach of the common law duty of good faith and fair dealing simultaneously.
State Farm argues that it is entitled to summary judgment on these claims because “this case exemplifies the type of bona fide coverage dispute that cannot possibly establish the tort of bad faith. Casey counters that State Farm improperly delayed payment based upon its misrepresentation that the Policy does not cover wear and tear. He argues that “at first glance, the Policy goes on to state that it does insure for any resulting loss from were and tear unless the resulting loss is itself a Loss Not Insured by this Section.”
First, the evidence reflects that State Farm’s alleged statements are not clear misrepresentations of the Policy. State Farm alleges that a portion of the losses to the property were directly and immediately caused by were and tear, which is not covered under the Policy rather than being a resulting loss from a covered event, which is covered under the Policy.
Second, State Farm presented sufficient evidence showing that it provided reasonable explanations to Casey of its coverage determinations. Additionally, Casey has failed to present evidence creating a genuine dispute of material fact that State Farm, “failed to promptly provide to a policyholder a reasonable explanation of the basis of the policy, in relation to the facts or applicable law, for the insurer’s denial of a claim or offer of a compromise settlement of a claim pursuant to Section 541.060(a)(3). State another way, this is a classic dispute over damages covered under an insurance policy, and the evidence before the court does not rise to the level of bad faith. Therefore, the court will grant summary judgment in favor of State Farm on Casey’s extra-contractual claims for violation of Chapter 541 of the Texas Insurance Code and breach of the common law duty of good faith and fair dealing.