Bona Fide Dispute On Homeowners Claim

It is important in an insurance lawsuit whether or not the insurance company is subject to being sued for bad faith claims handling or whether or not there is a bona fide dispute about coverage.  A bona fide dispute rids the lawsuit of claims related to bad faith issued.

This was the issue in a 2022 opinion from the Western District of Texas, San Antonio Division.  The opinion is styled, David McArthur, Jean McArthur v. Safeco Insurance Company of Indiana.

This is a firstparty insurance dispute arising out of alleged damage to residential property as a result of a wind and hail storm.  Plaintiffs are the owners of an insurance policy (“the Policy”) issued by Defendant Safeco.

Plaintiffs filed this suit in state court, alleging that the Property suffered water damage as a result of the storm, and Safeco failed to pay the full proceeds due under the Policy Plaintiffs’
Original Petition, which remains the live pleading, asserts causes of action for breach of the insurance contract, violations of Chapters 541 and 542 of the Texas Insurance Code and the Texas Deceptive Trade Practices Act (“DTPA”), and breach of the duty of good faith and fair dealing.  Plaintiffs seek actual and consequential damages, as well as treble damages under the DTPA and exemplary damages.  Safeco removed this case to federal court, and this Court has jurisdiction over the removed action on the basis of diversity jurisdiction pursuant to 28
U.S.C. Section 1332.

Safeco has filed a partial motion for summary judgment on Plaintiff’s extracontractual claims and claims for extracontractual, treble, and exemplary damages.  Safeco argues that, at most, this case consists of a bona fide dispute between Plaintiffs’ public adjuster and Safeco’s adjusters as to the cause and scope of damages, and, therefore, Plaintiffs’ extracontractual claims must be dismissed. Plaintiffs respond that coverage is not disputed and that there is sufficient evidence to raise a genuine dispute of material fact for trial on whether Safeco and its representatives conducted an unreasonable investigation of Plaintiffs’ claim to intentionally
result in underpayment.

The summary judgment record establishes that on May 28, 2020, Plaintiffs contacted Safeco to report damage to the roof tiles of their 36yearold concrete roof and two interior rooms as a result of a hailstorm occurring on May 27, 2020.  The following day, a Safeco employee, Shawn McConnell, contacted Plaintiffs to discuss their claim.  Safeco then sent Bradley Leire of Sedgwick to complete an onsite inspection of the exterior of the Property on June 6, 2020; Mr. O’Connell testified in his deposition that COVID-19 restrictions prevented him from traveling to conduct the inspection himself.  The notes from the inspection confirm findings of hail damage to roof concrete tiles on all four slopes (a total of 48 tiles), gutters, downspouts on the Property’s front and right elevations, and overhead garage doors on the back elevation, as well as interior damage to two rooms.  Due to the COVID-19 pandemic, interior inspections were completed virtually.

On June 8, 2020, Mr. McConnell completed an estimate based on the information from Sedgwick and provided by Plaintiffs as to the interior.  Mr. McConnell contacted Plaintiffs to advise them of the findings and informed them that Safeco had discovered signs of deteriorating nonstormrelated conditions on the unaffected roof concrete tiles and longterm
water damage to the affected wall’s wood doorway frame.  A letter including the estimate and findings was sent to Plaintiffs, informing them that a portion of their claim was covered related to damages to the roof, elevations, and interior water damage and that the coverage amount, less the deductible, was $1,205.70.  The letter also informed Plaintiffs about property losses not covered under the Policy, including (a) wear and tear, marring, scratching, and deterioration; (b) inherent defect, mechanical breakdown; . . . (e) settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs, ceilings, swimming pools, hot tubs, spas, or chimneys.

On June 24, 2020, Safeco received correspondence from Plaintiffs’ public adjuster, Logan Rodgers, notifying Safeco that he had been retained to represent Plaintiffs to dispute the settlement of the claim.  On July 17, 2020, Mr. Rodgers and Safeco employee Andre Ware completed a reinspection of the dwelling roof and exterior.  Mr. Ware agreed with the prior roof damage assessment by Sedgwick.  However, Safeco prepared a supplemental estimate based on a revised length of the gutters and issued a minor supplemental payment in the amount of $64.78 to Plaintiffs.

Mr. Rodgers provided an estimate to Safeco on August 17, 2020, regarding his belief that Safeco failed to account for all interior damage, gutter replacement, damaged downspouts, and all haildamaged tiles in its revised estimate.  Plaintiffs ultimately paid to replace their roof with a shingle roofing system because they could not afford a tile roof replacement, then filed this suit on January 26, 2021.

Safeco retained a causation and damages expert, Alan W. Berryhill, who conducted an additional inspection on August 13, 2021, after the roof had already been replaced.  Mr. Berryhill concluded, after reviewing the previous inspections, photographs, and reports, as well as storm reports for May 26 and 27, 2020, that the estimate by Mr. Rodgers was excessive and included unnecessary replacement of undamaged finishes, concrete tile, and metal roofs, and included unnecessary interior repairs.  Mr. Berryhill also concluded that the roof was repairable and did not need to be replaced. Importantly, Mr. Berryhill also did not agree with Mr. McIntyre’s assessment that the damage to the Property could be affirmatively attributed to the May 27, 2020 storm event.

The Court should grant Safeco’s motion for partial summary judgment.  Plaintiffs have failed to raise a genuine dispute of material fact as to any deceptive, unreasonable, or bad faith conduct on the part of Safeco during its investigation and settlement of Plaintiffs’ claim that could give rise to its liability in tort or under common law, the DTPA, or Chapter 541 of the Texas Insurance Code Rather, the evidence demonstrates that the parties have a bona fide dispute as to the scope of coverage under the Policy and that this dispute should be resolved
through Plaintiffs’ breach of contract claim.  Because Plaintiffs’ extracontractual claims fail as a matter of law, Plaintiffs are also not entitled to the extracontractual, treble, and exemplary damages pleaded in their Original Petition.

Contact Information