Claims Denial Law Firm And Segregating Damages

Attorneys who handle insurance claims denial cases learn real fast about the requirement to segregate damages, especially with roofing cases.  This is illustrated in a 2020, Eleventh Court of Appeals opinion styled, Prime Time Family Entertainment Center, Inc. v. Axis Insurance Company and Andrew Jencks.

This case presents the question of whether an insured that receives a payment from the insurer on its claim is excused from complying with the requirement to segregate covered losses from non-covered losses under the doctrine of concurrent causes if it later brings a suit for breach of contract.

This is an appeal from a grant of summary judgment in favor of Axis.  This Court affirmed the ruling.

Prime Time had property coverage through Axis when a hail storm is alleged to have caused damage to Prime Time’s roof.  A claim was made and Axis eventually paid $173,980.35 with an agreement to pay an additional $45,735.81 when a final invoice was received.  When making payment, Axis expressly reserved all rights under the policy and made clear that the payment was for “the undisputed covered damages.”  Failure to segregate covered and non-covered perils is fatal to recovery.

Rather than repairing the roof, Prime Time replaced the entire roof for approximately $750,000.  The roofer testified that he made no efforts to allocate between hail damage and other causes of damages to the roof.

Prime Time sued Axis for underpayment and various violations of the insurance code and breach of contract.

During the discovery phase of the lawsuit, Prime Time produced an email between Prime Time’s agent and Dow Roofing Systems, the company that installed and warranted Prime Time’s original roof.  The email was sent in May 2014, one month before the June 2014 hailstorm.  In that email, Prime Time described its roof as “Swiss cheese” and requested that Dow replace the entire roof under the warranty agreement.  The email included a schematic depicting pervasive roof leaks at Prime Time’s facility.  Through third-party discovery, Axis obtained other documents that showed an extensive history of roof issues and warranty claims by Prime Time from 2008 through the May 2014 “Swiss cheese” email.

Axis sought summary judgment under the doctrine of concurrent causes.  Under this doctrine, where covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril.  The doctrine of concurrent causes is not an affirmative defense or an avoidance issue; rather, it is a rule embodying the basic principle that insureds are not entitled to recover under their insurance policies unless they prove their damage is covered by the policy.  Thus, when an insurer demonstrates that a non-covered peril could have caused the insured’s loss, the burden shifts to the insured to produce evidence to allow the trier of fact to segregate covered losses from non-covered losses.  Failure to segregate covered and non-covered perils is fatal to recovery.

Prime time asserts that Axis has either waived or is estopped from invoking the doctrine of concurrent causes because it characterized a portion of Prime Time’s claim as undisputed.  Courts have repeatedly refused to apply the doctrines of estoppel and waiver to change, re-write and enlarge the risks covered by a policy.  An insured must still provide summary judgment evidence to allow the jury to segregate covered losses from non-covered losses.

The Texas Supreme Court has rejected insureds attempt to create contractual liability under a policy by waiver because of the insurer’s payment of benefits.

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