Hail Damage Claims – Unfair Settlement Claims

Hail damage claims result in lots of lawsuits.  Here is a 2023 opinion from the Western District of Texas, El Paso Division.  The opinion is styled, John Kazanjian and Patricia Kazanjian v. State Farm Lloyds.

State Farm had made a settlement offer that was substantially less than what Plaintiff’s felt was fair.  A lawsuit resulted and after much discovery and testimony of experts on both sides, State Farm filed this partial motion for summary judgement.

Defendant argues that it is entitled to summary judgment on Plaintiffs’ Unfair Settlement Claims because there is no evidence that it acted in bad faith during the course of investigating
Plaintiffs’ insurance claim.  Plaintiffs’ Unfair Settlement Claims, if successful, would permit recovery under section 541.060 of the Texas Insurance Code.  And to recover under section 541.060, the insured must prove that the insurer acted in bad faith.  The bad faith requirement for claims under section 541.060 is the same as the Texas common law standard for bad faith.

To prove that an insurer acted in bad faith . . . an insured must show that the insurer failed to settle the claim even though it knew or should have known that it was reasonably clear that the claim was covered.  Evidence that merely shows a bona fide dispute about the insurer’s liability on the contract does not rise to the level of bad faith.

Thus, there is no bad faith where “a reasonable investigation reveals the [insured’s] claim
is questionable.”  Even where it is ultimately determined that the insurer was “incorrect about the factual basis for its denial of the claim, or about the proper construction of the policy,” this does not, without more, suffice to establish bad faith.  The issue of bad faith focuses not on whether the claim was valid, but on the reasonableness of the insurer’s conduct in rejecting the claim.

Defendant argues that there is no evidence in the record that would show that this case amounts to more than a bona fide coverage dispute.  In response, Plaintiffs point to what they view as a suspicious timeline: Defendant conducted an initial investigation and found only limited covered damages.  Plaintiffs then hired attorneys, who sent Defendant a demand letter.  Defendant conducted a second inspection, found additional covered damages to the property, and issued Plaintiffs a check.  Plaintiffs argue that this sequence of events demonstrates bad faith because it evinces “a purposeful tactic of the Defendant to shirk its statutory obligation to thoroughly investigate a claim in order to avoid its other statutory obligation to effectuate prompt and equitable payment of the claim.

Courts have considered and rejected similar arguments.  The fact that an insurance company would agree to perform subsequent assessments that result in additional amounts paid under the policy . . . . standing alone does not suggest anything in the nature of bad faith.  If anything, an insurer’s agreeing to perform a reassessment demonstrates good faith.  Were there some additional evidence indicating that Defendant intentionally undervalued Plaintiffs’ claim until they hired legal counsel, the result may be different.  But the fact of the reassessment, alone, does not warrant a reasonable inference of bad faith.  Plaintiffs’ supposition that Defendant engaged in a “purposeful tactic” is not additional evidence, but rather, the sort of unsubstantiated assertion that does not suffice to establish a factual controversy and avoid summary judgment.

The absence of a genuine dispute of material fact on the bad faith issue is underscored by
Plaintiffs’ admission of each of Defendant’s Proposed Undisputed Facts.  To be sure, Plaintiffs’ Response brief contains a fact section that adds detail about their expert’s findings.  But Plaintiffs admit that both of Defendant’s experts take a drastically different view of the cause of the damage to Plaintiffs’ home.  And nowhere does Plaintiffs’ expert opine that Defendant’s assessments were not only incorrect, but that Defendant should have known they were incorrect.

Courts have consistently held that a simple disagreement among experts about whether the cause of the loss is one covered by the policy will not support a judgment for bad faith.  In addition to the conflicting expert opinion, the party alleging bad faith must also bring direct or circumstantial evidence showing that the carrier’s expert’s opinion was questionable and that the carrier knew or should have known that the opinion was questionable.

Here, the evidence shows nothing more than a disagreement among experts.  A jury may credit Plaintiffs’ expert over Defendant’s experts.  But if they were to do so, it would only support a finding that Defendant was incorrect about the factual basis for its denial of the claim, or about the proper construction of the policy.  This may sustain a breach of contract action, but it does not suffice to establish bad faith.  Because Plaintiffs have presented no evidence of bad faith, Defendant is entitled to summary judgment on Plaintiffs’ Unfair Settlement Claims.

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