Insurance Claims And Lawsuits

Most insurance claims will not end up in a lawsuit.  However, for those claims that do end up in a lawsuit it is important for the insured to understand their responsibilities when in the lawsuit.  The failure of a party to the lawsuit to cooperate in the litigation process can be fatal to the lawsuit.

The above is illustrated in a 2022, opinion from the Austin Court of Appeals.  The opinion is styled, Michael V. Wright and Phyllis F. Wright v. State Farm Lloyds.

The Wrights were insured by State Farm with a homeowners policy.  The Wright’s suffered losses stemming from two fires to their residence.  One in 2013, and the other in 2015.

During the claims process State Farm paid for structural damage to the property but failed to pay for certain “code compliance repairs” which amounted to $21,250.00.

Under the Texas Insurance Code, Section 541.060(a)(9), an insured making a claim has a duty to cooperate with the insurer in its investigation of the claim.  Further, the insurance policy itself makes clear this responsibility.  And even further, this cooperation extends to any litigation that arises in the lawsuit.

During the course of the litigation, State Farm directed numerous discovery
requests to the Wrights seeking certain of their financial records in connection with its affirmative defense of arson.  The Wrights repeatedly failed to produce the requested documents, claiming that all such records had been destroyed in the fires.  When State Farm sought to obtain the records from the Wrights’ banks and credit-card issuers, the Wrights refused to sign the necessary authorization forms.  Initially the trial court issued an order abating the Wrights’ action until they produced the requested documents and information.  The court later extended
the abatement due to the Wrights’ failure to comply with its earlier order.  The court subsequently lifted the abatement to allow State Farm to seek judicial remedies for the Wrights’ failure to comply with the two earlier orders.  The court then granted State Farm’s motion to compel, ordering the Wrights to comply with State Farm’s discovery requests.  Three days before a scheduled hearing on State Farm’s motion for summary judgment and sanctions, the Wrights nonsuited their claims related to the 2015 fire but later refiled the same suit.  The trial court consolidated the two suits.

The Court Ordered the Wrights to produce documents that State Farm had requested and upon the Wrights refusal to produce such documents the Court eventually dismissed the lawsuit.

The Court wrote a lengthy explanation why it rendered this “death penalty sanction” against the Wrights and the opinion makes for a good read on this issue.


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