A Pox on Both Your Houses

Deciding to Deny a Claim Based on Investigation and the Report of an Expert is not Bad Faith

Plaintiff Rosemarie Wheeler (“Wheeler”) and Defendant Safeco Insurance Company of Indiana (“Safeco”) regarding a claim for damage to Wheeler’s residence, which she contends was caused by a hailstorm in San Antonio, Texas on or about May 28, 2020. In Rosemarie Wheeler v. Safeco Insurance Company Of Indiana, No. SA-21-CV-00343-XR, United States District Court, W.D. Texas, San Antonio Division (April 29, 2022) the USDC was faced with motions for summary judgment by the insured for damages and bad faith and the insurer’s motion to remove the bad faith cause of action.


Doug Lehr (“Lehr”), an inspector for Safeco, inspected the property after a claim for hailstorm damage.  Lehr observed hail indentations to the roof. As Wheeler’s Policy contains a cosmetic-damage exclusion for damage to the metal roof, Lehr retained an engineering firm, Rimkus Consulting, to determine whether the damage to the metal roof was cosmetic or structural. Erik Valle, an engineer inspected the property and determined there was non-cosmetic damage to the metal roof’s ridge and high-cap panels, but the other dents to the roof panels were cosmetic and had not affected the roof’s functionality.

After receiving Valle’s report, Lehr prepared an estimate addressing damage to Wheeler’s residence, including the exterior elevations, repairs to the window screens, front and back decks, personal property items, stucco, garage door panel, shingles and trim on the detached home, air condenser, and to the main home’s roof’s ridge and high-cap panels. Safeco issued payment to Wheeler based on Lehr’s estimate and denied coverage for the damage to the metal roof panels based on the Policy’s cosmetic-damage exclusion.

Wheeler then retained public adjuster Elvis Spoon, who prepared an estimate including a complete roof replacement, which totaled $140, 617.62. Spoon disagreed that the roof damage was cosmetic but did not provide any additional information to dispute Valle’s determination. Safeco stood on its earlier denial.

Wheeler’s complaint was twofold:

  • Safeco’s application of the cosmetic-damage exclusion and
  • Safeco’s position that she is not entitled to replacement cost benefits under the Policy unless she spends the money for replacement costs in excess of the actual cash value of her claim, accounting for her deductible.


Wheeler’s request for declaratory relief is duplicative of her affirmative causes of action pending before the Court.

The key issues to be decided in this case-whether the damage sustained to the Property is covered by the Policy and if Safeco properly handled Wheeler’s claims-are based on actions that have already occurred and have been presented as affirmative causes of action to the Court. The Court, therefore, denied Wheeler’s request for declaratory relief.

Plaintiff’s Motion for Summary Judgment

The burden of establishing coverage rests upon the insured. The burden of establishing an exclusion to coverage rests upon the insurer.  Safeco points to the Policy’s exclusion for any cosmetic loss or damage to the metal roof. The Policy defines “cosmetic loss or damage” as “any loss that is limited to the physical appearance of a metal roof surface.”

Whether the adjuster’s actions calculating the loss based on the expert’s report violated the Policy-in other words, whether the damage to the roof was non-cosmetic-is a question of fact. Summary judgment is an inappropriate to resolve a factual issue.

Wheeler argues that Safeco’s experts’ opinions are not relevant and offer no probative value as to whether the damage to Plaintiff’s roof is confined to ‘cosmetic’ as that term is defined in the Policy. Thus, Wheeler contends, Safeco has not met its burden to demonstrate the cosmetic-damage exclusion arguably applies in this case.

The experts reports about the the roof are relevant to the suit. However, this does not change the Court’s opinion. Safeco has met its burden to show an exclusion to coverage may apply.

Because there is genuine dispute of material fact as to whether the damage to Wheeler’s metal roof panels was cosmetic or non-cosmetic, and thus whether Safeco failed to perform under the contract, the Court denied summary judgment as to Wheeler’s breach of contract claim.

Defendant’s Motion for Summary Judgment

Safeco moved for summary judgment as to Wheeler’s extra-contractual claims. Wheeler’s claim that Safeco unreasonably investigated her insurance claim is not supported by any evidence.

An insurer is obligated to adequately investigate a claim before denying it. An insurer fails to reasonably investigate a claim if the investigation is conducted as a pretext for denying the claim. An insurer’s reliance on an expert’s report will not support a finding of bad faith unless there is evidence that the report was not objectively prepared or the insurer’s reliance on the report was unreasonable.

There is no conflict in evidence because there is no evidence that Valle’s report was not objectively prepared or that Safeco’s reliance on the report was unreasonable. The undisputed evidence in the record shows that soon after Wheeler reported the hail damage to the roof, Safeco took reasonable steps to investigate Wheeler’s claim. Lehr retained a professional engineer, Valle, because he was unable to determine whether the damage to the metal roof was cosmetic or non-cosmetic after his visual inspection. Valle inspected the roof and took photographs, looking for any chipping or scratching in the roof’s protective coating and distortion or separation in the panel seams.

An insurer does not act in bad faith if they are incorrect as to the proper construction of the policy. Where the dispute concerns “the factual basis for the claim, the proper legal interpretation of the policy, or both, ” such claims are subject to a breach of contract analysis rather than bad faith. Safeco investigated the claim, and while there is a dispute over whether Safeco properly denied coverage, Safeco may deny coverage based on a misapplication of the policy without being subject to bad-faith liability.

There is no evidence that Safeco denied coverage when its liability was reasonably clear under the Policy.

Texas courts have repeatedly held that evidence showing only a bona fide coverage dispute does not, standing alone, demonstrate bad faith. Wheeler has only presented evidence that a bona fide coverage dispute exists. Safeco was permitted to rely on its expert report in denying Wheeler’s claim.

For the foregoing reasons, Plaintiff’s motion for declaratory and summary judgment was denied. Defendant’s motion for summary judgment was granted as to the claim of bad faith and Plaintiff’s Chapter 541 and section 542.003 claims were dismissed with prejudice.

Plaintiff’s breach of contract and Texas Prompt Payment Act claims remain pending.


Neither party were total winners. Both lost parts of their motions for summary judgement. The suit, with such a simple difference of coverage opinion wasted the time of the parties and the court. The two may now go to trial on the breach of contract claim.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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