Breach of Contract Needed For a Bad Faith Claim
Lay people, and some of their lawyers, believe that if they are not paid exactly what they want on a claim promptly and without question is sufficient to establish a bad faith claim. In Texas, at least, the insured must prove that the insurer breached the contract and acted in a conscious way to deprive the insured of the benefits of the contract. Failure to produce proof defeats a bad faith claim.
In Anderson v. American Risk Insurance Company, Inc., Court of Appeals of Texas, Houston (1st Dist.) NO. 01-15-00257-CV, 2016 WL 3438243 (June 21, 2016) Vanessa Anderson appealed from the trial court’s rendition of summary judgment in favor of American Risk Insurance Company, Inc. (“ARIC”). Anderson brought contractual and extra-contractual claims against ARIC related to an insurance coverage dispute that arose after her house was damaged during a storm. After paying the appraisal award, ARIC moved for summary judgment on all claims. The trial court granted summary judgment and rendered a take-nothing judgment.
Anderson’s residence in Spring, Texas was covered by an ARIC homeowner’s insurance policy. During a storm on June 12, 2012, a tree fell through the roof of her home. All told, after the storm, one bedroom and one bathroom were destroyed by the tree, and the home had no water, power, or air conditioning.
ARIC’s summary-judgment evidence showed that, within three days of the tree falling, Steve Mazey inspected the property on behalf of ARIC. Mazey estimated the total loss at $58,784.05.
From June to September 2012, ARIC made a series of payments to Anderson totaling $52,475.22. Anderson lived at the apartment complex Marquis at Woodlands from August 11, 2012, through October 10, 2012. According to her affidavit, she accrued late fees because ARIC was slow to reimburse her though she was “very prompt about submitting” receipts.
On November 8, 2012, Anderson sent a demand letter to ARIC seeking $300,000 to settle her claims: $200,000 for actual damages, $25,000 for mental anguish, and $75,000 for attorney’s fees and expenses amounts that had nothing to do with the falling tree. ARIC did not pay and she filed suit, asserting claims for breach of contract, breach of the common law duty of good faith and fair dealing, various violations of Chapter 541 of the Texas Insurance Code and Deceptive Trade Practices Act (“DTPA”), and violations of the prompt payment provisions set forth in Chapter 542 of the Texas Insurance Code.
ARIC invoked its right to appraisal, as provided for under the policy. After many delays, some caused by her Appraiser, an award was rendered and ARIC issued checks to Anderson on August 8, 2014, in payment of the appraisal award.
ARIC further asserted that it was entitled to judgment as a matter of law on the extra-contractual claims because there was a bona fide dispute about the amount of covered damages and Anderson’s alleged damages are barred by the economic loss rule. Finally, ARIC argued that no genuine issue of material fact existed on the misrepresentation and fraud claims because Anderson had not identified any particular false representation which she relied upon to her detriment.
Anderson contends that the trial court erred in granting summary judgment in favor of ARIC because material issues of Breach of Contract
In her petition, Anderson alleged that ARIC was liable for breach of contract because it failed “to pay appellant’s benefits relating to the cost to properly repair” her property. ARIC argues that it is entitled to judgment as a matter of law on Anderson’s breach of contract claim because the claim is precluded by ARIC’s appraisal award payment.
The Texas Supreme Court has long recognized the validity of appraisal provisions, which provide a means to resolve disputes about the amount of loss for a covered claim. When an insurer makes timely payment of a binding and enforceable appraisal award, and the insured accepts the payment, the insured is estopped by the appraisal award from maintaining a breach of contract claim against the insurer.
The undisputed evidence shows that ARIC invoked the appraisal process, as provided for under the policy, to determine the value of Anderson’s claim. Both parties appointed appraisers and agreed upon an umpire. By August 1, 2014, the appraisal award was set. One week later, ARIC tendered payment of the appraisal award after accounting for the deductible, prior payments, and policy limits. Accordingly, the summary judgment record conclusively shows that ARIC fulfilled its obligations under the contract.
The fact that ARIC did not pay the amount of the award earlier, alone, does not raise a fact issue on Anderson’s claim for breach of contract. The court of appeal concluded that the trial court correctly rendered summary judgment in favor of ARIC on Anderson’s breach of contract claim.
The summary judgment evidence demonstrates that the parties participated in the appraisal process and that an appraisal award was determined on August 1, 2014. It is undisputed that ARIC issued checks in full payment of the appraisal award on August 8, 2014—well within the timeliness requirements of the statutes. Because the summary judgment evidence conclusively demonstrates that ARIC fully and timely paid the appraisal award, Anderson is precluded from maintaining her prompt payment claim as a matter of law.
Breach of the Duty of Good Faith and Fair Dealing
Anderson alleged that ARIC breached its common law duty of good faith and fair dealing “by denying [Anderson’s] claims or inadequately adjusting and making an offer on [Anderson’s] claims without any reasonable basis, and by failing to conduct a reasonable investigation to determine whether there was a reasonable basis for these denials.” ARIC argues on appeal, as it did in the trial court, that it is entitled to judgment as a matter of law on Anderson’s common law bad faith claim because there was no breach of contract, and even had there been, there was a bona fide dispute about coverage.
Under Texas law, an insurer has a duty to deal fairly and in good faith with its insured in the processing and payment of claims. An insurer breaches this duty of good faith and fair dealing if the insurer knew or should have known that it was reasonably clear that the claim was covered, but denies or unreasonably delays payment of the claim. However, absent a breach of contract, the insured cannot maintain a common law bad faith claim in Texas unless the insurer commits some act, so extreme, that would cause injury independent of the policy claim or fails to timely investigate the insured’s claim. Evidence establishing only a bona fide coverage dispute does not demonstrate bad faith.
Here, ARIC’s payment of all covered damages extinguished any breach of contract claim arising from the dispute. Thus, in order to avoid summary judgment on her common law bad faith claim, Anderson had the burden to raise a genuine issue of material fact that ARIC commited some act, so extreme, that would cause injury independent of the policy claim or failed to timely investigate her claim. The summary judgment evidence demonstrates only a bona fide dispute about the amount necessary to compensate Anderson for covered damage to her home. Within 15 days of receiving notice of a claim, insurers are required to acknowledge receipt of the claim, commence investigation of the claim, and request items and forms that the insurer reasonably believes, at that time, will be required from the claimant. Undisputed summary judgment evidence shows that on June 15, 2012— three days after Anderson reported the claimed loss—a representative of ARIC inspected the property.
In sum, because Anderson’s breach of contract claim fails and she has failed to show that ARIC caused her to suffer some injury independent of her policy claim or failed to timely investigate her claim, the court concluded that there is no genuine fact issue on Anderson’s common law duty of good faith and fair dealing claim, and thus the trial court did not err in rendering judgment as a matter of law on this claim in favor of ARIC.
To assert the tort of bad faith the plaintiff must prove that the insurer acted intentionally to deprive her of the benefits of the contract. The evidence presented established that the insurer acted to thoroughly investigate her claim within days of her first report and to pay her claim promptly as it determined and then paid the difference between its finding and an appraisal award. Although it has been said that “no good deed goes unpunished” the court protected the ARIC but it was required to defend itself at trial and in the appellate court for doing everything right.
Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.