Someone in Grand Prairie, Arlington, Mansfield, Hurst, Euless, Bedford, Fort Worth, Dallas, Irving, Mesquite, Garland, Carrollton, Farmers Branch, or anywhere else in Texas may use the term “bad faith” when talking about insurance, but very few people can actually define it. And those who can define it will still have a hard time, in a legal sense, applying that term or definition to a particular fact situation.
The United States District Court, Southern District of Texas, Houston Division, had a case recently dealing, in part, with this issue. The opinion in the case was issued on February 28, 2011, and is styled, C. K. Lee v. Catlin Specialty Insurance Company, Justin Carroll, and Engle Martin & Associates, Inc.
Here are some of the underlying facts:
Lee owns a commercial shopping center. Catlin had issued a policy of insurance on the property which provided coverage of up to $1.7 million for wind-storm damage with a $36,000 deductible. Hurricane Ike then inflicted substantial damage in the area of the property. Lee submitted a loss notice to his agent, Breeden Insurance and Breeden forwarded the loss notice to “AUM”, who forwarded it to Catlin. Catlin acknowledged receipt of the claim and assigned it to Engle Martin for adjusting. Engle Martin made attempts to contact Lee but had problems due to Lee being out of the country. A reading of this case shows the extensive efforts made to schedule and conduct inspections on the property. The property was eventually inspected. Engle Martin observed evidence of roof repairs that had apparently been made both before and after Hurricane Ike. Engle Martin also observed debris in various sections of the roof and interior water damage, which led it to conclude that an infrared scan of the roof was necessary to help identify which damages, if any, were attributable to wind and which, if any, were attributable to subpar prior repairs or natural deterioration.
A consultant and engineer were hired to conduct the infrared inspection of the roof. Engle Martin also sent a letter to Lee requesting invoices from the emergency roof repairs that Lee ordered after the hurricane and copies of leases between Lee and the four tenants that occupied the property.
The inspection observed that (1) there was “no wind-related damage” to the roof covering, (2) “the roof membrane was brittle and deteriorated across the entire roof,” (3) water infiltration, viewed through infrared photographs, existed in areas of previous repairs and in areas where normal wear and weathering had occurrred, (4) there was “poorly installed roofing material along the parapet wall,” and (5) “many areas of gravel ballast were missing prior to Hurricane Ike,” confirmed by pre-hurricane aerial photographs. Based on these finding, it was concluded that there was no wind related damage to the roof and no breaches or openings created by wind or wind-borne debris, and that the roof covering had exceeded its life expectancy and was in need of replacement due to normal wear and weathering.
In addition to what is written here, there were many other tests and confirmations of the problems that existed and how these problems came to be other than wind storm damage from Hurricane Ike. The claim was denied by Catlin based on these reports and tests. As a result of the denial, Lee filed a lawsuit based on breach of contract, breach of the duty of good faith and fair dealing, fraud, and violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Act (DTPA).
Catlin eventually filed a “Motion For Partial Summary Judgment” with respect to the bad faith, fraud, and Insurance Code and DTPA claims saying there was no evidence to justify any of these accusations.
The following a words used by the court in deciding this case and they are the same words experienced Insurance Law Attorneys need to be aware of when looking at and evaluating a case:
Under Texas law, there is a duty on the part of the insurer to deal fairly and in good faith with an insured in the processing of claims. To prove that an insurer acted in bad faith in violation of Texas common law, an insured must show that the insurer failed to settle the claim even though it “knew or should have known that it was reasonable clear that the claim was covered.” The statutory bad faith standard parallels the common law formulation in Section 541.060(a)(2)(A) providing that an insurer engages in an unfair settlement practice by “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.”
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. On the other hand, denying a claim solely in reliance on an expert’s report does not shield the insurer from bad faith liability “if there is evidence that the report was not objectively prepared or the insurer’s reliance on the report was unreasonable.” In determining the reasonableness of an insurer’s decision a court reviews the facts that were available to the insurer at the time of denial.
In this case the court found that there was no good reason or evidence that the insurance company acted in bad faith.
The court also said that the evidence developed in the case did not show that Catlin was unreasonable in investigating the claim or in waiting a long period of time before making a determination of what they were going to do with respect to the claim.
On Lee’s claim against Catlin for violation of the Prompt Payment of Claims Act, the court let this cause of action go forward against Catlin.
On the DTPA and fraud claims the court did not believe that Lee had provided any reliable evidence that justified these claims to go forward.
This case is really a good case for seeing the factors the courts look at in determing whether the insurance code violations asserted in a lawsuit can go forward.
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