Arson happens in places like Fort Worth, Dallas, Garland, Irving, Mesquite, Richardson, Plano, Duncanville, De Soto, and all other places in Texas at one time or another. But to be accused of arson and have your insurance claim denied because you are suspected by the insurance company is something else. Is there a typical case or situation where this comes about? The answer is no. Every situation has to be scrutinized based on the facts of that particular situation.
The Texarkana Court of Appeals issued an opinion in a 1990 case that discusses the way these arson cases are evaluated. The style of the case is, The St. Paul Guardian Insurance Company v. Teri Lynn Luker and Paul Kimbel Luker. In the case, a jury found in favor of the Lukers and compensated the Lukers for contractual damages of $27,000 and tort damages of $50,000 and mental anguish of $15,000. The court reversed all but the contractual damages of $27,000.
Here are some of the facts of this case.
At approximately 12:15 a.m. on the morning of June 12, 1985, a fire caused structural damages to the house in which Teri and Paul were residing and damaged or destroyed their household belongings. Emmitt Luker owned the home but did not occupy it. The house was the source of litigation proceeding between Paul and his previous wife, the result of which Paul owed Emmitt $17,000 on the house. As a result of these actions, Paul obtained a new mortgage and his house payments increased from $650 per month to $900 per month.
After Paul had obtained the new mortgage, he got a new policy which reduced his contents coverage from $40,000 to $27,000. The policy was actually in the name of Emmitt. Emmitt was paid for the damage to the house but St. Paul denied Teri and Paul’s claim for the contents. St. Paul denied based on three grounds. That the fire was caused by arson by Paul and Teri or by someone instructed by them; that Paul and Teri misrepresented their losses by concealing their person involvement in the fire and by failing to report truthfully the extent and valuation of the destroyed personal property; and that the policy issued to Emmitt insured only Emmitt’s interest in any personal property on the premises and not that of Paul and Teri.
The tort damages against St. Paul were for St. Paul violating the insurer’s duty to deal fairly and in good faith with their insureds. This claim arises when there is no reasonable basis for denial of the claim or for delay in payment, or for a failure on the part of the insurer to determine whether there was any reasonable basis for the denial or delay. This was the standard set out by the Texas Supreme Court.
One argument by St. Paul was that the policy was issued to Emmitt, not Paul and Teri and thus the duty was owed to Emmitt, not Paul and Teri. This court, citing the Texas Supreme Court case, stated, “When a person contracts with an insurer for the benefit of another, both the person contracting and the third party have the right to expect that the insurer would owe the same duty to the designated third party as it would to the person making the contract. We hold that when an insurer agrees to insure a third party beneficiary under the terms of an insurance contract, it owes the same duty of good faith and fair dealing to the third party as it does to the purchaser of the insurance.”
So, the preceding paragraph means that Paul and Teri won on the argument regarding whether or not they had a right to sue for a violation of the duty of good faith and fair dealing. Next, they had to prove the duty had been violated.
To establish a bad faith claim, the Lukers had to prove (1) the absence of a reasonable basis for denying or delaying payment of the benefits of the policy, and (2) that the St. Paul knew or should have known that there was not a reasonable basis for denying the claim or delaying payments of the claim. St. Paul retained the right to deny invalid or questionable claims.
This court then spent several pages of their opinion going over the many facts in this case. In its’ conclusion this court stated, “We find that the Lukers produced insufficient evidence to show that there was no reasonable basis for St. Paul’s denial of the claim, nor did the Lukers present sufficient evidence to show that St. Paul knew or should have known that there was no reasonable basis for denying or delaying the payment of the claim.
This case, like most arson cases, had a lot of interesting facts. Both the insureds and the insurance companies always seem to have evidence in their favor. Then it boils down to which side you believe the most. One thing for certain is that an experienced Insurance Law Attorney needs to be involved early on in these cases. Otherwise, it is the insurance company gathering all the evidence to win the case.
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