Articles Posted in Bad Faith Insurance

What are examples of misrepresentations made by insurance companies that they can be held liable for making?

Different types of misrepresentation are prohibited by the Texas Insurance Code.  Misrepresentations are also unlawful under the incorporated DTPA, Section 17.46(a).  These misrepresentations also include non-disclosure.

Section 541.051 broadly prohibits making any statement misrepresenting the terms of a policy, or the benefits, advantages, or dividends of a policy, making misrepresentations about the financial condition of an insurer, misrepresenting the true nature of any policy or class of policies, or making any misrepresentation to a policy holder for the purpose of inducing or intending to induce the policy holder to allow an existing policy holder to lapse, forfeit, or surrender his insurance.  This provision is sometimes referred to as the “anti-twisting” provision, because the latter portion is aimed at preventing one insurer stealing away the insureds of another insurer by making misrepresentations.

In an answer to the above question, one attorney said, “It’s hard to define but I know it when I see it.”  That response is fine but what a regular insured person thinks is clearly “bad faith,” the Courts look at differently.

The Texas Insurance Code, Section 541.060, sets forth specific acts that can be considered bad faith in context of settling a claim.  The statute prohibits engaging in any of the following unfair settlement practices with respect to a claim by an insured or beneficiary:

1. misrepresenting to a claimant a material fact or policy provision relating to coverage at issue;

Let’s list some of the conduct that is actionable against an insurance company.

The Texas Insurance Code, Chapter 541, defines and prohibits unfair and deceptive insurance practices.  The Sections include Sections 541.001 to 541.061, 541.151 to 541.162, and 541.453.  Prior to April 1, 2005, the statute appeared as Article 21.21, so most authorities cite that version of the statute.

Section 541.151 allows a private cause of action by any person who has sustained actual damages caused by another’s engaging in any act or practice that is defined as an unfair method of compensation or unfair or deceptive practice in the business of insurance, or defined as an unlawful deceptive trade practice.  The definitions of unfair and deceptive practices are found in two places.  Those two places are the Texas Insurance Code, Sections 541.051 to 541.061 and the Texas Business & Commerce Code, Section 17.46(b).

Bad Faith Claims and proving them have their own set of rules.  These rules were discussed in a 2020 opinion from the Eastern District of Texas, Beaumont Division.  The opinion is styled, Mt. Javed Ventures, Ltd. v. Mt. Hawley Insurance Company.

This is a summary judgment opinion.  The legal history and the facts of the case can be read in the opinion.  This writing will focus on the law related to “bad faith claims.”

The Texas Supreme Court has stated in previous case opinions that under Texas law, “an insurer has a duty to deal fairly and in good faith with its insured in the process of payment of claims.”  This duty is breached if: “(1) there is an absence of a reasonable basis for denying or delaying payment of benefits under the policy and (2) the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.”  Whether an insurance company’s liability has become reasonably clear is a question of fact as cited in the 1997, Texas Supreme Court opinion, Universal Life Ins. Co. v. Giles.  However, evidence establishing only a bona fide coverage dispute does not demonstrate bad faith.  Evidence that shows a bona fide coverage dispute does not, standing alone, demonstrate bad faith.

Bad faith claims are a common source of litigation.  A 2020, opinion from the Southern District of Texas, Houston Division, discusses bad faith claims in the situations where an appraisal clause in the insurance contract allows for appraisal and that clause is invoked.  The case is styled, Braulio Reyna v. State Farm Lloyds.

Reyna was insured by a State Farm policy which covered loss to his home.  This homeowners policy contained an appraisal clause.  The home suffered storm damage during the policy period.  A claim was timely made.  State Farm had the home adjusted by one of its adjusters and made payment of the claim.  State Farm later paid more money on the claim based on a reevaluation.

Next, Reyna requested another investigation on the damages and State Farm sent an additional small amount.  Reyna then invoked the appraisal clause in the insurance contract and the appraisal resulted in a much higher estimate of damages which State Farm immediately paid.

The concurrent-cause doctrine is a source of much litigation as it relates to storm damage to roofs and structures.  This was the issue in a 2020, Western District of Texas, San Antonia Division, opinion styled, Ironwood Building II, LTD. and Principle Auto Management, LTD. v. Axis Surplus Insurance Company.

This is an opinion issued on competing motions for summary judgment.  The Court denied both motions.

The Plaintiffs suffered a hailstorm in 2016, and were paid money related to the damages by the insurance company who provided coverage at the time of the loss.  Only minor repairs were made and there were no leaks occurring on the property.  After this, Plaintiffs purchased another insurance policy with Axis.

Lawyers who handle bad faith insurance cases will usually tell you that it is not necessarily easy to explain but as it relates to “bad faith” you know it when you see it.This is discussed a little bit in a 2020 opinion from the Western District of Texas, San Antonio Division, case styled, Jorge A. Alvarez v. State Farm Lloyds.

This is a lawsuit wherein State Farm is sued for violations of the Texas Insurance Code among other things.

Alvarez claims he suffered damage to his clay tile roof caused by hail and wind storms on or about April 25, 2016.  This damage was noticed on February 27, 2018, and reported to State Farm.  An inspection was performed with experts for Alvarez being present.  The adjuster, Santos, did not identify any wind or hail damage to the roof.  He observed “many damaged clay tiles,” and noted that the “damage to the tile is not consistent with wind or hail.”  Santos determined that cracks on the tiles begin on the upper left corner of the tiles, and start at the nail fastener and then work down or down and across the tile.  He did not note any spatter on tile or exterior elevations but did note “mech damage to furnace caps that is not the result of hail.”  Santos showed Mrs. Alvarez photos to explain how he reached his conclusions.  He recommended that the Alvarezes “contact the tile manufacturer or distributor of the tile to address uniform damage to the tiles” based on the damage he observed.  Mrs. Alvarez “expressed understanding” but then had to leave before Santos could draft his letter describing the results of the inspection, so he left the letter at the front door when he finished writing it.

Well, Insurance Lawyers, here it is happening again.  Knowing the little ways to keep a lower dollar case out of Federal Court are just too simple for it to happen again and again.  This 2020, opinion is also from the Southern District, Houston Division, and is styled, Michael Dyll and Remi Dyll v. Palomar Specialty Insurance Company.

The Dylls sued Palomar in State Court and Palomar properly removed the case to Federal Court pursuant to 28 U.S.C., Section 1441(a).  A defendant has the burden of proving by a preponderance of the evidence that subject matter jurisdiction exists.  The operative facts and pleadings are evaluated at the time of removal.

Federal Courts have jurisdiction when the parties are from different states and the amount in controversy exceeds $75,000.  The amount in controversy is ordinarily determined on the basis of the sum demanded in good faith in the initial pleading.  A demand is made in bad faith if its purpose is to defeat Federal jurisdiction.  The removing defendant must show by a preponderance of the evidence that the amount in controversy exceeds $75,000.  A Plaintiff must make a showing that his recovery will not exceed the amount stated in the complaint if the amount is less than $75,000.  To make such a showing of legal certainty, Texas plaintiffs must file a binding stipulation or affidavit with the original state petition.  A stipulation filed after removal is irrelevant to the court’s analysis.

Insurance lawyers should know ways that work to stay out of Federal Court.  Not knowing how to properly plead the case will result in the case being in Federal Court.  This is illustrated in a January 2020 opinion from the Southern District of Texas, Houston Division, styled, Mario Rodriguez v. Ocean Harbor Casualty Insurance Company.

Mario had filed suit in State Court based on a property claim dispute with Ocean Harbor.  Ocean Harbor removed the case to this Federal Court based on diversity jurisdiction.  Mario filed this motion to remand.

When a defendant removes a case to Federal Court the defendant has the burden of proving by a preponderance of the evidence that subject matter jurisdiction exists.  Operative facts and pleadings are evaluated as they exist at the time of removal.