On April 18, 2014, a federal district court in Texas granted summary judgment in favor of an insurer that had paid the policy proceeds demanded by the insureds, but nonetheless were sued for “bad faith.” The court’s decision adds to a growing body of Texas case law weeding out unfounded first-party insurance “bad faith” lawsuits.
In Bell v. State Farm Lloyds, 2014 WL 1516254 (N.D. Tex. 2014), a hail and wind storm damaged the policyholder’s property in Midlothian, Texas. The insureds submitted a property insurance claim and, five days later, the insurance company sent out an adjuster to inspect the property. The policyholders, and their construction contractor, were unsatisfied by the adjuster’s estimate of the damage, and then sought a second opinion from a public adjuster. However, the inspection by the public adjuster produced an estimate that was lower than the insurance company’s estimate. Undeterred, the policyholders requested a re-inspection of the property. A new adjuster from the insurance company conducted the second inspection, and the estimate was higher than the previous estimate. Subsequently, the policyholders’ construction contractor sent out a “final invoice” for the same amount, as the policyholders agreed with the contractor’s estimate, and the insurer issued the requested payment.
The policyholders filed a lawsuit after receiving the payment, claiming that the insurance company had breached its contract, breached the duty of good faith and fair dealing, violated the Texas Deceptive Practices Act, the Texas Insurance Code § 541, and the Prompt Payment Act § 542, and committed fraud. The court granted the insurer’s motion for summary judgment on each of the claims. On the breach of contract claim, the court held that the insurer’s full payment of the amount stated in the final invoice “prov[ed] that there was no breach and that the Plaintiffs suffered no damages.” The bad faith claim also failed because there was no evidence that the insurer, among other things, failed to properly investigate or timely pay the claim, or committed any “extreme act” giving rise to independent damages. Because the claim for bad faith failed, the court found that the claim for unfair settlement practices also failed. Similarly, because there was no evidence that the insurer had delayed in making the required payment, the claim under the Prompt Payment Act failed. Finally, the court held that there was no merit to the fraud claim because the policyholders failed to establish that the insurer made any false representations. Accordingly, the court entered judgment in the insurer’s favor.