Insureds Cannot Shift Burden To Identify Claimed Damage

by Zelle LLP

Zelle  LLP

Texas Law360
March 17, 2017

The first-party insurance claims process has always been pretty simple for the typical insured: call the agent to report a claim, identify and quantify the claimed damage, work cooperatively with the insurance adjuster to support the claimed damage, and hire contractors to repair the damage. It has traditionally been a collaborative process that effectively resolved the overwhelming majority of first-party insurance claims without incident.[1]

With the onslaught of hail litigation in Texas, the traditional model is now changing. And not for the better.

Since 2012, hail claims in some parts of Texas have been increasingly likely to involve attorneys, lawsuit, or public adjusters.[2] Data collected by the Texas Department of Insurance shows that between 2011 and 2012, public adjuster involvement in a claim increased by 900 percent.[3] In that same period, the likelihood of a policyholder to sue an insurer increased by 1,400 percent.[4] Indeed, hail claim litigation has become a burgeoning business in Texas. As a result of the dramatic increase in lawsuit filings, courts have been saddled with sorting out issues such as the improper joinder of adjusters, late notice, concurrent causation and whether claims survive payment of appraisal awards. Litigation concerning these issues continues.

Another issue garnering recent attention in the courts involves a more fundamental aspect of the insurance claims process: the insured’s burden to identify and quantify claimed damage.

The Insured’s Fundamental Burdens

Texas law has always been clear that as the party seeking coverage, the insured has the burden to establish a covered cause of loss during the applicable policy period.[5] The traditional method of claim resolution is consistent with Texas law on this point. The onus is on the insured to contact the insurer and identify and quantify the damage it claims is payable under the insurance policy.[6] The insurer has no burden to actively seek information regarding additional damage when the insured has made no report of such. Yet, as discussed below, a tactic utilized in litigation with increasing frequency seeks to shift this burden to the insurer. A Developing Trend Seeks To Disrupt The Traditional Claims Model

It is now common in Texas hail litigation for lawsuits to include damage components the insured never previously identified or quantified. Specifically, instead of the traditional claims process described above, the current process follows a pattern such as this: the insured files a lawsuit for breach of contract and a myriad of extracontractual claims following an adjustment process during which there was never any dispute as to the damage identified and quantified. New damage components appear for the very first time in an estimate attached to a presuit demand letter or in a lawsuit filed by the insured.

As an initial matter, this seems to fly in the face of equity. How could the basis for breach of contract be the failure to pay a claim on a damage component that was never presented to the insurer? How could an insurer have even potentially performed a thorough inspection when it never knew the insured expected it to inspect alleged damage? How could it have made a payment for damage the insured never quantified? Doesn’t this trend permit the insured to shirk the fundamental contractual obligation it has when it submits an insurance claim?

League City v. Texas Windstorm Insurance Association

In January 2017, the First District Court of Appeals in Houston agreed that an insured could not recover for breach of contract when it identified property damage components for the first time only after suit was filed.[7] In League City v. Texas Windstorm Insurance Association, the insured made wind damage claims for “various” locations following Hurricane Ike. The insurer paid for identified damage and closed the claim. Instead of making supplemental damage claims, the insured sued for the insurer’s failure to inspect “numerous additional structures.” Upon notice of suit, the insurer requested the insured to identify all damaged locations. The insured did not. The insurer demanded appraisal, but the insured still did not identify all damaged locations. In fact, it did not identify all damaged locations even when the court ordered it to do so. The case proceeded to trial, at which time the insured claimed the insurer failed to conduct a reasonable investigation and make payment for damage to 29 properties. The properties were not part of its original claim, and were not part of the appraisal. The insurer never even knew they were at issue.

The insured argued the insurer would have known of the damage if it had adjusted the loss properly. The jury disagreed, finding the evidence showed the insured breached the policy’s prompt notice provision and the insurer was prejudiced because lack of notice prevented it from conducting a reasonable investigation and making a timely payment.[8] The court agreed. It noted that without communication, the insurer could not have known whether the insured expected further investigation, adjustment or payment, or if it agreed with the adjustment and payment that had already been made.[9] The court observed that in order to avoid coverage, the insurer must show that 1) the insured failed to comply with the prompt notice provision, and 2) the insurer suffered prejudice as a result.[10] In this case, the notice was wholly lacking.[11] To this end, the court held:

When an insured’s failure to comply with a prompt-notice requirement causes prejudice to the insurer, it defeats coverage. [The insurer] established that [the insured’s] failure to comply with the prompt-notice requirement caused it prejudice. This negated [the insured’s] breach-of-contract claim and resolved the issue of coverage in [the insurer’s] favor.[12]

Ultimately, the insured’s breach of contract claim failed.

League City addresses the problematic situation that arises when an insured accepts a claim payment without dispute, files suit without first attempting to resolve a problem, and then complains that various other property damage components were never addressed. It is consistent with other emerging Texas precedent on this issue. League City, as well as the cases noted below, suggest that Texas courts running up against this gross misuse of the claims process, see through the ruse.

Other Texas Courts Also Reject The New Tactic

Given its blatantly obvious nature, it is not surprising that iterations of the tactic in League City have been called out before. In 2015, the Fifth Circuit refused to accept the insured’s argument that general statements in a pleading, without more, constituted notice of an additional claim.[13] The court agreed that prompt notice was required as soon as practicable, and determined that when notice was not given until more than two and a half years after a hurricane, and until after appraisal had taken place, the insurer was prejudiced as a matter of law. This was because the insurer was at least substantially deprived of the right to investigate the loss.[14]

Additionally, Judge Micaela Alvarez in the United States District Court for the Southern District of Texas has now addressed this issue three times.[15] In 2015, she twice addressed the situation in which the insured accepts a claim payment, fails to identify additional damage and then simply files suit for breach of contract.[16] Both times, she noted that the insurer has no general duty to pay claims when it receives no notice of damage. Failure to notify the insurer of the claimed damage is a breach of the policy’s prompt notice provision.[17]

Similarly in 2016, Judge Alvarez determined that insureds could not support a suit for breach of contract when they accepted a payment for recoverable depreciation and did not dispute the amount of recovery or advise the insurer of further damage prior to filing suit.[18] She held: “The fact that Plaintiffs are dissatisfied with the damages paid is not the result of [the insurer’s] failure to fulfill a policy obligation; instead, it results from Plaintiffs’ knowing failure to even submit damages to [the insurer] prior to filing this lawsuit.”[19]

Some Legislative Help

The Texas Legislature is presently considering Senate Bill 10, which is specifically directed at addressing many of the common abuses taking place in Texas hail damage claims. One aspect the legislation seeks to remedy is the increasingly common abuse of adding new damage components for the first time in litigation. Senate Bill 10 creates a requirement that the insured provide meaningful prelitigation notice to the insurer, including identifying and quantifying damage components it seeks to recover in litigation. While this does not excuse the insured’s failure to comply with its burden to identify and quantify damages during the actual claims process, the Senate Bill 10 requirement would at least provide the insurer with additional information before a lawsuit is filed, affording the insurer an opportunity to resolve legitimate disputes prior to years of litigation.

Summary It is time to return the traditional insurance claims model to the Texas claims process. The legal manipulation of the process, as witnessed in League City and similar cases, must be curtailed. These cases make clear that accepting payment, staying silent, dropping a lawsuit out of nowhere, and then complaining that more damages are owed is a practice which grossly departs from what the claims process was intended to be. Further, the current practice wholly disregards the insured’s burden under the policy while simultaneously obliterating the insurer’s ability to comply with the law. But — the jig is up. In light of League City and other recent decisions, attorneys who continue to manipulate the claims process by adding damage components for the first time in litigation now do so at the peril of having such claims dismissed in their entirety.

Perhaps, these attorneys instead will tell potential clients (typically referred by roofing contractors, public adjusters and other case solicitors) to first call their insurers, present the additional claim components and try to resolve claims amicably without the need for attorneys and litigation.

Yeah, right.

[1] This issue is discussed in our firm’s article: Brett A. Wallingford, A Worrying Insurance Trend: Litigation, No Cooperation, available at, August, 2016. The article at hand presents an update of the topics discussed in Mr. Wallingford’s article.

[2], p. 4.

[3] Id. at p. 10.

[4] Id.

[5] Progressive County Mut. Ins. Co. v. Sink, 47 S.W.3d 715, 718 (Tex. 2003).

[6] See, e.g., Evergreen Nat’l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 675 (Tex.App. – Austin 2003, no pet.)

[7] League City v. Tex. Windstorm Ins. Ass’n, 2017 WL 405816 *9 (Tex.App. – Houston [1st Dist.] Jan. 31, 2017, no pet. h.).

[8] Id. at *6.

[9] Id. at *9.

[10] Id.

[11] Id. at *12, *19-23; see also PAJ v. Hanover Ins. Co, 243 S.W.3d 630, 636 (Tex. 2008); Nat’l Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603 (Tex. 2008).

[12] League City, 2017 WL 405816 at *9.

[13] See United Neurology, P.A. v. Hartford Lloyd’s Ins. Co., 101 F.Supp.3d 584, 617 (5th Cir. 2015).

[14] Id. [15] See Fregoso v. State Farm Lloyds, 2016 WL 1170104 (S.D. Tex. Mar. 24, 2016); Maria v. State Farm Lloyds, 2015 WL 8618435 (S.D. Tex. Dec. 14, 2015); Martinez v. State Farm Lloyds, 2015 WL 7571840 (S.D. Tex. Nov. 24, 2015).

[16] Maria, 2015 WL 8618435; Martinez, 2015 WL 7571840.

[17] Maria, 2015 WL 8618435 at *6; Martinez, 2015 WL 7571840 at *6.

[18] See Fregoso, 2016 WL 1170104 at *4 - *5.

[19] Id. at *4 - *5.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Zelle LLP | Attorney Advertising

Written by:

Zelle  LLP

Zelle LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.