A decision rendered yesterday by a federal judge in Texas1 appears to indicate a trend whereby federal courts will prevent bad faith claims from going to a jury if the insurer has an expert opinion supporting the denial of a claim. The court dismissed the bad faith portion of the lawsuit on the following grounds:
To succeed in a bad faith claim, the insured must demonstrate that there was no reasonable reason for the insurer to refuse payment of the claim and that the insurer knew, or should have known, that there was no reasonable reason for such a refusal….
Here, Plaintiff has failed to produce evidence to create a triable question as to whether insurer Church Mutual’s conduct was unreasonable following the April 2020 hailstorm. rebutted in the summary judgment record show the following: After the hailstorm and plaintiff’s claim, Church Mutual retained the services of a public adjuster, Robert Bullard. Based on Bullard’s investigation, Church Mutual concluded that the claim required payment of $62,028.73 in covered damages. When the plaintiff retained its own adjuster and stated that it was entitled to $1,171,672.85 on the claim, Church Mutual sought additional opinions from engineers Ian Ray and Justin Donaldson. These additional experts highlighted causes of loss not covered by the policy. Their findings provided at least a reasonable basis – even if ultimately unconvincing to the investigator in this case – for the insurer to deny the plaintiff’s request for a higher payment amount.
The plaintiff cites cases such as The life of the universe Ins. Co. vs. Giles, 950 SW2d 48, 56 n.5 (Tex. 1997) to hold that “an insurer cannot manufacture a genuine coverage dispute by conducting an unreasonable investigation.” . . to protect itself from any liability in bad faith. But these are not the facts or reasonable conclusions that could be drawn from the facts in the summary judgment record. There is no doubt that Church Mutual sent at least three experts to investigate the storm damage. The plaintiff provides no evidence that these investigations were biased or pretexted. And the court concludes that the qualifications and missions of the experts do not allow a finding of bad faith or unreasonableness, even if the investigator could ultimately disagree with their conclusions.
Proving a pretextual investigation or a biased investigation is not easy. I noted this in The scourge of errors and engineering reports written by insurers by engineers retained by insurance companies:
Many public experts, contractors and skeptical critics tell me they don’t need to wait to find out what the engineering report will say if a certain engineer has been retained. Not only are the scientific findings unfavorable to the policyholder, but the language of the report also aligns inextricably with the language of the insurer’s exclusion or limitation policy. It is much easier to prove that the conclusion of an engineering report is wrong than to prove that errors and erroneous conclusions are the result of bias or a results-oriented mindset.
Texas insurance company attorneys will simply move the case to federal court and then make sure they can check the box to see if they have an acceptable expert opinion to provide an excuse to dismiss allegations of bad faith. I’m sure it will be a topic of conversation at American Insurance Association (APA), which begins today in Dallas.
The APA has a special program complaints portal set up for fake and fraudulent engineering reports. Monitoring and doing something about this scourge of engineers participating in the claims process is a mission of the APA.
Thought of the day
Character cannot be developed in ease and quiet. Only through the experience of trials and suffering can the soul be strengthened, vision brightened, ambition inspired, and success achieved.