WESTERN DISTRICT COURT FINDS BONA FIDE COVERAGE DISPUTE PRECLUDES EXTRA-CONTRACTUAL CLAIMS

Recently, a San Antonio federal judge granted a motion for summary judgment in favor of an insurer and dismissed an insured’s extra-contractual claims. In Alvarez v. State Farm Lloyds, SA-18-CV-01191-XR, 2020 WL 1033657 (W.D. Tex. Mar. 2, 2020), Plaintiff Alvarez filed a suit against State Farm, alleging breach of contract and extra-contractual claims arising out of an insurance coverage dispute involving storm damage to a tile roof.

Alvarez claimed that the clay tile roof of his home in San Antonio was damaged by hail and wind. After inspecting the roof, State Farm did not identify any storm damage but did identify “damage to the tile is not consistent with wind or hail.” The claim denial letter stated that the inspection revealed no accidental direct physical damage to the clay tile roof.  Other than a check to replace a tile that was damaged by a State Farm representative during the inspection, no payments were made on the claim.  After the initial inspection and denial letter, the Alvarezes hired a public adjuster. The public adjuster subsequently emailed State Farm an estimate for a complete replacement of the roof.  State Farm then hired an engineer for an additional inspection of the roof. The engineer concluded that the cracked and broken roof tiles were the result of deficient installation means and methods, corroded tile nails, expansion and contraction of the tiles, and foot traffic. The engineer also noted dents on the roof vent caps and concluded that the dents were caused by hail but were cosmetic.  State Farm issued a second denial letter. The letter included an estimate to replace the four roof vent caps. That estimate fell below the deductible, so no payment was made.  Alvarez then sent State Farm a demand letter and covered damages estimate totaling $264,080. State Farm still made no payment and Alvarez filed this lawsuit.

State Farm moved for summary judgment on all of Plaintiff’s extra-contractual claims including: (1) violations of the Texas Deceptive Trade Practices Act, (2) violations of the Texas Insurance Code, and (3) breach of the common law duty of good faith and fair dealing.  The court began its analysis by noting that all the extra-contractual claims share the same predicate for recovery: a common law showing of bad faith.  The court went on to note that under controlling Texas authority an insurer is not liable for the tort of bad faith if the insurer had a reasonable basis to deny the claim.  The court concluded that the evidence provided by Alvarez did nothing more than show there was a disagreement over the coverage decision. Because there was no evidence of anything other than a bona-fide coverage dispute the court granted summary judgment as to all extra-contractual claims.