SAN ANTONIO COURT OF APPEALS FINDS EVIDENCE OF AN UNREASONABLE INVESTIGATION ALONE DOES NOT SUPPORT A JURY FINDING OF “KNOWING” CONDUCT UNDER THE TEXAS INSURANCE CODE

The San Antonio Court of Appeals recently addressed an insurer’s duty to defend when faced with false or fraudulent claims against the insured. In Allstate Vehicle and Property Insurance Company v. Reininger, No. 04-19-00443-CV, 2020 WL 6928405 (Tex. App.—San Antonio, Nov. 25, 2020) (mem. op.), Allstate appealed a trial court’s judgment after a jury trial in favor of an insured for claims of breach of contract, bad faith and DTPA violations. The underlying suit stemmed from a hailstorm that struck Reininger's home. An inspection of the home found only cosmetic damage subject to a policy exclusion. After the first inspection, the insured noticed water leaks inside their home. Because they had not experienced any interior leaks before the hailstorm, they requested a further inspection of their roof and a second inspection was scheduled. The second inspection was cancelled, although the claim file showed the insured wanted to reschedule. For unknown reasons, Allstate closed its file.

Reininger sued Allstate for breach of contract, bad faith, fraud, and violations of the Texas Insurance Code and the Deceptive Trade Practices Act. He claimed Allstate: misrepresented the terms of his policy, both before he purchased it and during the adjustment of his hail damage claim; denied his claim without performing a reasonable inspection of his roof; and refused to pay his claim after liability became reasonably clear. At trial, the jury found in Reininger's favor on his breach of contract, fraud, and statutory claims. It also found Allstate had “knowingly” engaged in unfair or deceptive acts or practices and assessed additional damages as a result of that finding. Finally, the jury awarded attorney's fees. Reininger elected to recover on his statutory claims and the trial court signed a judgment consistent with the jury's verdict.  Allstate appealed.

After examining the record, the Court first found there was legally sufficient evidence to support the jury’s finding of unfair or deceptive acts.  Rejecting the bona fide coverage dispute defense, the Court reasoned that a reasonable factfinder could have found the unreasonable investigation caused a wrongful denial and therefore caused damage. The Court then addressed Allstate’s jury charge challenge to questions related to the cosmetic damage exclusion.  The Court found Allstate had failed to adequately preserve these objections at trial and therefore waived them. The Court then addressed legal sufficiency of the jury’s finding of “knowing” conduct.  They found that while there was evidence to show the investigation was unreasonable, there was no evidence to support a finding that this failure was a “knowing” act of falsity, unfairness, or deception. The Court reversed the award of additional damages and attorney’s fees.

The Court affirmed the portion of the trial court's judgment awarding actual damages under the Texas Insurance Code but reversed the portion of the judgment awarding additional statutory damages based on the jury's finding that Allstate acted “knowingly.” The Court also reversed the award of attorney's fees and remanded this matter for a new trial on attorney's fees.