FEDERAL DISTRICT COURT GRANTS SUMMARY JUDGMENT IN FAVOR OF INSURER IN BAD FAITH LAWSUIT FILED AFTER INSURER COMPLIED WITH APPRAISAL PROVISION

Also last Wednesday, in Mag-Dolphus, Inc. v. Ohio Cas. Ins. Co., C.A. No. 4:11–CV–1525; 2012 WL4018001 (S.D.Tex., Sept. 12, 2012) (Harmon, J.), U.S. District Judge Melinda Harmon granted Ohio Casualty Insurance Company’s motion for summary judgment on the grounds that the insureds’ invocation of the appraisal provision in the insurance policy and Ohio Casualty’s prompt compliance with the appraisal provision precluded Plaintiffs’ claims as a matter of law.

The plaintiffs, Mag–Dolphus, Inc., and its owners, Gerald and Jan Maggard, are owners of an office building in The Woodlands, Texas that was damaged by Hurricane Ike.  After Plaintiffs disputed Ohio Casualty’s estimate of the covered damages, Plaintiffs invoked the policy’s appraisal provision. The parties each selected independent appraisers who submitted estimates of the amount of covered loss. The two appraisers  did  not  agree  and  they  subsequently  selected  an  umpire.  The  umpire  awarded  Plaintiffs $191,594.16 in replacement costs, less depreciation, previous payments, and deductibles. Ohio Casualty Defendant sent Plaintiffs a notice of payment and a check for $99,547.44, which was the amount due for the property damage claim based on the appraisal, less the amounts already paid and the deductible. Ohio Casualty subsequently sent Plaintiffs a second notice of payment and a check for $52,759.81, which was for the recoverable depreciation on the repairs to the building. Several months later, Plaintiffs filed a lawsuit asserting a claim for breach of contract and extra-contractual claims for common law and statutory breach of the duty of good faith and fair dealing, for common law fraud, and for failure to promptly pay claims under the Texas Insurance Code.

In granting summary judgment, the court ruled that Plaintiffs, having accepted timely payment of the binding and enforceable appraisal award, are thus estopped from maintaining a breach of contract claim against Ohio Casualty. The court also concluded Plaintiffs’ extra-contractual claims for common law breach of the duty of good faith and fair dealing, for statutory breach of the duty of good faith and fair dealing under  the  Texas  Insurance  Code’s  unfair  settlement  practices,  common  law  fraud,  and  for  failure  to promptly pay claims under the Texas Insurance Code each failed.  The court ruled that because Plaintiffs’ breach of contract claim fails, and because Plaintiffs failed to show that Ohio Casualty either committed some act so extreme that it would cause injury apart from the policy claim or failed timely to investigate Plaintiffs’ claim, Ohio Casualty was entitled to summary judgment on Plaintiffs’ common law and statutory bad faith claims.  The court also ruled Plaintiffs’ failed to carry their burden of proof on their fraud claim in that they failed to introduce evidence of a material misrepresentation in the record and failed to demonstrate that they relied upon any alleged material misrepresentation.  Finally, the court found no violation of the prompt payment statutes under the Texas Insurance Code.