U.S. DISTRICT COURT GRANTS INSURER SUMMARY JUDGMENT ON MISREPRESENTATION CLAIM BUT DENIES SUMMARY JUDGMENT ON BAD-FAITH CLAIM.

Last week, the United States District Court for the Northern District of Texas granted the insurer summary judgment on the insured’s misrepresentation claim and denied the insurer summary judgment on the insured’s bad-faith claim. In Bakri v Nautilus Ins. Co., No. 3:21-CV-2001-N, 2023 WL 1805142 (N.D. Texas [Dallas Division], Feb. 7, 2023, mem. op.), Bakri had an insurance policy with Nautilus that covered multiple of his properties. Bakri alleged that a winter storm caused damage to his properties. Nautilus, however, claimed that the damage was merely cosmetic and denied coverage. Consequently, Bakri filed suit alleging violations of Section 541 of the Texas Insurance Code, among other claims. Bakri alleged that Nautilus (1) made misrepresentations when it stated that the damage was not covered under the policy because it was cosmetic and (2) acted in bad faith in investigating the claims. In response, Nautilus sought summary judgment. The U.S. District Court granted summary judgment on the misrepresentation claim and denied summary judgment on the bad-faith claim.

Regarding the misrepresentation claim, the court concluded that “making factual misrepresentations regarding whether damage is covered does not constitute a violation of section 541. The misrepresentation must be about the details of a policy, not the facts giving rise to a claim for coverage.” Because Bakri did not provide evidence that Nautilus misrepresented the scope of the policy, Nautilus was entitled to summary judgment as a matter of law. 

Regarding the bad-faith claim, Nautilus argued that the claim failed because Bakri admitted in his deposition that the dispute was merely a reasonable difference between experts. The court, however, concluded that Bakri's testimony was not dispositive and a reasonable disagreement by the experts on the scope of coverage did not mean that Nautilus acted in good faith during the investigation. Further, Bakri provided evidence indicating bad faith, including his expert’s opinions that Nautilus failed to investigate different sources of wind and hail damage, failed to conduct a multisource investigation of causation, and used improper methods or intentionally overlooked a multitude of different covered damages, including the replacement to the roofs and the exterior damages. The court concluded that the export report raised a fact issue as to whether Nautilus failed to act in good faith during the investigation and, thus, denied summary judgment on the bad-faith claim.