Texas Insurance Law Newsbrief - April 23, 2024

In Mitchell v. Praetorian Ins. Co., No. H-23-2049, 2024 U.S. Dist. LEXIS 63627* (April 8, 2024), Ebony Mitchell filed a roof leak claim, and later a mold claim, with Praetorian Insurance Company following a windstorm that occurred on September 23, 2020. Praetorian is a member of QBE North America (QBE).  Praetorian assigned an independent adjuster to inspect the property.  The inspection conducted on September 30, 2020, revealed water damage in two places: 1) the ceiling above the bathroom on the second story; and 2) the ceiling above the kitchen and living room on the first story.  The first inspector determined that the damage to the second story was from a roof leak on top of the bathroom ceiling caused by wind driven rain but the damage on the first story was from water leaking from the bathtub.  The repair estimate for covered damage was less than the deductible and Praetorian closed the claim without payment. On November 4, 2020, Praetorian sent a second independent adjuster to the property, who observed damages consistent with hail and a weather report confirmed hail in the area on the date of loss.  The second adjuster noted roof damage: “one wind damaged shingle on the Right slope and a tarp nailed to the rear slope the way the tarp is fastened damaged the slope shingles failed the brittle test and a full replacement is recommended.” Praetorian pad Mitchell $21,564.08 to repair her home.  Another inspection occurred in June 2021 by an independent adjuster who observed a “hole in the ceiling that had visible pipe repair…[t]h[at] was not storm related,” mold growth on cabinets “due to humidity from A/C being out for months,” removed carpet on the stairwell, “[n]o visible signs of storm related damage to the stairwell walls or ceiling,” and the “[u]pstairs bathroom had the floor removed and had visible rotted decking next to the bathtub…caused by excess water being spilled over from the shower.” This resulted in QBE sending a denial of coverage letter to Mitchell denying her mold claim explaining that the investigation found that the mold is not related to the roof leak claim.

In December 2021, Mitchell filed suit in state court alleging 1) breach of contract for repair costs, personal property, and mold; 2) breach of duty of good faith and fair dealing; 3) violations of the Texas DTPA; 4) violations of the Texas Prompt Payment of Claims Act; 5) violation of §541 of the Texas Insurance Code; and 6) common law fraud and conspiracy.  The state court action was removed to federal court on the basis of diversity jurisdiction.  In November 2023, the court dismissed all of Mitchell’s claims without prejudice except her breach of contract claim and claim for violation of §541.060 of the Texas Insurance Code.  In February 2024, Praetorian moved for summary judgment on the remaining causes of action.  

First, the court addressed the breach of contract claim.  Praetorian paid Mitchell over $21,000 to repair her home, which included cost of a full roof replacement. Praetorian argued that not only was this payment sufficient, but that it went beyond the covered losses because the roof replacement was not covered since the problems were found to have been caused by improper tarping, not by the windstorm.   Praetorian overpaid Mitchell.  In response to the motion for summary judgment, Mitchell relied on an estimate prepared by Quantum Claim Consulting Services (QCC) prepared in August 2021, which calculated repairs exceeding $67,000.   Praetorian successfully argued that the QCC estimate is incompetent summary judgment evidence because 1) the record does not show who prepared it and 2) that person cannot be cross examined on the estimate.   The court pointed out that the QCC estimate does not identify the author; the signature line for QCC Estimator was blank; the cover page stated that the “Operator” was “RICK.QCC,” but there is no way to know who “RICK.QCC” is or that he prepared or approved the estimate. Furthermore, the estimate did not include any opinions about the causes of loss, but only about the cost of repairs.  The court agreed with Praetorian and held that a “document, such as a report or repair estimate, cannot raise a factual dispute that would preclude summary judgment if the record does not sufficiently prove up the document.  An unauthenticated document prepared by an unknown source using unexplained hearsay information is not competent summary judgment evidence.”   On the other hand, Praetorian produced evidence in the form of a report from an adjuster stating that the roof was damaged by a combination of improper tarping and windstorm.  Further, there was no dispute that the bathtub spillover was not a covered loss under the policy.  Additionally, because there was nothing in the record to separate the damages attributable to improper tarping versus the windstorm, the court applied the doctrine of concurrent causation.  The doctrine of concurrent causation in Texas means that “if covered and uncovered events are inseparable, then causation is concurrent, the insurance policy’s exclusion applies, and the insurer owes no coverage for the loss.”

The court then addressed the personal property claim, mold claim and §541.060(a)(3) claim, granting summary judgment as to all claims.

Praetorian argued that Mitchell failed to raise a genuine factual dispute material to determining whether her personal property was damaged by rain entering the home through an opening in a roof or wall caused by “the direct force of wind or hail.”  Mitchell relied on her testimony that openings did exist in her roof shingles due to hail and relied on photographs that she took of her personal belongings damaged by water.  The court opined “even assuming a lay witness could hypothetically offer competent evidence on the cause of openings in her roof, Mitchell has not done so.” Mitchell did not “identify record evidence, or competent evidence attached to her summary judgment response, such as deposition testimony, affidavit, or declaration, including her opinion that hail caused openings in her roof, or that her personal property was damaged by rain that entered through those alleged openings.”

Mitchell’s policy had a mold exclusion, which did not insure loss due to mold unless certain conditions were met.  The court pointed out that Mitchell’s brief in response to the motion for summary judgment only mentioned mold damage in the “summary of argument” section, but offered no actual record citations or argument in support of her bare conclusion.  Therefore, summary judgment was appropriate as to the breach of contract claim for mold damage.

Finally, Mitchell’s 541.060(a)(3) claim failed.  Praetorian argued that Mitchell produced no evidence that Praetorian failed to provide a prompt and reasonable explanation for any denial or compromise settlement of Mitchell’s claim as well as the fact that Mitchell’s claim was predicated on her breach of contract claim and not on an independent injury.  The court agreed with Praetorian, finding that each time Praetorian either denied Mitchell’s claim or issued payment, there was a reasonable explanation within each letter, supported by facts and specific provisions of the policy.  In her response to the motion for summary judgment, Mitchell failed to explain how any of the insurer’s explanations were unreasonable “in relation to the facts or applicable law.”  The court also agreed that her claim failed for the added reason that Mitchell did not identify an independent injury.  Citing USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479, 489-94 (Tex. 2018), the court held ‘“when a plaintiff’s claim for breach of the insurance policy fails, she may prevail on statutory claims only when supported by an “injury independent of the insured’s right to recover policy benefits.”’

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The court further held that neither prejudgment interest nor attorney’s fees were available under the Texas Prompt Payment of Claims ACT (TPPCA) and rejected Plaintiff’s claim that it was owed more in TPPCA penalties under an earlier accrual date.

In Kahlig Enters., Inc. v. Affiliated FM Ins. Co., No. 23-50144, USDC No. 5:20-CV-1091, 2024 U.S. App. LEXIS 8651*, the dispute centered on a policy provision stating that the value of the loss will be either the “cost to repair” or “to rebuild” but, if “not repaired replaced or rebuilt on the same or another site within two years from the date of loss,” the value of the loss will be “the actual cash value.”   The case was originally filed in state court and removed to the U.S. District Court for the Western District of Texas.  Kahlig Enterprises sued Affiliated FM Insurance Company (AFM) for breach of contract and violations of the Texas Insurance Code following a storm that damaged several of Kahlig’s car dealerships and a car wash.  AFM advised Kahlig by letter to submit invoices showing actual repair work performed, but Kahlig only provided a sworn proof of loss without sharing the repair information with AFM.  AFM performed its own assessment of the damages and issued payment of $756,547.54 for the actual cash value in its statement of loss minus $100,000 deductible. Kahlig demanded appraisal, which AFM refused as premature.  After suit was filed, the parties eventually entered into appraisal, which set out the following values: 1) replacement cost value of $1.3 million and 2) actual cash value of $1.17 million and 3) ordinance code upgrade coverage of $75,000.  AFM tendered an additional $376,000, which Kahlig accepted.   AFM moved for summary judgment on all claims, which the District Court granted.

In this case, the covered repairs were to be completed by April 13, 2021, two years after the agreed upon loss date of April 13, 2019.  Kahlig argued that failure to timely repair should be excused because AFM was the source of delays.  The Court of Appeals rejected this contention.  The Court of Appeals held that the district court correctly decided that the burden of proof of completing repairs within two years of the date of loss lies with Kahlig.  Kahlig argued that even if the burden does lie with it, it created a fact question on whether timely repairs to skylights and leaks were made at one of the car dealerships and therefore Kahlig should be allowed to go to trial on recovering replacement cost value.  The Court of Appeals disagreed and held that Kahlig did not create a fact question on the skylight repairs because while Kahlig made those repairs timely, it was already compensated for those repairs by AFMs initial payment.  The court explained that this is because the payment was based on AFMs statement of loss, which included actual cash value for the skylight repairs that was equivalent to their replacement cost value.  Kahlig also did not create a fact question on the leak repairs.  The only documents Kahlig pointed to were letters from AFM and AFM adjuster’s testimony with a vague assertion that the letters established that repairs were made and that AFM received invoices for at least some of those repairs.  This was insufficient evidence.  The Court of Appeals emphasized that Kahlig needed to “identify specific evidence in the record and…articulate the precise manner in which that evidence supports his or her claim” but Kahlig did not meet this burden.  

The Court took up the TPPCA penalties as well.  “To prevail under a claim for TPPCA damages under section 542.060, the insured must establish: 1) the insurer’s liability under the insurance policy, and 2) that the insurer has failed to comply with one or more sections of the TPPCA in processing or paying the claim.” The Act provides for penalties if the insurer does not pay the insured within 60 days of receipt of all items requested.  The parties disputed only the accrual date.  The district court decided that the accrual date was October 3, 2019, when Kahlig provided the sworn proof of loss to AFM.  Kahlig argued that the accrual date was June 7, 2019, when AFM acknowledged coverage for the loss or alternatively the accrual date should be August 20, 2019, when AFM received estimates from Kahlig’s adjuster.   Both of these proposed dates contravene the policy.  The policy required Kahlig to send AFM a sworn proof of loss and inventory of all property losses claimed.  Therefore, the October 3, 2019, accrual date is the proper date.  Therefore, summary judgment was proper on this claim.  Finally, the court held that Kahlig cannot maintain a claim for prejudgment interest here because there is no judgment against AFM.   As for recovery of attorney’s fees under the TPPCA, the court pointed to the recent Supreme Court of Texas opinion Rodriguez v. Safeco Ins. CO. of Ind., 684 S.W.3d 789, 793 (Tex. 2024).   Specifically, where the insurer “has already paid all amounts owed under the insurance policy plus any possible statutory interest, there is not and never will be an amount to be awarded in the judgment to the claimant for the claimant’s claim under the insurance policy,” and the statutory formula results in attorney’s fees of zero.

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