People insured by a first-party property insurance policy are obligated to prove that there was a loss due to a peril insured against and the extent of that damage. Only after the insured proves that a loss due to a peril insured against does the insurer have an obligation to prove a provision of the policy deprives the insured of the indemnity sought.
In One Way Investments, Inc. v. Century Surety Co., 2016 WL 5122124, 2016 U.S. Dist. LEXIS 129142 (N.D. Tex. Sept. 21, 2016), the Texas District Court was faced with a motion for summary judgment presented by Century Surety Company to dismiss the claims of plaintiff One Way Investments for breach of contract, violations of the Texas Insurance Code, and breach of the duty of good faith and fair dealing.
The Facts
Century insured One Way's Han Gil Hotel Town (the "Property") in Dallas under a Texas Commercial Property Insurance Policy (the "Policy"). One Way alleged that on June 13, 2012, a severe hailstorm caused significant damage to the Property's roof and appurtenances and to its interior. One Way submitted a claim under the Policy for wind and hail damage caused to the Property by the storm, seeking the cost for repair and/or replacement of the roof, air conditioning units, and damage to the interior walls.
Century's adjuster estimated the cost of the Property damage to be $2,372.43, which was less than the amount of One Way's deductible. Accordingly, Century did not pay any amount on One Way's claim.
One Way sued Century for breach of the Policy, breach of the duty of good faith and fair dealing, and unfair settlement practices and failure to promptly pay its claim, in violation of the Texas Insurance Code.
Century moved for summary judgment, dismissing One Way's breach of contract claim, in which One Way asserted that Century breached the Policy by not paying for the full cost of repairs to the Property. Century maintained that the Policy did not cover damage or loss to the Property due to wear and tear, there was no evidence from which a jury could allocate covered loss (due to wind and hail) from noncovered loss (due to wear and tear), there was no expert testimony that the Property damage was caused by wind and hail, there was expert testimony that the Property damage was caused by wear and tear and improper construction, and there was no evidence establishing that the alleged cost of repairs was reasonable and necessary. Century offered the affidavit of its expert, Robert N. Fleishmann, as evidence that the damage to the Property was not caused by wind and hail.
One Way responded with its own affidavits of Amos Mun, the proprietor of the Property; a report by A&L Engineering and Consulting, Inc.; and an estimate of the cost of repairs by Accord Services, Inc.
Analysis
In Texas, and every other state, an insured cannot recover under an insurance policy unless the insured pleads and proves facts that show that its damages are covered by the policy. Although an insured who suffers damage from both covered and excluded perils is not precluded from recovering, when covered and excluded perils combine to cause an injury, the insured must present some evidence affording the jury a reasonable basis on which to allocate the damage.
Because an insured can only recover for covered events, the burden of segregating the damage attributable solely to the covered event is a coverage issue for which the insured carries the burden of proof. It is essential that the insured produces evidence that will afford a reasonable basis for estimating the amount of damage or the proportionate part of damage caused by a risk covered by the insurance policy. Failure to segregate covered and noncovered perils is fatal to recovery.
The court said that One Way had not introduced any evidence that would enable a reasonable jury to estimate the amount of damage or the proportionate part of damage caused by a covered cause (i.e., hail and wind). Even if the court were to consider the reports of A&L and Accord as timely proffered expert testimony, neither report provided evidence from which a reasonable jury could allocate damage from wear and tear, poor construction, or any other causes, on the one hand, and allocate damage from wind and hail on the other. Accordingly, because One Way had not created a genuine fact issue concerning whether its alleged damages are covered by the Policy, the court held that Century was entitled to summary judgment dismissing One Way's breach of contract claim.
The court said that Century was entitled to summary judgment on One Way's breach of contract claim for an additional reason. A party seeking to recover for the cost of repairs must prove the reasonable value of the repairs and that the repairs are necessary. Mere proof of amounts charged or paid does not raise an issue of reasonableness, and such amounts ordinarily cannot be recovered without evidence showing the charges were reasonable.
Century also moved for summary judgment as to One Way's extra-contractual claims for breach of the duty of good faith and fair dealing and for violations of the Texas Insurance Code. Century maintained that there could be no liability for extra-contractual claims where there was no breach of the Policy. A "bona fide dispute" regarding insurance coverage precludes liability for breach of the duty of good faith and fair dealing and violations of the Texas Insurance Code. If there is any reasonable basis for denying insurance coverage, the insurer will not be liable in tort.
Century pointed to the testimony of its expert, Fleishmann, who conducted an examination of the Property. Fleishmann concluded that "hail damage to the roof did not cause or contribute to roof leakage, and that there was no wind damage to the roof," and that "the poor condition of the roof was not caused by hail or any storm event but by the age of the roofing materials and normal wear and tear." One Way provided no evidence refuting Fleishmann's conclusions or any evidence that would enable a reasonable jury to find that Century did not have a reasonable basis for denying One Way's claim. One Way has also failed to introduce any evidence that Century violated its duty of good faith and fair dealing or that Century otherwise violated the Texas Insurance Code by failing to promptly respond to One Way's claim or by engaging in other unfair settlement practices.
The court granted Century's motion for summary judgment and dismissed this action with prejudice.
Conclusion
People who are insured and incur a loss often believe they have no obligation to the insurer and only need to make a claim and collect money. If the insurer doesn't pay, they believe they are entitled to tort damages. Those who do so are wrong. In this case, since there was a "bona fide dispute" regarding insurance coverage, there was no bad faith tort. Since the insured failed to prove a loss due to an insured peril, it had no right to breach of contract damages.
© 2016 Barry Zalma, Esq., CFE
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