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Scroll down to view the full paper, or click on one of the highlighted chapters. Table of Contents The Genesis of Foundation Damage Claims
Arnold and expansion of liability
The Texas Deceptive Practice Act Timeliness-Texas Insurance Code:
Discovery - Practical Considerations Spoilation of Evidence: Claim File Documents Legal Biography of Charles Gregory, Attorney at Law
Introduction The arena for litigation with insurance companies had expanded in Texas during the last 6 to 10 years. The trend is now moving quickly in the other direction. Beginning with Arnold v. National County Fire Insurance, 725 S. W. 2d, 165 (Tex. 1987), the Texas Supreme Court had demonstrated a willingness to bring Texas in line with the progressive and generally accepted philosophy of holding insurance companies to certain standards in dealing with their own insureds. The cases immediately following Arnold sought to further develop the field of first party insurance litigation i.e. suits involving the insured suing their insurance company, to afford insureds the same protections that have been available to insureds regarding certain third-party claims since the Stowers decision. The development of first party "bad faith" insurance practices litigation which started in Texas in the later 1980's had shown a clear trend for making the courts and the consumer statutes of Texas readily available to protect insureds. Texas refers to the duty of good faith and fair dealing, but this paper and the Courts often refer to the more generic term "bad faith" litigation. Although cases such as Arnold and its progeny established strong precedent for bad faith insurance litigation, more recent opinions leave no doubt that the expansion in bad faith litigation is over. This is not to say however, that bad faith insurance litigation in Texas is not still a meritorious cause of action against an insurance company but that, recent decisions of the Texas Supreme Court in the past year demonstrate that the pendulum is leveling off in the bad faith insurance litigation. Likewise, ERISA has limited the availability of consumer-oriented legislation in the group insurance context as far as the insured is concerned. The purpose of this paper is to generally trace the theories available in connection with the handling of first-party claims. and, to a lesser extent, claims arising from third-party actions. The theories include breach of the duty of good faith and fair dealing, insurance code violations, deceptive trade practices, breach of contract and other theories. In order to understand the Theories of Recovery which section follows this introduction, the reader of this paper must understand the basics of"bad faith" claims brought by an insured against his or her own insurance company. "Bad faith" on the part of an insurer is defined as "any frivolous or unfounded refusal to pay proceeds of policy; it is not necessary that such refusal be fraudulent. For purposes of an action, against an insurer for failure to pay a claim, such conduct imports a dishonest purpose and means a breach of a known duty, (i.e., good faith and fair dealing), through some motive of self-interest or ill will; mere negligence or bad judgment is not bad faith," Black's Law Dictionary, 6th Edition (1990), "Bad Faith" p. 139.
The duty of good faith and fair dealing in the context of the insurance industry arise in the common law out of the "special relationship" between the insurer and the insured. In addition to having a contractual relationship. The courts recognize additional factors making the relationship more than mere contract: the necessity of insurance, the relative lack of or unequal bargaining power of the insured, and the power of control retained over claims by the insurer. See Arnold v. National County Mutual Fire Ins. Co., 725 S. W. 2d 165, 167 (Tex. 1987).
The issue of "bad faith" typically focuses not on whether the claim was valid, but on the reasonableness of the insurer's conduct in rejecting the claim. The most common case arises out of an insured's allegation that his or her claim was "wrongfully denied". Texas Courts have swung back and forth on what standard to use to determine the presence or absence of the duty of good faith and fair dealing in a wrongful denial scenario. At different times the Supreme Court has asked either ( 1) if a "reasonable basis" existed for denying a claim; or (2) if the insurer knew or should have known that it was "reasonably clear" that the claim was covered. Although the most recent pronouncement by the Texas Supreme Court on this issue will be discussed below in the Theories of Recovery section, the two concepts are inter-related. If a reasonable basis existed to deny the claim, logically coverage for the claim would not be reasonably clear. On the other hand, if no reasonable basis exists for denying a claim, it would seem logical that coverage of the claim would be reasonably clear . The Courts have repeatedly stated that insurers "maintain the right to deny invalid or questionable claims." Aranda v. Ins. Co. of N. Am., 748 S. W. 2d 210, 213 (Tex. 1988). "{A} bona fide dispute about the insurer's liability on the contract does not rise to the level of bad faith." Transportation Ins. Co. v. Moriel, 879 S. W. 2d 10 (Tex. 1994). Because of the continuing presence of insurance fraud and the need for diligence in protecting against illicit claims, the courts have held that even if a claim ends up being valid, the prior denial of that claim does not necessarily amount to bad faith. Liability under Texas law requires denial when coverage is reasonably clear-that is, denial without a reasonable basis for doing so.
The Genesis of Foundation Claims A. Suit Against the Insurance Company for Foundation Damage The case of first impression in Texas was Balandran v. Safeco Insurance Company of America, 972 S. W. 2d 738 (Tex. 1998). Balandran brought a state-court suit against their homeowners' insurer to recover for damage to their home's foundation as well as interior and exterior finishes, as a result of broken sewer lines. The form of the policy was the 1991 Texas Standard Homeowner's Policy-Form B. In September 1993, the Balandrans filed a claims against Safeco for damage to their home caused by an underground plumbing leak. The leak caused the soils to expand, damaging the home's foundation as well as its interior and exterior finishes. When Safeco denied the claim, the Balandrans sued the company in state district court. The insurer (Safeco) removed the case to federal court in San Antonio. At trial, the jury found that the structural damage was caused by the plumbing leak an awarded the Balandrans $66,500. Safeco moved for a judgement as a matter of law, contending that the Balandrans' policy excluded this structural damage regardless of the underlying cause. The trial judge granted Safeco's motion, rendering a take-nothing judgement for Safeco. The Balandran's appealed to the Fifth Circuit Court of Appeals. In an unrelated case on an identical policy issue on appeGl to the Fifth Circuit held that policy did not provide coverage for foundation damaged from a plumbing leak. Subsequently, however, the Texas Commissioner of Insurance issued a bulletin vigorously disagreeing with the identical policy pending in the Fifth Circuit. In light of these developments, the Fifth Circuit panel hearing the Balandrans' appeal certified to the controlling question to the Texas Supreme Court regarding policy coverage. The Texas Supreme Court in an opinion written by Chief Justice Tom Phillips held that exclusion in standard homeowners' insurance policy for loss to dwelling caused by settling, cracking, bulging, shrinkage, or expansion of foundation was inapplicable to structural damage from a plumbing leak. The issue in this case was whether or not the 1991 Texas Standard Homeowner's Policy-Form B covers damage to the insured's dwelling from foundation movement caused by an underground leak. For the sake of brevity, this case is included in the Appendix for your reading. The Supreme Court after much insurance contract interpretation concluded that the Balandrans' interpretation of the exclusion repeal provisions is not unreasonable. Because the Balandrans are the insureds, we adopt their interpretation as the proper construction of the policy.
B. Synopsis of Subsequent Relevant Cases Expanding Insurance Carrier Liability In Ruch v. State Farm Fire and Casualty Company, 1997 WL 452743 (N.D. Tex.). At issue in this case was another interpretation of a foundation damage exclusion in a homeowner's insurance policy. Ruch sued State Farm to recover under a Texas Dwelling Policy for damage to her house's foundation that she contends was caused by an accidental discharge from or leaking in her home's plumbing system. She also brought extra contractual claims against State Farm for breach of the duty of good faith and fair dealing; violations of Article 21.21 of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA). State Farm maintained that it was entitled to summary judgment because the Policy does not cover foundation damage, whatever the cause. State Farm prevailed (but remember, this is pre-Balandran). Regarding the breach of good faith and fair dealing the court stated that such a cause of action is based upon the absence of a "reasonable basis" for denial of a claim, delay in payment, or a failure by the insurer to determine whether there is any "reasonable basis" for the denial. See Arnold, infra. The court held that there was no basis for her cause of action since Ruch asserts only that State Farm lacked a reasonable basis for denying her claim because State Farm unreasonably relied on the report of its expert regarding the cause of the foundation damage at her residence in light of conflicting expert reports. It is unnecessary for the court to address whether it would be reasonable for State Farm to rely on its expert's report because State Farm has contended, and the court agrees, that State Farm reasonably denied coverage under the Policy, regardless of the cause of the foundation damage. Ruch lost on all counts.
3. The worm begins to turn. A Texas appeals panel affirmed a $982,962 bad faith judgment against an insurer that denied coverage for foundation damage after conducting a biased and inadequate investigation, State Farm Lloyds v. JoAnn Johns, No. 05-96-0IO39-CV, Texas App.-5th Dist. Additionally, the court found there was coverage under the policy for the foundation damage caused by plumbing leaks. Jo Ann Johns filed a claim under her State Farm Lloyds homeowners policy after large cracks, sloping floors and uneven doors appeared. Repairmen discovered plumbing leads under the house, but State Farm denied the claim because its investigation showed the damage was caused by "normal settlement." Johns sued alleging violations of the Texas Insurance Code and DTPA. The jury found liability and awarded mental anguish and treble damages. The court in addressing the "Unreasonable Denial" aspects concluded that a jury -could have determined that State Farm's conduct was unreasonable. The panel said State Farm should have known the claim was covered; it relied on the report of its engineer without checking his credentials; it did not have a procedure for reconciling conflicting expert reports; and it did not reconcile the lack of damage reported for months earlier when an unrelated claim was investigated. The evidence, the appellate court said, also supported two alternative grounds submitted to the jury--failing to adopt and implement reasonable standards or prompt investigation of claims arising under its policies and refusing to pay claims without conducting a reasonable investigation based upon all available information. Specifically, the court cited State Farm's insistence that its engineer was correct and that it did not seek a third opinion, did not require reinspection after a second leak was found, did not require soil testing and did not interview the engineer Johns had retained The court concluded the evidence was legally and factually sufficient to support the jury's findings. In order to award treble damages under the DTPA, the jury had to find State Farm knowingly engaged in an unfair act. Based on the previously discussed evidence, the appeals panel found the jury could have concluded State Farm had no reasonable basis for denying the claim and that it knew it had no reasonable basis. Turning to mental anguish damages, the appellate court held the damages were warranted based on Johns' testimony that she was embarrassed about the condition of her home, she was upset about not being able to entertain friends and family, she had persistent nightmares, the tension caused reinjury to her neck and she was worried about her future because her retirement savings were tied up in the house. The appeals panel also found there was coverage, relying on Balandran, supra, which concluded the Texas standard homeowners policy covered foundation damage caused by plumbing leaks.
4. The technical courts charge to the jury as the defining standard. The jury question: Do you find from a preponderance of the evidence that Insurer failed to act fairly and in good faith in the handling of the insurance claim under the policy in question? You are instructed that an insurer fails to act fairly and in good faith in the handling of an insured's claim when failing to attempt in good faith to effectuate settlement of a claim when the insurer's liability has become reasonably clear. You are further instructed that if a reasonable basis exists for denying a claim, liability is not reasonably clear . Answer "Yes" or "No" Theories of Recovery Duty of Good Faith and Fair Dealing For many years, Texas court had been unwilling to impose in any contract a duty of good faith and fair dealing. As late as 1983, the Texas Supreme Court specifically held that an insurer owned no duty of good faith and fair dealing toward its insured. English v. Fisher, 660 S. W. 2d 521, 522 (Tex. 1983). Under the Texas case law through that time, an insured seeking relief from a mishandled or negligently handled claim had no remedy for a breach of the duty of good faith and fair dealing. However, Justice Spears, in writing the opinion for the Court was willing to impose a duty of good faith and fair dealing where special relationships exist between the parties or due to an imbalance of bargaining power between parties to a contract. Arnold and Expansion of Liability
Retreat from Arnold.
The result of Moriel and others is that to prevail on an Arnold, a claimant must prove that the carrier had no reasonable basis for delay or denial of benefits; however, differences between experts on the issue of coverage will not support a bad faith claim under review. Bad faith damages alone are compensatory. Only if there is actual awareness of a serious and unique harm will punitive damages be available. The Pendulum Stops Swinging In the last couple of years, several decisions from the Supreme Court indicate that the reversal from Arnold has perhaps slowed down with some decisions upholding a finding of bad faith on the part of the carriers although no case has upheld the award of punitive damages in a bad faith case.
Statue of Limitations Initially, the Court in Arnold suggested that the breach of duty of good faith and fair dealing was subject to a two (2) year statute of limitations. Again, this was consistent with the overall basis for the establishment of this duty as one sounding in tort rather that contract. The cause of action accrued while the underlying insurance contract claims was finally resolved. In Murray v. San Jacinto Agency, Inc., 800 S. W. 2d 826 (Tex. 1990), the Texas Supreme Court effectively overruled part of the Arnold decision regarding limitations specifying a new accrual date for a cause of action under the duty of good faith and fair dealing. In Murray, although the statute of limitations remained at two years from the time the cause of action accrued, the accrual date runs FROM THE DENIAL OF THE CLAIM not some subsequent date when the resolution of a separate suit to determine coverage occurs. The discovery rule will not apply to all limitations where there has been an outright and express denial. Davis v. Aetna Cas. & Sur. Co., 843 S. W. 2d 777,778 ( Tex. App.- Fort Worth 1992). Subsequent acts of bad faith after the denial will not give rise to a separate cause of action. Such acts may be evidence of bad faith but cannot be used to extend the statute of limitations. Everyone should be cognizant of the fact that the statute begins to run on the date that the insured is notified of the denial of his or her claim.
There is a requirement that all actions brought under DTPA § 16 of Art .21.21 within two (2) years of the unfair method or deceptive conduct with the statute specifically including a discovery rule. The statute provides an extension of the statute similar to the DTPA if suit was not filed within two (2) years as a result of conduct by the defendant carrier to induce plaintiff to refrain or delay the commencement of litigation. The Texas Insurance Code
Although the Arnold case provided a common-law remedy to proceed against insurance companies for the handling and settling of claims, it by no means provided the only substantial theory. Over time the Texas Legislature has compiled a statutory list (codified in Texas Insurance Code) of specified acts that amount to "unfair settlement practices." The insurance code provides remedies which differ from those available under a simple breach of contract theory or under a common law breach of the duty of good faith and fair dealing which affords extra leverage to the insured in situations where claims are mishandled.
1. Tex. Ins. Code Art. 21.21 The most frequently used provision of the Texas Insurance Code is Tex. Ins. Code Art. 21.21. Article 21.21 deals with unfair competition and unfair practices. Article 21.21 § 16 provides a private cause of action to: any person who has sustained actual damages as a result of another's engaging in any act or practice declared in §4 of this article or in the rules or regulations lawfully adopted by the Board under this article to be unfair methods of competition or unfair or deceptive acts in the business of insurance or in any practice defined by § 17.46 of the Business & Commerce Code, as amended, as an unlawful deceptive trade practice may maintain an action again~t a person or persons engaging in such acts or practices.
For purposes of this paper, only the relevant portions of Art. 21.21 will be discussed. The relevant portions of Art. 21.21 §4, subsection 10, are those dealing with specified acts that amount to "unfair settlement practices." These prohibited practices are statutory "bad faith" or statutory violations of the duty of"good faith and fair dealing." The laundry list of violations is included in the Texas Insurance Code, Art. 21.21 §4. The prohibited violations can be summarized as follows:
Finally, Article 21.21, §16 incorporates Tex. Bus. & Com. Code§17.46 which is more commonly known as the Texas Deceptive Trade Practice-Consumer Protection Act of the DTPA. By incorporating the laundry list contained in §17.46 of the DTPA, Article 21.21 has made available all the potential violations of the DTPA which may expand the duty of insurers under the Texas Insurance Code. Interestingly enough, the DTPA has specifically incorporated Article 21.21; consequently, most actions available under the Texas Insurance Code will be available under the DTPA as well. The remedies available to injured parties under Article 21.21 include actual damages, reasonable and necessary attorney's fees, and if the trier of fact determines the conduct of the defendant was knowingly committed, the trier of fact may award not more than three times the actual damages. Unlike, the DTPA, the trebling of damages under the insurance code for knowing violations is mandatory. The court may also award other appropriate relief including injunction relief and recision. The Supreme Court has recently stated that to recover mental anguish damages in an Article 21.21 case, the insured must obtain a finding of "knowing conduct." State Farm Life Insurance Company v. Beaston, 907 S. W. 2d 430,437 (Tex. 1995). Attorney's fees are available under § 16 of Art. 21.21; however, the court also has the authority to award attorney's fees to the defendant if there is a finding that any action brought under § 16 was groundless and brought in bad faith or for the purpose of harassment. This is language which tracks the DTPA statute. Article 21.21: requires a sixty (60) day notice as a prerequisite to filing suit unless the claim under § 16 is a counter-claim. The defendant has an opportunity to make a settlement offer within the time limit. If the settlement offer turns out to be the same or substantially similar to the ultimate award, the plaintiff's recovery may be limited to the lesser of the amount tendered in the settlement offer or the actual damages.
2. Article 21.55 In 1991 the legislature has placed new burdens on insurance companies in first- party (i.e. the insurance companies insured, the policy holder) claims in Tex. Ins. Code, Art. 21.55
Texas Deceptive Trade Practices-Consumer Protection Act
Tex. Bus. & Com. Code, §§ et seq. Contain the Texas Deceptive Trade Practices- Consumer Protection Act, more commonly known as the DTPA. The DTPA is intended to provide relief for consumers as defined in Section 17.45(4). There is no privity requirement under the DTPA but in order to prevail, the plaintiff must show that he or she is an individual seeking or acquiring by purchase or lease, goods or services. In some instances this is a narrower definition than is required under the Texas Insurance Code which provides remedies for any person injured as a result of unfair or deceptive insurance practices.
The DTPA affords remedies to “consumers" as defined in the statute. A third-party -claimant is not a consumer for purposes of the DTPA.
Section 17.50 provides the remedies available to consumers. Generally, the DTPA provides a cause of action where there have been the following representative types of claims or breaches of the Act:
The first means by which a consumer can prevail against an insurer is if the insurer has engaged in an action contained in the laundry list of§17.46 of the DTPA. The most often utilized of the laundry list items contained in §17.46 are:
An additional cause of action under the DTPA can be brought by any person who has suffered damages as a result of the unconscionable acts or course of action by any person. §17.50(3). Section 17.45 defines "unconscionable acts or course of action" as an act or practice which:
I have enclosed in the appendix a copy of a representative type of DTPA demand letter which also sets out the type of demand letter language utilized when asserting DTPA claims.
Finally, as previously mentioned above with regard to Article 2 1.21 of the Texas Insurance Code, the DTPA has specifically cross-referenced and incorporated violations of Article 2 1.21 and regulations issued by the State Board of Insurance as deceptive trade practices. As the State Board of Insurance has specifically incorporated Article 21.21 violations of the unfair claims settlement practices of Article 21.21-2 are therefore incorporated and actionable under the DTPA. A prevailing consumer is also entitled to reasonable and necessary attorneys' fees as well as court costs. As in the insurance code, if there is a finding that the action was groundless and brought in bad faith or for the purpose of harassment, the defendant can be awarded reasonable and necessary attorneys' fees and court costs. As a prerequisite to a suit, unless the statute is about to run, a party must give a sixty (60) day notice period by a DTPA demand letter, see Appendix for this letter. The insurer has an opportunity to make a settlement offer as well as to request an inspection of certain materials within the sixty (60) day period. If the settlement offer is extended by the defendant in compliance with the DTPA within the sixty (60) days, this may be a defense to additional damages and attorneys' fees under the DTPA on a finding that the offer was the same or substantially similar to the actual damages found by the trier of fact. Again, defense counsel should seriously consider making an offer in every case in compliance with the DTPA to afford their client an opportunity to limit damages. Timeliness- Texas Insurance Code Article 21.55 Texas Insurance Code Article 21.55 governs the prompt payment of claims and applies to any "first party" claim by an insured that must be paid directly to the insured or beneficiary .This section of the Insurance Code sets forth various statutory deadlines which must be met in the receipt and handling of a claim. Section 2 of 21.55 requires:
Section 3(a) of Article 21.55 requires:
Section 3(b) of Article 21.55 requires:
Section 3(d) and (e) states:
Section 6 of Article 21.55 states:
In summation, the insurer has 15 days after receiving a claim to acknowledge the claim, begin investigating and seek items, statements, and forms from the claimant. Once all of the items, statements, and forms are received by the insurer, the insurer has 15 days to accept or reject the claim--with 2 exceptions. First, if arson is suspected, the insurer can give notice and expand the period to accept or reject the claim to 30 days. Second, if the claim decision cannot be made in either the 15 day or 45 day arson period, the insurer may provide the claimant with notice and an explanation and expand the period to make its decision by no more than 45 additional days. Other Theories of Recovery Although the theories described above for breach of the common law duties and the statutory duties are the strongest cases against insurers in bad faith litigation, other theories should be considered. Of course, in any case in which a claim for benefits under a policy is denied, a breach of contract theory should be asserted. The breach of contract theory does not provide the number of remedies nor the leverage in settlement as do the other bad faith theories because of the nature of a contract claim as opposed to a tort claim; however, it certainly should not be overruled. If the party can not establish a requisite breach of the duty of good faith or the statutory violations, there may well be a breach of contract cause of action. Another advantage is that a breach of contract does have a four (4) year statute of limitations unless there are shorter limitations within the policy itself that are not violative of the public policy of this state. A breach of contract theory also will allow the recovery of attorneys fees and often times may be necessary partly from a technical standpoint to establish a bad faith denial of a proper claim under a policy. Under the Viles (infra)decision, counsel should be aware of the fact that even if a breach of contract claim is defeated there still may remain a breach of the duty of good faith and fair dealing because of the Supreme Court's recognition that the breach of the duty of good faith and fair dealing is a tort claim separate and apart from the contract action. A fraud action is also available against insurance companies with regard to the taking of applications and the procuring of insurance. The elements of fraud are slightly more detained than are necessary under the DTPA; nonetheless, the Texas Supreme Court recently has stated that the statute of limitations in a fraud action is four years. There had been some dispute as to the statute of limitations for fraud actions, but this has been clarified and where remedies under breach of the duty of good faith and fair dealing or under the DTPA are unavailable due to the statute of limitation, one should consider a fraud action, keeping in mind the difficulty in proving some of the elements of fraud; which are:
Actual Fraud
Constructive Fraud
This tort is almost the same as actual fraud with a minor difference:
The Supreme Court has expressly adopted the tort of intentional inflection of emotional distress in Twyman v. Twyman, 855 S. W. 2d 618 (Tex. !993). In Twyman, the Court set out the elements of this tort:
There are other theories that may fit a particular case, but the major theories involved in insurance litigation involving the taking of application, the denial of claims, the handling of claims and similar actions by insurance companies will generally fall under the theories and the statutes described herein. Discovery - Practical Considerations The following section discusses how the discovery process is employed in insurance litigation. By understanding the tactical considerations utilized by plaintiffs counsel, the reader will arrive at an understanding of what is involved in proving up an insurance bad faith case for their clients. More importantly revealed in the discovery process, are the early actions taken by the insurance company from the moment it learns of a potential claim until the decision to pay or deny. How that conduct and decision making process; is developed during discovery will determine whether a case is a potential punitive damages case or merely a breach of contract claim or a defense verdict. Here the lawyers strategies for case development are important to the engineers and their clients, since it is the early stages of investigation and claims process which set up either victory or a marginal recovery... or maybe none at all.
One would think that the day of the "smoking gun" document is over, yet more frequently than one might expect, incrimination memoranda still turn up during discovery. If such obvious documents do not appear a more subtle pattern must be established. Combining less incriminating document with damaging deposition testimony or historical data such as previous similar litigation often establish the requisite evidence and intent to create strong cases against carriers. As we all know, the insurance carriers have prepared their defenses very carefully to limit exposure. The objective here for the lawyer and engineer is showing a pattern of bad faith, if at all possible. For example, the lawyers discovery should be directed toward prior/pending lawsuits and claims should be used to help demonstrate a planned intentional breach of the duty of good faith and fair dealing or violation of the appropriate statutes. The engineer should be dealing with the technical aspects objectively, from a professionally supportable position. As everyone knows by now, insurance companies hire their engineering experts to:
As a part of the discovery process, I have enclosed in the Appendix, a representative set of Interrogatories and Request for Production of Documents in a pending case against Travelers. As you will note, the lawyer is looking for all claims and underwriting files maintained for each claim made against Travelers and subsequently denied in the past five (5) years. The client's engineer should be seeking to identify glaring misstatements in the captive engineers statement to the homeowner/insurance company in order to demonstrate lack of objectivity, error in findings and error in conclusion.
Spoliation of Evidence: Claim File Documents Spoliation is another word for wrongful destruction. The Texas Supreme Court decided in the summer of 1998 that Texas does not recognize a cause of action for spoliation, Betco Scaffolds Company v. Houston United Casualty Ins. Co. 1999 WL605527 (Tex. App-Houston [ 14th District] August 12, 1999) (slip copy), and Trevino v. Ortega, 969 S,. W. 2d 950 (Tex. 1998). However, spoliation is a two edged sword which cuts both ways from an evidentiary standpoint. On the side related to the insurance carrier, the Supreme Court held that where the insurance carrier destroyed its claim file and any other evidence of the claim filed by its insured, the carrier was held by a presumption to have presumably destroyed evidence favorable to its insured. All evidence presented by the insured at trial requiring the insurance carrier to rebut such evidence was indulged in favor of the insured. Conversely, the clients engineer, plumbing contractor, foundation repair contractor and the like may find themselves faced with a spoliation defense to their clients presentation of evidence favorable to their position for whatever the claim. If during the repairs of the clients property damage or removal of the effected items, i.e. plumbing, pipes, electrical, soils, foundation lifting, temporary piers wherein the insurance carriers engineers claim they did not have the opportunity to inspect the items which are made the basis of the clients claim on his insurance policy, you may well face a spoliation defense to the presentation of such favorable evidence supporting your insurance claim. I have enclosed a copy of a spoliation letter sent to Travelers in the Appendix to this paper for your future reference. Experts With the explosion of insurance litigation has come the increased use of experts. Under the Texas Rules of Evidence, witnesses can now give opinions and testimony as to the ultimate issues in the case. This is a matter which should not be overlooked by either side. I can assure you that the insurance carriers have utilized the role of experts in litigation in such a manner as to virtually insulate themselves from most liability. Having established the policies and procedures of an insurance company and having determined how an individual claim has been handled, it can be most useful to have an expert compare the handling of the case and the policies and procedures to industry standards. As with any expert in any litigation, time should be taken to examine the credentials and background of the experts. Properly used, an expert may prove invaluable in addressing issues to be considered even before the filing of suit. The credentials of the engineer hired by the insurance carrier should be examined carefully. Likewise the insurance engineers observations, facts, theories and conclusions should be dissected to demonstrate error, bias, flawed calculations, and erroneous conclusions. If his or her conclusions are miraculously correct, then you have saved your client a lot of money from the litigation prospective.
It is the job of the clients engineer to "set up" the insurance carrier if possible on the basis of erroneous conclusions made by the insurance engineer due to erroneous findings, and lack of objectivity or bias. The client's engineer should keep a copy of ALL engineering reports prepared by the insurance company (regardless of the case) for later use by the client's attorney and engineer by demonstrating the "cookie cutter" language found in each denial based upon the insurance carriers so-called, "independent engineering consultants." You'll be amazed by the historical similarities found in the insurance carriers engineering reports. By the same token, don't be a victim of the same tactic if you testify for many homeowners. The engineer should write his report based on personal knowledge which resulted from actual investigation done by him or her personally within the limits of his or her expertise. Rebuttal of the captive engineers report should be made on a point by point basis.
In responding to the insurance company engineers report, be advised that when you prepare your report for the client it will be discoverable, unless it is used as a consulting expert opinion only. The client's engineer should not get caught in the appearance of failing to comply with the terms of the insurance contract or give a negative appearance regarding continued good faith communications pending the resolution of a claim, or lack thereof. For example, most if not all insurance policies compel the insured to allow the insurance company the right to investigate the claim made. In doing so, the carrier will hire its engineering experts and a biased report will be written in most cases, whereupon the insurance carrier will deny the claim. In order to have the insurance carrier subjected to the greatest exposure of damages, the client will be required to disclose all information at the time such information was known for the carrier to utilize in the evaluation of his claim. Nothing is gained by not providing the carrier with all the information the client had obtained from his own engineers. Remember, it is discoverable anyway, unless it is used as a consulting report and then a testifying engineer is hired wherein his or her report is used and by the Texas Rules of Civil Procedure such report is automatically discoverable. Conversely, should you fail to provide the engineering report, you are handing the insurance carrier a defense to bad faith, damages for either of two (2) reasons:
Conclusion The expansion of insurance litigation with the Arnold decision had created a great new area of practice for both plaintiffs and defendants. The expansion is over. The recent Supreme Court decisions leave little doubt the pendulum has swung back the other way although it is not swinging too far either way recently. Obtaining punitive damages remains problematic for the insured. The basic inquiry as to whether the duty of good faith and fair dealing has been breached remains in the hands of the jury .If evidence exists supporting a finding that there was a delay or denial after the insurer's liability on the claim becomes "reasonably clear," it appears bad faith damages awards will stand. Every insured's case must be analyzed to determine what theories are applicable and how to structure discovery to meet the desired end. From the very beginning, careful preparation of the petition and the tailoring of discovery to fit a particular case is essential to posturing a denial claim into a solid breach of the duty of good faith case for settlement or trial purposes. Likewise, defense counsel
are cognizant of the discovery that can be anticipated in bad faith insurance
litigation and be prepared to address these matters. Engineers and their
clients should be made aware and reminded of what conduct will subject
to the insurance carrier to additional damages, punitive damages and other
tort damages. The ultimate goal of the engineers representing their clients
should be the placing of their clients in a posture to prevail upon presentation
of their claim by the insurance carrier, without the need to result to
litigation. Legal Biography of Charles Gregory, Attorney at Law Mr. Gregory concentrates his practice in commercial/civil trial litigation in the firm's Houston office. In 1977, he received a B.A. degree in Biology/Chemistry from Trinity University in San Antonio, Texas. In 1980, he received a J.D. degree from South Texas College of Law in Houston, Texas. In 1985, Mr. Gregory was honored as an Outstanding Young Man of America. Admitted to the State Bar of Texas 1982. Admitted to practice Federal Court, Southern and Western District of Texas 1983. Certified by Harris County Criminal District Courts for attorneys trying felony criminal cases. Mr. Gregory has litigation experience in commercial/civil trial litigation. Areas of law involved in this practice are acquisitions and mergers, (stock holder agreements, subscription agreements, buy- sell agreements, asset purchase agreements, general and limited partnership agreements) corporate, employment, commercial, and environmental law. In the area of administrative law, Mr. Gregory has represented corporations for/against the following agencies: Texas Department of Health; Texas Department of Health Bureau of Surveillance and Enforcement; Texas House of Representatives - Environmental Affairs Committee; Texas Attorney General Office -Antitrust Division. Lobbied Texas Environmental Affairs committee members to follow mandated regional land use proposals for landfill siting requirements. Other areas of practice involve trade regulations/franchise law, Deceptive Trade Practices-Consumer law, Lender Liability, Insurance Bad Faith Litigation, Intellectual Property law (non-competition agreements, employment agreements, trade secrets, patents, proprietary information). Representative clients are Texas Disposal Systems, Inc., Pak-Mor Manufacturing Company, Thyssen Industries, AG., Kassel Germany, Nevada Bob's Discount Golf and Tennis Co., C-Air-S Mechanical Contractors, Inc.,.Commercial Money Center, Inc., Momentum Cash Systems, L.L.C., Diversified High Technologies, Inc., Suntech Building Systems, Inc., Total Roll-Off’s. L.L.C., O'Rourke Petroleum Products, Inc., Technology Recovery, L.L.C., Plasticos Leon S.A. de C. v. Monterrey Mexico, SciPoint Data Solutions, L.L.C., Griffith Directional Drilling, Inc., Tri-Collar, Inc., Waste Management, Inc., CBM Engineers and many others. |
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