Bad Faith Claimed after Denial of Coverage

 

July 14, 2014

 

The insured initiated a bad faith claim against his insurer after the insurer denied coverage for a wind damage and water damage claim. This case is Santacruz v. AllState Texas Lloyds, 2013 WL 3196535.

 

The insured claimed that AllState was his insurer when a storm blew several shingles off his roof, which caused the roof to leak and part of the roof to fall into his home. Santacruz said that he reported the damage to the insurer but since the insurer could not inspect the damage at that time, Santacruz had the roof repaired to prevent further damage. After that, the insurer denied coverage since the insurer's adjuster could not investigate the loss. The insured then filed this action against the insurer.

 

AllState contended that the homeowners policy required Santacruz to provide AllState with access to the damaged property as often as was required. However, since the insured had the roof repaired before an inspection, the insurer said this action deprived it of access and the opportunity to investigate the loss and so, the insured violated the provisions of the policy. Santacruz countered that he provided the insurer with immediate access but AllState delayed in scheduling a meeting. Also, said Santacruz, the policy required him to protect the property from further damage and make reasonable and necessary repairs, which he did.

 

The United States District Court for the Northern District of Texas noted that the gist of the insurer's argument is that the insured violated the duty after a loss by repairing the roof before an investigation could be conducted. The question for the court then was whether the insurer acted reasonably in denying the claim for that reason (or any other reason).

 

As an initial matter, the court said that the alleged violation of the policy's requirement that the insured allow the insurer access to the property was not a sufficient reason to deny coverage. The insured's immediate steps to repair his roof did not contribute to the home's damage. Thus, any technical breach of the policy provision requiring the insured to provide access to the property is not a defense to this action.

 

The court then addressed the issue of whether the duty to cover the claim was reasonably clear. It is the insured's burden to prove the absence of a reasonable basis to deny the claim, and generally, a claim for bad faith will not lie when an insurer denies a claim that is, in fact, not covered. In this instance, the court noted that the policy covered damage caused by rain if the direct force of wind or hail makes an opening in the roof, and the rain enters through this opening and causes the damage.

 

AllState claimed that there was insufficient evidence demonstrating that the wind blew the shingles off the roof as opposed to some other cause, such as wear and tear; therefore, Santacruz did not present competent evidence that would create a factual issue as to whether the damage to his home was covered under the policy. The court agreed and said that Santacruz did not carry his burden of proving the absence of a reasonable basis to deny his claim.

 

The court also said that the claim failed because Santacruz did not prove with reasonable certainty the amount of his recovery. Under Texas law, proof of the amounts charged or paid does not demonstrate the reasonableness of the charges. A party seeking to recover for the cost of repairs must present competent evidence so that the trier of fact is justified in finding that the repairs are necessary and that the cost of the repairs is reasonable. None of the documents presented by Santacruz was supported by any testimony, affidavit, or other evidence that attests to the reasonableness of the damages sought. The documents did not constitute competent summary judgment evidence sufficient to withstand the dismissal of the common law bad faith claim.

 

The insured's claim of bad faith was dismissed and the insurer's motion for summary judgment was granted.

 

Editor's Note: This case is interesting in that the court did not support the insurer in its denial of coverage because the insured violated a provision of the duties of the insured after a loss. The court dismissed that point by stating that the insured's actions of having the roof repaired prior to an inspection by the insurer was a mere “technical breach of the policy provisions.“ The U.S. District Court sided with the insurer because the insured could not prove that his loss was covered under the policy or support the cost of the roof repair because there was no damage for the insurer to inspect.

 

The moral is that after a loss, the insured should not make repairs on his own. The insured buys insurance for protection after a loss. Let the insurance process play out.