The roofer initially submitted a fixed bid for about $286,000. The church claimed that the roofer was willing to honor its fixed bid and that it could have had the work completed for $35,798 in out-of-pocket costs over and above the policy limit.

The church asserted, however, that York Risk Services Group, Inc., the adjuster, instead directed the roofer to perform the work on a time-and-materials basis due to the unique nature of the construction. As a result, although Lexington paid the policy limit, the church eventually had to pay an additional $614,148.49 in out-of-pocket costs.

UBC sued York, contending that York violated four sections of the Texas Insurance Code:

• Section 541.060(a)(1) (which prohibits "misrepresenting to a claimant a material fact or policy provision relating to coverage at issue");
• Section 541.060(a)(2) (which sanctions "failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of . . . a claim with respect to which the insurer's liability has become reasonably clear");
• Section 541.060(a)(3) (which prohibits "failing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or offer of a compromise settlement of a claim"); and
• Section 541.060(a)(7) (which prohibits "refusing to pay a claim without conducting a reasonable investigation with respect to the claim").

UBC also asserted that York violated DTPA Section 17.50(a)(4), which provides that "[a] consumer may maintain an action where any of the following constitute a producing cause of economic damages or damages for mental anguish: . . . the use or employment by any person of an act or practice in violation of Chapter 541, Insurance Code."

The U.S. District Court for the Northern District of Texas dismissed UBC's claims, and UBC appealed to the Fifth Circuit.

The Fifth Circuit's Decision

The Fifth Circuit affirmed.

In its decision, the circuit court ruled that, assuming without deciding that insurance adjusters could be held liable under the Texas Insurance Code for the types of violations alleged by UBC, UBC failed to state any claim upon which relief could be granted.

The Fifth Circuit found that UBC failed to allege that York misrepresented a "material fact" about policy coverage, as described in Section 541.060(a)(1).

The circuit court also decided that none of York's alleged actions reflected lack of good faith in effectuating a prompt, fair, and equitable settlement of UBC's claim within the meaning of Section 541.060(a)(2).

Moreover, the circuit court continued, under UBC's allegations, York did not fail to provide a "reasonable explanation…for the denial of a claim," because there was no denied claim, as required by Section 541.060(a)(3).

The circuit court added that York also did not "refus[e] to pay a claim" as proscribed by Section 541.060(a)(7).

The Fifth Circuit concluded that the DTPA claim, being derivative of Insurance Code claims, also was insufficient.

Accordingly, the Fifth Circuit affirmed the district court's judgment.

The case is University Baptist Church of Fort Worth v. York Risk Services Group, Inc., No. 18-10713 (5th Cir. Sep. 10, 2019).