SOUTHERN DISTRICT OF TEXAS DISMISSES EXTRA-CONTRACTUAL CLAIMS BASED ON EXHAUSTION OF POLICY LIMITS

Federal Judge Lynn Hughes of the Southern District of Texas recently granted summary judgment in favor of an insurer in Sebring Apartments v. Lexington Ins. Co., No. H-10-19 (S. D. Tex. July 31, 2013) (slip opinion).  There, Lexington had exhausted its $25 million policy limit in numerous claims involving Hurricane Ike damage to the insured’s properties.  The insured demanded 18% interest under Texas Insurance Code Chapter 542 and attorney fees on the ground that payment had been improperly delayed. 

In his usual inimitable style, Judge Hughes dismissed the claims, on the ground that there could be no Chapter 542 interest owing when the policy limits had been exhausted.  He stated, “What was not paid of what was owed was zero, and 18% of zero is zero.”  He went on to point out, “That Lexington exhausted the policy limits is evidence of its earnestness.”  Finally, he held there could be no extra-contractual claims when there was no breach of contract.  Although he acknowledged existing law supporting the hypothetical possibility of an extra-contractual claim existing separately from a breach of contract claim, he concluded there was no support for any such claim when every dollar that could possibly have been owed under the policy had been paid.