LATE NOTICE DEFENSE FAILS TO BAR BREACH OF CONTRACT CLAIM AND ABATEMENT FOR APPRAISAL

May 2, 2016

In Herrera v. State Farm Lloyds, Civ. Act. No. 5:15-cv-148 (S.D.Tex. – Laredo Div., March 18, 2016), Herrera insured her rental home with State Farm Lloyds.  Herrera claimed her property suffered “incredible” hail damage on March 30, 2013.  She notified State Farm of her claim on March 1, 2015, about 700 days later.  State Farm’s adjuster inspected the property on March 10, 2015, and found signs of light hail damage to sections of the roof.   He did not inspect the interior. He estimated the loss at $499.58, which was below the deductible. The insured’s attorney sent a $29,962.12 demand letter to State Farm under the DTPA on May 27, 2015. State Farm offered to re-inspect under a reservation of rights, but the insured filed suit for breach of contract, violations of the DTPA and the Texas Insurance Code, breach of the common law duty of good faith and fair dealing, breach of fiduciary duty, unfair insurance practices, misrepresentations, and common law fraud by negligent misrepresentations.   The case was removed to federal court.  State Farm moved for summary judgment on all claims.  The insured did not file a response to the motion for summary judgment, but moved to compel appraisal.

State Farm moved for summary judgment on the late notice defense as a bar to the breach of contract claim.  A late notice defense requires two elements:  1) breach of the notice clause by an unreasonable delay in tendering notice and 2) the breach is material because, among other things, State Farm is prejudiced by the delay. The Court agreed that waiting approximately 700 days to provide notice of the claim constituted an unreasonable delay as a matter of law.  However, State Farm failed to provide specific evidence of prejudice, and the Court rejected the argument that a nearly two year delay constituted prejudice as a matter of law.  The Court further noted  “there is at least some evidence that State Farm was not prejudiced,”  because the adjuster could still: 1) investigate the property, 2) differentiate between hail damage and wear and tear, and 3) determine the amount of the loss.  Accordingly, summary judgment was denied on the breach of contract claim.

Addressing the negligent investigation claims, however, the court held that since the insurer’s duty to adjust arises under the insurance policy, then Plaintiff cannot also sue under tort.  And, summary judgment was granted on the negligence allegation.  Further, the court held there was no evidence of any damage producing “false, misleading or deceptive act,” nor did Plaintiff allege any specific wrongful acts to support the DTPA allegations and granted summary judgment in favor of the insurer on these claims.  Additionally, in addressing the allegations under the Texas Insurance Code, the court recognized that the “mere denial of a claim does not violate the insurance code if there is a reasonable basis for the denial. The summary judgment evidence shows State Farm promptly investigated the claim and denied it because the calculated loss was below the deductible.”  Although Plaintiff disagreed with the valuation, it was no shown to be “inherently unreasonable.”  Summary judgment was granted on these claims as well.  Lastly, addressing the common-law claims, the court held that Plaintiff’s remaining claims of common-law duty of good faith and fair dealing, breach of fiduciary, unfair insurance practices, misrepresentation and fraud were merely restating the DTPA and Texas Insurance Code claims.  Thus, they fail for the same reasons, and summary judgment was granted.

The court then turned its attention to the insured’s motion to compel appraisal.  The court acknowledged that the Texas Supreme Court strongly favors enforcing appraisal clauses, granted the insured’s motion and ordered the case abated pending completion of the appraisal process.