DALLAS COURT OF APPEALS AFFIRMS DISMISSAL OF BAD FAITH CAUSES OF ACTION AND REMANDS CASE TO PROCEED ON BREACH OF CONTRACT AND PROMPT PAYMENT ACT CAUSES OF ACTION
Recently, in KLZ Diamond Tools, Inc. v. TKG Gen. Agency, Inc., 05-14-00458-CV, 2016 WL 3947412, at *9 (Tex. App.—Dallas July 18, 2016, no. pet. h.) the Dallas Texas Court of Appeals affirmed a trial court’s order granting summary judgment in favor an insurer for claims for negligent misrepresentation, common law fraud, violations of the DTPA, multiple damages, and exemplary damages. However, the Court reversed the trial court’s order granting summary judgment in favor of the insurer for breach of contract, violations of the Prompt Payment Act, and attorney’s fees, and remanded those claims for further proceedings.
KLZ Diamond Tools, Inc. suffered a burglary that resulted in the loss of $400,000 worth of inventory. KLZ’s insurer and administrator sent lengthy document requests, requests for sworn statements, and requests to produce substantial amounts of documents. The insured became frustrated with the process, and issued a letter that outlined its attempts to cooperate with the insurer’s investigation and decried the insurer’s “delay tactics and endless request for irrelevant information.” The insurer paid $204,051.11 in advance to the insured while it continued to investigate the insureds claims. The insurer made no further payments to KLZ, and KLZ later filed suit against the insurer for claims under the DTPA, breach of contract, violations of the Texas Insurance Code, negligent misrepresentation, and common law fraud.
The Insurer filed an Amended No-Evidence Motion for Summary Judgment, challenging each of KLZ’s claims as well as its recovery of multiple and exemplary damages and attorney’s fees. KLZ responded and simultaneously filed its own traditional motion for summary judgment against the insurer. The two motions were heard together; at the hearing the trial court granted the insurers objections to KLZ’s affidavit evidence. The judge found the evidence insufficient to prove up the attached evidence on KLZ’s Motion for Summary Judgment and granted the insurer’s Motion for Summary Judgment. Although KLZ later supplemented its affidavit evidence, the trial court signed the order granting the Insurer’s Motion and denied KLZ’s motion.
On appeal, the Court concluded there was a significant amount of summary judgment evidence before the trial court after the affidavit was stricken, including evidence the insurer attached to insurer’s no-evidence motion, evidence KLZ attached to its own traditional motion, and evidence appellees produced in response to KLZ’s traditional motion. As a result, the Court affirmed in part, and reversed in part the trial court’s granting of the insurer’s Motion for Summary Judgment in its entirety.
The Court concluded KLZ offered sufficient evidence to raise a material issue of fact as to its compliance with the conditions precedent under the Loss Conditions portion of the Policy. And, the Court reversed the trial court’s ruling granting summary judgment in favor of the insurer on KLZ’s breach of contract action. Because the Court determined a fact issue existed as to KLZ’s breach of contract action, the Court also sustained KLZ’s assertion that the trial court erred in granting a no-evidence motion in favor of the insurer for a violation of the Prompt Payment Act.
In its analysis, the Court affirmed the trial court’s decision that the insurer did not violate the Texas Unfair Claim Settlement Practices Acts (Insurance Code 542.001–542.302)” in the following four ways: a) knowingly misrepresenting pertinent facts or policy provisions relating to the policyholder’s claim, i.e. misrepresenting the claim valuation as being actual cash value.; b)failing to adopt and implement reasonable standards for prompt investigation of claims arising under its policies as a reservation of rights letter was issued before any investigation was accomplished; c) not attempting in good faith to effectuate prompt, fair and equitable settlements of claims submitted in which liability has become reasonably clear; d) compelling plaintiff to take legal action to recover the total amount of benefits due to them under the insurance policy under its policies by offering substantially less than the amount ultimately recovered in a lawsuit. KLZ argued the trial court improperly granted the insurers no-evidence summary judgment; however, the Court did not undertake an evidentiary analysis. Rather, the Court affirmed the trial court’s decision and noted the there is no private cause of action for violations under section 542.003 of the insurance code.
KLZ argued the trial court erred by granting summary judgment on its DTPA claims. KLZ pleaded that insured had engaged in an unconscionable action or course of action in violation of the DTPA. However, on review, the Court determined neither KLZ’s petition nor its brief identified any unfair act. Further, the Court did not find evidence of gross unfairness in the summary judgment record. The Court further noted evidence of an unconscionable action or course of action must involve more than mere breach of contract. Based on its analysis, the Court affirmed summary judgment in favor of the insurer with regards to KLZ’s DTPA actions. The Court determined that KLZ’s DTPA claims of misrepresentation are rooted in its contractual relationship with the insurer and to the extent the summary judgment record contained evidence of the insurer acting contrary its representations, KLZ’s claim was governed by contract law, not the DTPA.
Consequently, the Court remanded the case to proceed on KLZ’s breach of contract and violation of the prompt payment act, and affirmed the dismissal of KLZ’s bad faith and fraud allegations.