SOUTHERN DISTRICT OF TEXAS DENIES INSURER’S SUMMARY JUDGMENT WHILE DEFINING SCOPE OF SETTLEMENT AGREEMENT

Recently, the United States District Court for the Southern District of Texas addressed the scope of a settlement agreement between and insurer and insured; resolving if the agreement covered one, or multiple lawsuits. In Bazan v. State Farm Lloyds, No. 7:17-CV-00402, 2018 WL 1518552 (S.D. Tex., Mar. 28, 2018), Bazan filed two lawsuits relating to two losses to the same property. Upon settlement and release, there was dispute as to whether the agreement released all claims, or just those regarding the first loss (and lawsuit). The court found that the language of the agreement applied only to the first lawsuit and denied State Farm’s motion for summary judgment on the second suit.

Bazan allegedly suffered property damage in two separate storms, the first on March 26, 2016 and the second on May 31, 2016. Following the first storm, State Farm inspected the property, found damage amounting to $1,441.45, and did not issue payment as the amount was less than Bazan’s deductible. In November 2016, Bazan’s counsel issued a demand letter to State Farm supported by a $22,439.82 adjustment. One week later, Bazan filed suit on the claim.

The second storm occurred on May 31, 2016, which State Farm assessed the replacement cost value as $9,708.75. Subtracting the deductible and depreciation, State Farm issued payment in the amount of $2,528.33 and approved complete replacement of the roof. Thereafter, State Farm issued a supplemental payment of $2,496.77. In September, counsel for Bazan again issued demand on the claim for the same $22,439.82 adjustment, but for the May storm. While the second claim was open, but prior to issuing demand, Bazan proceeded to file suit.

In between suits, the parties entered into a settlement agreement disposing of the first suit. After Bazan filed the second suit, State Farm filed summary judgment alleging that the settlement disposed of both suits. Reviewing the terms of the agreement, the court disagreed. The court noted that, as an affirmative defense, a release is subject to contractual construction which, in considering the four corners of the underlying agreement, addressed only the first lawsuit. The agreement failed to mention the second suit, and although the second suit did not exist at the time of the agreement’s execution, the second claim did, therefore the absence of any referencing language to the second claim was clear evidence that the agreement only intended to settle the first lawsuit. Notably, the court commented that, even with the expansive language provided within a settlement and release, the specific defining language of “Insurance Claim” and “Underlying Lawsuit,” addressed the claims relating to the first suit, thereby precluding the May storm claims and the resulting second lawsuit. As a result, the court denied State Farm’s summary judgment and associated alternate request to abate.