Recently, a federal court in San Antonio granted an insured’s motion for summary judgment regarding the extra-contractual claims brought by an insured in a dispute arising from the insurer’s denial of coverage under a homeowner’s policy. Jajou v. Safeco Ins. Co. of Indiana, No. SA-20-CV-00839-XR, 2022 WL 220391 (S.D. Tex.—San Antonio Jan. 24, 2022) involved a claim for replacement of the roof at a residential property filed by the insured after a hailstorm damaged her property.

Upon filing of the claim, the adjuster and a ladder assist contractor inspected the property’s exterior, roof, and attic-side of the roof decking, but not the interior, since the insured did not initially report any interior damages. The inspection revealed hailstorm damages to the copper standing seams on the roof and splintering in the roof decking from hail impacts; however, there were no roof leaks or damage to roof seams observed. Consequently, the insurer determined that the roof damage was cosmetic in nature and excluded under the insured’s policy, which included a cosmetic damage exclusion.

The insurer informed the insured of its decision that the cosmetic damage exclusion precluded coverage. In response, the insured stated it spoke with several real estate appraisers, structural engineers, and construction professionals who all agreed that the roof had structural damage and was adamant about not settling for anything less than a new roof. The insured then sent the insurer a roofing agreement she signed with her contractor, with an estimated price of $250,803.08.  The insurer reopened the claim and assigned an engineer to reinspect the roof. The engineer asked if he could use a drone to inspection the property, which would be much cheaper than hiring a lift to access the roof. The insurer obliged, and the property was reinspected.

In his report, the engineer concluded that no panels or panel seams on the roof were punctured or penetrated due to hail impacts, reiterating that the damage to the roof was cosmetic in nature. When the insurer relayed this information to the insured, she hired a public adjuster to inspect her property. The public adjuster, in turn, sent the insurer an estimate for $395,018.35 in repairs, including full replacement of the roof, and asked the insurer to reinspect the property. The insurer agreed only to reinspect the non-roofing items at the property.

The reinspection revealed additional damage to the property’s exterior elevations and two items of personal property, so the insurer issued a payment to the insured for this damage, but not for the roofing system. The insured then filed suit, asserting claims for breach of contract, violations of the Texas Insurance Code and DTPA, and breach of the common law of good faith and fair dealing. A few months after removing the case to federal court, the insurer moved for summary judgment on all of the insured’s extra-contractual claims.

The Court first noted that the insured’s extra-contractual claims were based on two theories: (1) the insurer conducted an unreasonable, “outcome-oriented” investigation; and (2) the insurer affirmatively misrepresented the extent of coverage under the policy by failing to include a cosmetic-damage exclusion in her homeowners insurance quote. Next, the Court stated that the breach of the common law duty of good faith and fair dealing required proof that the insurer failed to settle the claim even though it “knew or should have known it was reasonably clear that the claim was covered,” adding that evidence of a “bona fide dispute” about liability would not rise to the level of bad faith.

The insured argued the insurer acted unreasonably the not property inspecting the property’s roof and attic, allowing the engineer to use a drone instead of a lift to inspect the property, and violating its own written policies for inspecting hailstorm damage claims. Relying on the claim file, the Court pointed out that the insurer had indeed inspected the roof and attic, the interior of the property was not inspected because the insured did not initially report any damages to the property’s interior, the adjuster observed hail damage to the cooper standing seam, and the contractor showed the adjuster areas in the attic where decking had splintered due to hail strikes. Such evidence, the Court concluded, showed that the insurer reasonably inspected the property’s roof and attic.

Next, the Court ruled that the use of a drone rather than a list to reinspect the property was not unreasonable because the engineer’s report and accompanying photographs showed he examined the seams on the roof closely, and the decision to use a drone over a lift (which centered more on cost) was “not of such magnitude as to affirmatively cast doubt on [the insurer’s] basis for denying [the insured’s] claim for damage to her roof.” Rather, the use of the drone merely showed a difference of opinion as to the best method for reinspecting the roof and was not evidence of an unreasonable investigation.

Finally, the insured cited a manual that she alleged the insurer used for guidance, arguing that the insurer did not take close-up photos of the hail damage and roof, did not bring a ladder during its initial inspection, and did not investigate the interior attic for water damage. The Court emphasized that the insured had failed to prove that the manual was used by the insurer in the process of adjusting her claim and, even if the insurer relied on it, the claim file showed that the insurer did inspect and photograph the roof and attic with the use of a latter. Further, there was no proof the manual was binding on the insurer or its adjuster and stated that “each claim should be handled on its own merits with all applicable forms and endorsements considered.”

In addition to the claim file, which affirmatively disproved the insured’s underlying reasons for claiming the insurer acted unreasonably, the Court also quickly disproved the insured’s claim that the insurer never apprised her of the cosmetic damage exclusion when they provided the quote for the policy to her. In fact, the policy explicitly and clearly included the cosmetic damages exclusion when the insured purchased it, and the insured admitted that she had not read the policy during her deposition. Therefore, the insured’s extra-contractual claims that relied on an alleged affirmative misrepresentation were dismissed.

The only extra-contractual claims left after dismissing the bad faith claim and the extra-contractual claims based on an affirmative misrepresentation were the insured’s claim under the provisions of the Texas Insurance Code regarding prompt payment of claims and the alleged failure to make a coverage decision within a reasonable time, which the Court decided could proceed to trial.

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