Liberty Mutual was dismissed last week from a large Hurricane Ike commercial breach of contract and bad faith case and the remainder of the case was stayed pending appraisal.  In Medistar Twelve Oaks Partners, Ltd. v. American Economy Ins. Co., Case No. 4:09-cv-03828 (S.D. Tex. July 27, 2011), Chip Merlin of The Merlin Group in Tampa, Florida brought suit against three carriers on behalf of the owner of a high rise building in Houston allegedly damaged by Hurricane Ike.  Last week, Federal District Court Judge Melinda Harmon (from the Houston Division of the Southern District of Texas) ruled on several related motions urged by the carriers.  Among other issues, the defendant-insurers — American Economy, Liberty Mutual and Safeco — moved that Liberty Mutual be dismissed because it was not a party to the insurance contract, and contended that there could be no breach of contract by the remaining insurers because they timely and properly invoked the appraisal provision of the insurance contract.  The court granted the motion to dismiss as it related to Liberty Mutual and stayed the remainder of the case pending the result of the appraisal proceeding.

Specifically, Judge Harmon agreed that Liberty Mutual was not a party to the insurance contract at issue in the case, which was a Safeco policy sold to Medistar by a Safeco representative, and which listed American Economy as an insurer.  Because Liberty Mutual is a separate entity and Medistar did not assert any theory for piercing the corporate veil, Liberty Mutual could not be held liable for Safeco’s actions.

Judge Harmon also agreed that “because the appraisal process is ongoing, . . . there is no denial of payment to give rise to breach of contract and breach of duty of good faith and fair dealing.”  Thus, she concluded, these claims were not ripe and, if the parties settled via appraisal, the claims would not mature.  Judge Harmon determined that if appraisal failed then the contract and bad faith claims would be more  appropriately  addressed  by  summary  judgment.   Thus,  she  ordered  the  case  stayed  pending resolution of the appraisal process, and that if appraisal did not result in a final conclusion of all issues, one or both sides should file a motion for summary judgment following appraisal’s conclusion.  She also noted that Medistar’s Prompt Payment claim was “premature . . . because the validity of Medistar’s claims is still in litigation in the appraisal process.”

Also significant in this case was Judge Harmon’s dismissal of the DTPA claims against all Defendants due to Medistar’s failure to plead these allegations with sufficient specificity under the federal pleading guidelines.   After previously ordering Medistar to amend its pleadings to meet the guidelines, and finding the pleadings still wanting, Judge Harmon dismissed these causes of action leaving pending those claims which, according to the court, could be resolved by appraisal and, if necessary, summary judgment after appraisal.

Editor’s Note: Chris Martin and Barrie Beer at MDJ&W, together with Greg Weinstein and Keith Langley at Langley Weinstein in Dallas, have the privilege of representing the Defendants in this ongoing commercial Ike case.

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