In S.R. Residence, LLC v. Lexington Insurance Company, et al., Civil Action No.-10-4178, 2013 WL 1204709, (S.D. Tex., March 25, 2013), a federal District Court judge in the Southern District of Texas granted multiple motions for summary judgment filed by multiple insurers.  The lawsuit involved an insurance dispute arising out of damage allegedly caused by Hurricane Ike to four Houston area apartment complexes.  The plaintiff, along with a sizable number of other commercial property owners, purchased a “tower of insurance coverage.”  For unknown reasons, several tiers of coverage in the “tower of insurance” were not in place when Hurricane Ike made landfall and only the primary coverage and first tier of excess insurance were available for the numerous commercial property insureds and their respective claims in the aftermath of Hurricane Ike.

Lexington provided the primary coverage, which had a $25 million limit of liability on any one occurrence.  Alterra issued the first tier of excess coverage, which triggered upon the exhaustion of the policy issued by Lexington. The Alterra policy had a $10 million limit of liability.

The plaintiff filed a claim and Lexington paid approximately $1.2 million for its losses. The plaintiff later sued Lexington for breach of contract, several violations under the Texas Insurance Code, and common law duty of good faith and fair dealing.  Lexington informed the plaintiff that the $25 million in coverage had been exhausted by the other insureds and the plaintiff then joined Alterra as the excess insurer. By that time, Alterra’s excess coverage was exhausted too.

Both Lexington and Alterra moved for summary judgment and the Court determined that Lexington and Alterra paid their full policy limits and were entitled to summary judgment for plaintiff’s breach of contract claims.  Next, the Court noted that an insured party generally does not have a bad faith claim when the insurer has not breach the contract.  The plaintiff alleged the insurers participated in unfair settlement practices and failure to promptly pay claims, in violation of Chapter 541 and 542 of the Texas Insurance Code, and common law bad faith.  The Court evaluated the summary judgment evidence and concluded that neither insurer acted in bad faith.  The Court found that Alterra repeatedly requested pertinent documentation regarding the plaintiff’s claim, and because the plaintiff failed to respond to Alterra’s request, its obligation to accept or reject the plaintiff’s claim was never triggered.  The Court also noted the plaintiff produced no facts establishing that Lexington did not promptly initiate the adjustment of Plaintiff’s claims.  As such, the Court dismissed all of the claims against the insurers.

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