Last week, in Toney v. State Farm Lloyds, Civil Action No. 7:13-CV-183 (S.D. Tex. July 21, 2014), a Federal District Court Judge in the Southern District of Texas dismissed all of the Insured’s contractual and extra-contractual causes of action against State Farm.

The Insured filed a homeowner’s insurance claim with State Farm for damages resulting from a wind and hailstorm that occurred on March 28, 2012 in the Rio Grande Valley.  This suit was one of thousands of lawsuits filed in the state and federal courts of South Texas arising out of recent wind and hail storms in the Valley.  In this claim, the Insured invoked the appraisal provision of the policy, and the appraisers agreed on an appraisal award on November 13, 2012.  A portion of the appraisal award, totaling approximately $9,100, was allocated for new roof bracing, which consisted of a solid plywood understructure (“solid decking”), as a replacement for the then existing bracing consisting of a spaced plywood understructure (“spaced decking”).  The spaced decking itself was not damaged.

Decking requirements for roof repairs are governed by the International Residential Code (“IRC”), as adopted by the State of Texas.  On October 24, 2012, the City of Mission issued the first of two letters stating: “It has been confirmed by the IRC that the City of Mission, Texas requires solid decking for all wood frame construction…”  On November 21, 2012, State Farm sent a letter to the Insured advising the insured that it was paying the appraisal award, but withholding the $9,100 pending investigation of the roof-replacement policy requirements.  On January 22, 2013, the City of Mission issued a second letter stating: “if a roof has pre-existing spaced sheathing, the code does not require solid sheathing to be placed for a re-roofing project.”  Thereafter, on February 14, 2013, State Farm sent a second letter to the Insured advising that no coverage existed for the $9,100 cost associated with the more expensive solid decking.

The Insured filed his lawsuit against State Farm and the individual adjuster on March 5, 2013 in state court alleging both contractual and extra-contractual claims.  State Farm removed the action to Federal Court, asserting that the adjuster was improperly joined.  The Court agreed with State Farm that the adjuster was improperly joined and dismissed the adjuster from the lawsuit. 

Afterward, State Farm filed its motion for summary judgment arguing its payment of the appraisal award was both proper and sufficient in light of the appraisal provision in the Policy.  The Court agreed that coverage questions are not governed by appraisal awards, which leaves the question of liability for the courts.  The parties did not dispute that “enforcement” was required in order to actuate liability; instead, the parties disputed when and whether “enforcement” occurred.  State Farm asserted contractual compliance occurred because there was no evidence of enforcement.  The Insured asserted that the enforcement condition was satisfied by the City of Mission’s first letter requiring previously featured spaced decking to feature solid decking; as a result, arguing that the City was enforcing the solid decking requirement at the time the home was damaged.

The Court held that the October 2012 letter did not constitute “enforcement” and that the City had not effected enforcement of the requirement such that State Farm was liable for any of the cost of solid decking.  Citing to a decision from District Court Judge Lyn Hughes out of the Southern District in 2007, the Court found that the Insured’s allegations were devoid of any instance of the City taking affirmative action to “carry out the mandate or command” of the decking requirement, as the Insured set forth affidavit testimony containing legal conclusions not supported by facts.  Further, the Court stated the parties’ contractual intent was to avoid a circumstance which would potentially obligate an insurer to make a nearly $10,000 repair solely based on conjecture of enforcement, rather than actual enforcement.  Therefore, the Court dismissed the Insured’s breach of contract cause of action.

Finally, in light of the Court’s determination regarding the breach of contract claim, the Court also found the Insured failed to raise a genuine issue of material fact for the essential elements of the remaining extra-contractual claims.   As such, all of the extra-contractual claims were dismissed as well. 

[Editor’s Note: State Farm was represented in this case by Chris Martin, Todd Lonergan and Marilyn Cayce of our firm and we are grateful for the opportunity to defend State Farm in this case].

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