Last week, the Houston First Court of Appeals affirmed a trial court’s take nothing judgment in favor of National Lloyds after a jury awarded the policyholder $100,000 in replacement-cost-value damages but $0 in actual-cash-value damages. The dispute in John Davis v. Nat. Lloyds Ins. Co., No. 01-14-00278-CV, 2015 WL 6081411 (Tex. App.—Houston[1st Dist.] Oct. 13, 2015), arose out of a claim for damage from both Hurricane Rita and Hurricane Ike. John Davis, the insured who operated a barbershop out of his home, had bought the property in 1994. The property had been built in the 1960s. Davis first made a claim after Hurricane Rita caused the roof to leak. National Lloyds denied the claim based primarily on exclusions for wear and tear. In 2008, after Hurricane Ike struck Houston, Davis’ roof began leaking again. A National Lloyds’ adjuster found no storm-created openings on the roof, only minor wind damage to three shingles on the gabled portion of the roof and minor damage to the roof’s siding and soffit. He estimated the total repairs costs to be $1,825, below Davis’ $3,700 deductible.

In August 2010, almost two years after Hurricane Ike, a public adjuster named Christopher Fife inspected the property and determined that the hurricane damaged the roof. Davis filed suit the following month, alleging breach of the insurance contract, bad faith, and violations of the Texas Insurance Code. The case went to trial, and both parties introduced competing evidence regarding the cause and amount of damage. Davis’ public adjuster estimated $108,038.75 to be the total cost of repairs, whereas National Lloyds experts attributed the damage to long-term wear and tear and found Davis’ estimates to be overscoped and included damage not caused by a storm. The jury found that National Lloyds breached the insurance contract, engaged in bad faith, and violated the Texas Insurance Code. However, on the portion of the verdict that asked the jury to specify the “sum of money [that] would fairly and reasonably compensate John Davis for his damages,” the jury answered $0 for actual-cash-value (ACV) damages and $100,000 for replacement-cost-value (RCV) damages.

National Lloyds filed a motion to disregard the jury’s finding of RCV damages, arguing that the plain language of the policy provided for payment of claims on an ACV basis. The policy also stated that it would pay claims at RCV if this coverage was shown in the Declarations Page, which had a section stating, “Optional Coverages [RCV]—applicable only when entries are made in the schedule below.” There were no entries in this schedule. The court rejected the insured’s argument that an “X” placed in the schedule triggered this Optional RCV Coverage, finding this marking insufficient because the policy required the entry to include a premium number, building number, and other information identifying the type of optional coverage.

The Court next addressed the trial court’s take-nothing judgment based on the jury’s finding of no ACV damages. The Court noted that the policy expressly excluded damage from wear, tear, and deterioration, and did not cover damage from rain unless a storm created an opening that caused rain to enter the property. The court noted that the insured carried the burden of segregating covered from non-covered damage. Whereas National Lloyds introduced evidence of exclusions and the age and poor condition of the property, the court held that the insured failed to counter National Lloyds’ evidence of depreciation. Given these factors, the Court of Appeals held that the evidence was sufficient to support the jury’s finding of zero ACV damages.

Because of the jury’s finding of no ACV damages, the Court affirmed the trial court’s take-nothing judgment on the breach-of-contract claim. Although the jury found that National Lloyds breached the contract, the Court noted that a cause of action for breach of contract is premised on an insurer’s failure to pay a claim due under the contract. Because the jury found that Davis was due no money under the only basis provided by the policy (ACV), it held that there could be no breach of contract. Noting that extra-contractual claims were also premised on a threshold finding that the insurer breached its contract, the Court also affirmed the take-nothing judgment as to these additional claims.

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