A federal court recently denied an insurer’s motion for summary judgment, which sought to dismiss an insured’s bad faith claims, and should coverage be proven, to limit the insured’s damages to the amounts in his pre-suit demand letter and sworn proof of loss statements. Cocanougher Asset No. 3, LLC v. Twin City Fire Ins. Co., No. 4:20-CV-00784-O (N.D. Tex. August 6, 2021) involved an insurance coverage dispute arising from an alleged hail damage to a commercial building owned by the insured.

The insured reported a claim for roof damage allegedly caused by hail. The insurer timely acknowledged the claim and began its investigation, including sending a claims professional to inspect the building. The claims professional determined hail had not damaged the roof, and the insurer issued a declination letter to the insured. In turn, the insured retained a public adjuster, who submitted an estimate in the amount of $514,497.33 over a year after the date of the declination letter. In the estimate, the public adjuster demanded payment for $172,980.94 and included a Sworn Proof of Loss in the amount of $171,980.94 (accounting for the $1,000 deductible).

The insurer responded by retaining an engineer to perform a second inspection, and the engineer concluded that the 1-inch hail that fell at the building was insufficient to damage the roof. Upon review of the public adjuster’s photos and correspondence, the engineer supplemented his opinion and stated that the photos showed blemishes on the roofs, but the locations were unknown, so no determination could be made about them.

Subsequently, the insured hired attorneys, who sent the insurer a statutory pre-suit demand latter claiming damages of $414,491.00 ($100,000 less than the public adjuster’s estimate). The insurer then sought a third opinion and retained a forensic architect to inspect the property and obtain roof core samples to have laboratory tested for hail impact damage. The forensic architect found there had been long-term drainage/water intrusion issue at the roof prior to the hail event and concluded the origin of the coating distress on the roof was not the result of the hail event.

After receiving the insurer’s updated response, the insured filed suit, and the insurer removed the action to federal court. During discovery, the insurer retained another engineer to conduct a fourth inspection, and the results were consistent with all prior reports from the insurer’s engineers and architect. The insurer then moved for summary judgment, seeking to dismiss the insured’s extra-contractual bad faith claims due to the existence of a bona-fide coverage dispute. The insured argued fact issues existed as to whether the insurer’s investigation was done in good faith.

The Court first noted that whether the insurer knew or should have known the claim was covered when it denied the claim is a question of fact. In making this determination, the Court stressed the factfinder must consider only the facts that were before the insurer at the time it denied the claim. Here, the Court emphasized that, at the time the insurer denied the claim, it had not retained any experts and instead relied solely on its own adjuster’s opinions about the damage. The Court agreed with the insured that fact issues existed as to his bad faith claims because the insurer only hired experts after its unequivocal denial and in anticipation of litigation and because the factfinder could conclude from the testimony, report, and photos of his expert that the insurer knew or should have known that its liability was reasonably clear when it denied the claim. Therefore, the Court denied the insurer’s motion for summary judgment.

As to whether the insured’s damages should be limited to the amount in his sworn proof of loss, the Court disagreed with the insured that the carrier could not use the sworn proof of loss against him at trial because the carrier did not rely on it in making its claim determination. Instead, the Court pointed out that, due to when the insured presented the sworn proof of loss (more than a year after the denial), the insurer could not have relied on it at the time it made its claim decision. As such, the factfinder could properly consider it as an “admission against interest,” but it could not serve as a conclusive cap on damages, as requested by the insurer. Consequently, the Court denied the insurer’s motion for summary judgment.

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