When Common Law Bad Faith Claim Fails so Does Statutory Bad Faith Claims

Post 5023

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In Cowboy Christian Missions, Plaintiff v. Church Mutual Insurance Company, SI, Civil Action No. 4:24-cv-00057-O, United States District Court, N.D. Texas (March 7, 2025) a bad faith claim was dismissed before trial.

Defendant Church Mutual Insurance Company moved the court for Partial Summary Judgment to eliminate charges of the tort of Bad Faith.

BACKGROUND

Plaintiff’s building complex sustained damage as a result of an EF3 tornado (the “Loss Event”). At the time of the Loss Event, the Property was covered under an insurance policy issued by Defendant Church Mutual (the “Policy”). The Policy provided coverage for damages caused by the Loss Event, subject to the terms and conditions of the Policy.

Plaintiff submitted a claim for coverage under the Policy for damages allegedly sustained as a result of the Loss Event. Within two days of the Loss Event, Defendant conducted its initial inspection of the Property, which included (1) Defendant’s adjuster, Ben Hodges; (2) a third-party engineer, Travis Ebisch, of Nelson Forensics, LLC; and (3) a “building consultant,” Mani Siaosi, of Cavalry Construction (“Cavalry”). Based on an estimate produced by these individuals, Defendant issued payments for coverage of the claim in the amounts of $100,000.00 and $ 291,535.53.

Defendant refused to issue additional payments for expenses and/or losses that Plaintiff believes were covered under the Policy. Among those are “relocation” costs that Plaintiff allegedly incurred while repairs were being conducted on the Property and other “non-salvageable items” damaged during the Loss Event.

Nearly one year after the Loss Event, Plaintiff sent Defendant a demand letter requesting $1,626,859.31, which Church Mutual refused.

Plaintiff sued seeking breach of contract damages and “extra-contractual” claims for alleged violations of the Texas Insurance Code, the Texas Deceptive Trade Practices Act (“DTPA”), fraudulent misrepresentations, and breach of the common-law duty of good faith and fair dealing.

Trial is currently scheduled on the Court’s docket beginning March 24, 2025.

ANALYSIS

Defendant contended that Plaintiff failed to show that Defendant acted in bad faith during its processing of Plaintiff’s insurance claim. Defendant argued that the evidence reflected only a bona fide coverage dispute, which necessarily bars the extra-contractual claims that involve elements of bad faith, malice, or similar ill-intent. The Court agreed.

Common-Law Claim: Breach of Duty of Good Faith & Fair Dealing

Insurance companies have a duty to deal fairly and in good faith with an insured in the processing of claims. This means that as long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith.

Plaintiff cited to no legal authority or industry standard that suggests who is responsible for investigating new evidence, or why, once counsel and third-party experts are involved, they cannot fulfill this duty. Defendant argued that it did not need to adjust its payment for extra expenses because Plaintiff did not meet its burden of showing that its relocation expenses were necessary. Under Texas law, it is the policyholder’s burden to demonstrate that a claim is covered under the policy.

Plaintiff did not attempt to list its relocation expenses so the Court could not determine which expenses were “necessary.” Instead, Plaintiff refers generally to “American Express charges” and “an invoice from M&M Construction” that Plaintiff submitted to Defendant, which Plaintiff’s representative, Kort Weldon, was asked about in his deposition. Mr. Weldon testified that these were expenses incurred when Cowboy Christian had to relocate to another building to resume operations. Absent an itemized list and specific support for each item, Plaintiff’s contention that it incurred “extra expenses” is an unsubstantiated legal conclusion.

To the extent that Plaintiff argues that Cavalry conducted an inventory of all non-salvageable items and Defendant never produced that inventory, then Defendant should produce that inventory if it was requested.

The Court granted Defendant’s Motion with respect to Plaintiff’s claim for common-law breach of duty of good faith and fair dealing.

Statutory Claims: Violations of the Texas Insurance Code & Texas DTPA

Texas courts have recognized the close relationship between common-law bad-faith claims and the statutory bad-faith claims found in the Texas Insurance Code and DTPA. Because the statutory and common law standards are now the same, a finding that there is no common law violation as a matter of law also eliminates the statutory claims alleged by plaintiffs in this case.

Defendant’s Amended Motion for Partial Summary Judgment was granted and Plaintiff’s statutory claims under the Texas Insurance Code and the DTPA and Plaintiff’s common-law claim for breach of duty of good faith and fair dealing were dismissed with prejudice.

The remaining claims for trial are breach of contract and fraudulent misrepresentations.

ZALMA OPINION

Refusing to pay a claim presented by the insured is not evidence of the tort of bad faith. Although Cowboy Christian was upset and didn’t receive the money it wanted, that is not evidence of bad faith, it is just a dispute over numbers. The trial will go forward and Cowboy Christian will present evidence to the court of the amount it believes is covered by the policy to indemnify it for its losses and will not receive a bonus of exemplary or punitive damages.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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