Mistakes Do Not Prove Malice: Federal Court in Dallas Enters Summary Judgment on Policyholder’s Bad Faith Claim

By: Daniel B. Heidtke

Alleging an insurer was “dilatory, deficient, and pre-textual” in its handling of a claim is not enough to state a claim for bad faith, explained the Northern District of Texas, as it entered summary judgment against a policyholder’s breach of the duty of good faith and fair dealing claim earlier this month.  After recognizing that the record lacked “expert testimony, proof of standard industry practices, [] legal authority” or evidence that demonstrated duplicity, the court held that the policyholder failed to meet his burden.  After all, the court explained, “mistakes do not prove malice” nor “does delay ensure duplicity”.

In Craig Collins v. State Farm Lloyds, Civil Action No. 3:21-cv-0982 (N.D. Tex. Feb. 3, 2023), Collins filed a claim on his homeowner’s insurance policy after a tornado damaged his home.  Collins’s insurer sent an adjuster to his home, who “took photographs, inspected the property, and filed a report.”  The adjuster recommended a total replacement cost, which Collins’s insurer paid.  The insurer continued to adjust and investigate his claim, performing a second inspection of Collins’s roof and, after paying an additional sum, sent a third adjuster to inspect Collins’s home.  The third adjuster recommended that the insurer pay an additional sum, which the insurer did, and hired an engineering firm to further inspect the property.  After concluding its inspection, the engineering firm concluded that no further damages were due to the tornado, but were due to “foundation movement and age-related deterioration.”  Evidently unhappy with the outcome and perhaps equally unhappy with the process, Collins filed suit alleging breach of contract, violation of the Texas Prompt Payment of Claims Act, violations of the Texas Deceptive Trade Practices Act, and breach of the common-law duty of good faith and fair dealing.

Collins’s insurer moved for summary judgment on Collins’s common law bad faith claim, Deceptive Trade Practices (Texas Insurance Code, Section 541) claim, and Prompt Payment of Claims (Texas Insurance Code, Section 542) claim.  After noting that bad faith requires a plaintiff to show that “the insurer had no reasonable basis for denying or delaying payment of a claim, and [that] the insurer knew or should have known that fact[,]” the court found that Collins had plainly failed to meet his burden.  It dismissed Collins’s proof as “evidentiary odds and ends” that failed to provide an “objective indication” that his insurer’s investigation was pre-textual.

The court also rejected Collins’s argument that because “as he sees it” his insurer has “no reasonable basis” for refusing to pay “the remaining covered damage,” he had presented evidence in support of his bad faith claim.  Relying on State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex. 1998), the court held, a “bona fide coverage dispute [] does not demonstrate bad faith.”  And because Collins’s common law bad faith claim failed, so too did his Section 541 claim—relying on Spicewood Summit Office Condos. Ass’n, Inc. v. Am. First Lloyd’s Ins. Co., 287 S.W.3d 461, 468 (Tex. App.—Austin 2009, pet. denied), and explaining, “there can be no liability on the statutory bad faith claims based on [Section] 541 when a claimant has failed to prove bad faith.”

It wasn’t a home run, however.  The court found that several questions remained with respect to Collins’s Section 542 claims, including whether his insurer “timely notif[ied]” him that it needed an extension to reassess and make further payments; and whether, in the event a jury determines the insurer must pay more under the policy, that as-yet-unpaid payment is untimely.

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