SDV Insights

Texas Supreme Court to Determine Scope of Statutory Bad Faith

Over the past decade, a barrage of severe storms in Texas resulted in significant property damage, giving rise to thousands of lawsuits by policyholders for breach of contract and bad faith claims against their insurers. Now, the Texas Supreme Court is poised to determine the scope of the state’s bad faith statute.

Last week, the Texas Supreme Court agreed to review a case concerning insurance coverage for damage caused by Hurricane Ike. A homeowner brought a coverage action against her insurer, USAA Texas Lloyd’s Company, alleging breach of contract and violations of Texas’ bad faith statute after USAA declined to pay for storm damage. The jury found that although USAA did not breach its contract, it did violate Texas’ bad faith statute by refusing to pay a claim without conducting a reasonable investigation, as the adjuster had spent only 45 minutes evaluating the property.

USAA appealed the jury verdict, arguing that because the jury found no breach of contract, the homeowner could not succeed on her bad faith claim. The Court of Appeals of Texas upheld the jury verdict and granted a final judgment which included damages, prejudgment interest, penalty interest, and attorney’s fees for both the trial and appellate proceedings. The court held that it was possible for USAA to fully comply with the terms of the policy and still be in breach of Texas’ bad faith statute for failing to reasonably investigate the claim.

On September 2, 2016, the Texas Supreme Court granted USAA’s petition for further review of this case. SDV will be monitoring this case for future developments.

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