• Atlanta
• Boston
• Dallas
• Ft. Lauderdale
• London
• Minneapolis
• New York
• Oakland
• Philadelphia
• Washington, DC

by Austin Taylor

U.S. District Court Xavier Rodriguez of the United States District Court for the Western District of Texas recently issued a decision granting summary judgment for an insurance carrier in a first-party case involving alleged hail damage to a commercial property. In granting summary judgment, the Court concluded that only a bona fide dispute between the parties' experts existed and this did not rise to the level of bad faith necessary to support a claim for the breach of the duty of good faith and fair dealing.

Beka One, LLC v. RLI Insurance Company involved alleged damage to a commercial property in the San Antonio area from a May 27, 2020 storm. No. 5:23-CV-000642024, WL 4839166, *1 (W.D. Tex. Sept. 13, 2024). Beka One, LLC (“Beka One”) submitted a claim for damages to the property’s roof, HVAC, and exhaust outlets. Id. RLI Insurance Company (“RLI”) then investigated the claim by retaining Engle Martin & Associates (“EMA”). At EMA’s suggestion, RLI also retained an engineering firm Nelson Forensics, LLC (“Nelson”), and a building consultant, JS Held, LLC (“JS Held”). Id.

Nelson inspected the property and prepared two reports documenting its findings. Id. The first report focused on the property's roof and concluded that the May storm had not damaged the roof. Id. The second report detailed Nelson’s findings on the property's HVAC and exhaust outlets. Id. The second report concluded that the May storm had caused some damage to these components. Consistent with Nelson’s findings and its inspection of the property, JS Held prepared an estimate of loss for the damaged components noted in Nelson’s second report. Id. This estimate totaled less than Beka One’s deductible. Id.

Consistent with the findings of its consultants RLI issued two letters to Beka One. Id. RLI’s first letter cited the findings of Nelson’s first report and explained that there was no covered damage to the property’s roof. Id. RLI’s second letter explained that while some covered damage had been noted in Nelson’s second report this damage did not exceed the policy’s deductible. Id.

Beka One then hired a roofer to carry out repairs to the property as well as Needham Rice & Associates LLC (“Needham”), a public adjuster. Id. Needham sent RLI a damage report that included an estimate from an HVAC contractor that included a different scope of repairs than the estimate prepared by JS Held, which exceeded the Policy’s deductible. Id. These were forwarded to JS Held for review. Id. In turn, JS Held retained its own HVAC specialists from Comfort Air Engineering, Inc. (“Comfort Air”). Id. at *2. Comfort Air inspected the property and reviewed the competing repair scopes before preparing its own repair estimate. Id. Comfort Air’s estimate, while higher than JS Held’s estimate, was still below the policy’s deductible. Id. RLI reaffirmed its prior claim position. Id.

Beka One filed suit a few months later alleging among other causes of action, that RLI breached the common law duty of good faith and fair dealing. Id. Over a year after filing suit, Beka One retained Mayfield Building Envelope Consultants (“MBEC”), a consulting company. Id. In contrast to Nelson, MBEC concluded that the property’s roof had been damaged by the May storm. Id.

RLI moved for summary judgment on Beka One’s claim for breach of the duty of good faith and fair dealing, arguing that the evidence demonstrated nothing more than the bona fide coverage dispute. Id. Judge Rodriguez agreed.

Under Texas law, an insurer owes a duty “to deal fairly and in good faith with an insured in the processing of claims.” Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 459 (5th Cir. 1997) (citing Arnold v. Nat'l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). A claim for breach of the duty of good faith and fair dealing exists “when the insurer has no reasonable basis for denying or delaying payment of a claim.” Higginbotham, 103 F.3d at 459. An insurer may also “breach its duty of good faith and fair dealing by failing to reasonably investigate a claim” before denying it. Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56 n.5 (Tex. 1997). An insurer fails to reasonably investigate a claim if the investigation is conducted as a pretext for denying the claim. In addition, while an insurer is generally entitled to rely on the opinions of its experts, an insurer cannot rely on expert opinions that are unreliable or not objectively prepared. See Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189, 194 (Tex. 1998).

The Court observed that “Plaintiff has proffered no evidence suggesting that Defendant failed to conduct a reasonable investigation or that its experts' reports were not objectively prepared or were otherwise unreliable.” Id. at *4. Further, Beka One “has [not] offered any evidence that Defendant ‘knew or should have known’ that Plaintiff's claim was covered . . . based on the facts available to Defendant when it denied Plaintiff's claims.” Id. Rather Beka One relied on the disagreements between the MBEC report and Nelson’s reports relied on by RIL. Id. The Court observed that contradictions in the ultimate opinions reached in MBEC’s and Nelson’s reports “only demonstrate that there is a bona fide dispute between experts and do not rise to the level of bad faith, especially considering that the [MBEC] report was not available to Defendant when it denied Plaintiff's claims.” Id. Judge Rodriguez concluded that summary judgment was appropriate under these facts.

The Court’s decision on RLI’s Motion for Summary Judgment was thorough and well-reasoned, appropriately holding Beka One to its burden to produce evidence of more than a bona fide coverage dispute to support a claim for the breach of the duty of good faith and fair dealing.