United States District Court, S.D. Texas, Houston Division
METRO HOSPITALITY PARTNERS, LTD, d/b/a CROWNE PLAZA HOTEL, Plaintiff,
LEXINGTON INSURANCE COMPANY, Defendant.
MEMORANDUM OPINION AND ORDER
Rosenthal Chief United States District Judge.
business sues its property insurer and the type of damage is
clearly covered, the usual pattern is that the insurance
company has failed to pay anything, has failed to pay
anything close to what the insured claimed, or has taken too
long to pay. This case is different. Here, the property
insurer promptly adjusted the claim the insured presented and
paid a large sum within the month after the hailstorm that
damaged the insured's hotel. The insurer identified and
paid what it concluded were the remaining amounts owed about
two months after that. The insured claimed that more money
was owed. The insurer asked for documents and information
substantiating the demand for additional payment. The insured
refused. The policy required the insured to
“cooperate” with the insurer. What we have here,
says the insurer, is a failure to cooperate. What we have
here, says the insured, is a breach of the insurance contract
and of the duty of good faith and fair dealing.
insured, Metro Hospitality Partners, Ltd., owns a hotel in
Houston, Texas. After a hailstorm damaged the hotel, Metro
promptly notified its property insurer, Lexington Insurance
Company. Lexington quickly responded, inspected, adjusted,
paid part of the claim as an advance, and identified the
amount of covered damage and the amount it owed. The total
amount approved and paid before subtracting the deductible
and depreciation was $820, 649.42. The parties disputed
whether the hailstorm damage justified a insurer-paid new
roof, or whether normal wear and tear made a new roof
presented a $2, 664, 427.44 estimate of its added covered
losses over five months later, including the cost of a new
roof, again without substantiating documents or information.
Lexington asked for substantiation. Without complying, and
before Lexington issued a final decision, Metro sued. After
filing this suit, Metro submitted an estimate for about $10
million in covered losses and damages. Before and after Metro
filed this lawsuit, Lexington continued to ask for documents
and information supporting the claims. Metro asserted and
continues to assert that Lexington did not need most of the
documents or information and therefore that Metro had no duty
to provide them.
discovery, Lexington moved for summary judgment, Metro
responded, and Lexington replied. (Docket Entry Nos. 21, 23,
25). Based on a careful review of the motion, response, and
reply; the record; and the relevant law, this court grants
Lexington's motion for summary judgment dismissing
Metro's extracontractual claims for breach of the duties
of good faith and fair dealing. The court denies
Lexington's motion for summary judgment on the breach of
contract claims, but without prejudice and with leave for
Lexington to reurge its motion after Metro complies with the
The insured, Metro Hospitality, is ORDERED to produce the
documents and information the insurer, Lexington Insurance,
previously sought, updated as explained below, relating to
Metro's claims that Lexington pay additional losses and
damages. To avoid confusion, Lexington must give Metro a copy
of the outstanding requests, updated as necessary to reflect
information learned and events occurring since the requests
were made, no later than April 7, 2017. Metro is ordered to
fully respond no later than May 8, 2017.
and a representative from each party are also ORDERED to
appear for a hearing on May 16, 2017, at 5:00 p.m., in
Courtroom 11-B. The court will review the documents and
information produced with counsel and the parties, and will
set a scheduling and docket control order to expeditiously
and fairly resolve the remaining issues in the case.
reasons for these rulings are stated below.
owns and operates the Crowne Plaza Hotel in Houston, Texas.
The hotel is made up of seven buildings built between 1965
and 1985. Lexington Insurance Company issued Policy Number
64203238-02, with effective dates of December 4, 2012 to
December 4, 2013. (Docket Entry No. 21, Ex. G).
April 27, 2013, a hailstorm passed through Houston. Metro
reported storm damage to the hotel to Lexington on April 29,
2013. The next day, Lexington assigned Byron Woodward of
Vericlaim, Inc. to adjust the loss. Woodward met with Metro
on May 1-less than a week after the hailstorm-and started
inspecting the hotel on May 4-less than a week after Metro
reported its claim. (Id., Ex. A at ¶ 4).
Woodward quickly hired three experts to help adjust the
claim: Joseph Kennedy from LWG Consulting, Inc., to assess
the HVAC system; Howard Jones (and later Steve Hardgrave)
from JS Held, to look at interior damage; and James R.
Bailey, Ph.D., from Exponent, Inc., to assess the roof.
not take long for disputes to arise. Hardgrave from JS Held
reported in a May 4 email that the claims-adjustment process
“might get ugly” because Metro's principal
and owner, Shabrahram Yazdani-Beioky, told Hardgrave in a
meeting that “if this doesn't go my way my PA and
his team are ready.” (Id., Ex. B-3). Woodward
sent Vericlaim's First Report to Lexington within a month
after the notice of loss. The report noted that Metro
reported its roof contractor's finding that the entire
roof needed replacing. Metro did not, however, identify the
roof contractor. Metro also reported that it had cancelled
large events and rented damaged rooms at discounted rates.
Metro did not respond to requests for information about the
claimed income loss. (Id., Ex. A at ¶¶
23, 2013, Lexington had advanced Metro $249, 000 on its
claims. (Id. a t ¶ 6) . B a s e d on the
initial inspections, Lexington, through Kennedy at LWG
Consulting, identified an additional $272, 738.04 in
compensable actual-cash-value losses to the HVAC system.
Through Jones at JS Held, Lexington identified an added $412,
961.56 in compensable actual-cash-value losses to the hotel
building interiors. (Id. at ¶ 5). Dr.
Bailey-who has a Ph.D. in engineering-found no covered roof
damage because the problems resulted from age and poor
maintenance, not from the recent hailstorm damage, and
reported his findings to Lexington. (Id.).
2, 2013, Woodward asked Metro for documents and information
supporting its claimed losses. Woodward asked Metro for
quotes or bids on the cost and work needed to replace the
roof, the HVAC, and skylights, and to make interior repairs.
(Id. at ¶ 9; id., Ex. A-5). Dan Parra
responded for Metro on July 16, 2013. Parra stated that he
was collecting the information and would send it as received.
(Id. at ¶ 9). But on July 17, 2013, Yazdani
sent Woodward at Vericlaim a letter complaining that
Lexington had “asked for several categories of
documents . . . not necessary . . . to adjust this claim,
” which was “unreasonably delaying the
[claims-adjusting] process.” (Id. a t ¶
9; id., Ex. A-6; id., Ex. C-16).
on July 25, 2013, Yazdani signed a statement of loss agreeing
that $820, 649.42 was the total covered damage amount. The
signed statement noted Metro's failure to substantiate
“Emergency Remediation/Extraction, ”
“Business Personal Property, ” or “Business
Income” losses. (Id., Ex. A at ¶ 7;
id., Ex. A-1). Yazdani also signed sworn proofs of
loss in early August, one for the advance payment of $249,
000 and one for the added $336, 649.42 payment-the total
undisputed losses that JS Held identified, less depreciation
and deductible. (Id., Exs. A-2, A-3). After
Lexington's last payment, Vericlaim issued another report
noting that the file “remains open pending insured
providing the information regarding the emergency services,
carpet pricing and financial information needed to continue
with the settlement of this claim.” (Id., Ex.
A at ¶ 10; id., Ex. A-8).
January 28, 2014, Metro submitted a “Xactimate”
damage estimate for an additional $2, 664, 427.44 from its
public adjuster. Metro submitted no underlying documents or
added information. (Docket Entry No. 23, Ex. C at ¶ 12;
id., Ex. N at 4). Vericlaim's sixteenth report,
dated March 16, 2015, stated that it had not received
“anything from the CPAs” on Metro's claimed
business-interruption losses, extra expenses, or revenue
losses. (Docket Entry No. 21, Ex. A at ¶ 11). Metro
instead filed this suit. Metro subsequently submitted a
second “Xactimate” damage estimate from another
public adjuster, this time claiming close to $10 million in
added damages, again without supporting documents and
information. (Docket Entry No. 23, Ex. A at ¶ 25;
id., Ex. A-6).
sued Lexington on April 14, 2014 in Texas state court, before
Lexington had made or issued its final claim determination.
(Docket Entry No. 1-5). Metro asserted a breach of contract
claim for Lexington's alleged failure to pay the total
Metro claimed was due under the insurance policy.
(Id. at ¶ 12). Metro also alleged that
Lexington breached both common-law and Texas statutory duties
of good faith and fair dealing. (Id. at ¶¶
13-15). Lexington timely removed on the basis of federal
diversity jurisdiction. (Docket Entry No. 1). Discovery and
this dispositive motion followed.