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Lloyds v. Webb

Court of Appeals of Texas, Ninth District, Beaumont

May 4, 2017

STATE FARM LLOYDS, Appellant
v.
DENNIS WEBB, Appellee

          Submitted on October 28, 2016

         On Appeal from the 58th District Court Jefferson County, Texas Trial Cause No. A-194, 468.

          Before McKeithen, C.J., Kreger and Horton, JJ.

          MEMORANDUM OPINION

          Steve McKeithen Chief Justice

         We issued a memorandum opinion in this cause on March 9, 2017, concluding that the judgment of the trial court should be affirmed in part, reversed and rendered in part, and remanded in part to the trial court. Both the appellant and appellee filed timely motions for rehearing. We now withdraw our previous memorandum opinion and judgment issued on March 9, 2017, substitute the following memorandum opinion and judgment in their place, and overrule the appellant's and the appellee's motions for rehearing. See Tex. R. App. P. 19.1(b) (stating that our plenary power over a judgment expires thirty days after all timely filed motions for rehearing are overruled).

         State Farm Lloyds ("State Farm") appeals the trial court's judgment in favor of Dennis Webb following a jury trial. In five appellate issues, State Farm challenges the legal and factual sufficiency of the evidence supporting the jury's bad faith findings and award of extra-contractual damages, as well as the trial court's admission of expert testimony, exclusion of evidence, refusal to limit the scope of cross-examination, and acceptance of an incomplete jury form. We affirm the trial court's judgment in part, reverse and render in part, and reverse and remand in part.

         PROCEDURAL BACKGROUND

         Appellee Dennis Webb sued State Farm and four of its insurance adjusters for breach of contract and extra-contractual claims arising from State Farm's denial of Webb's claim for damages to his home and garage that Webb contends were caused by a plumbing leak. Webb submitted a claim to State Farm for property damage, foundation damage, and structural damage, requesting that State Farm cover the cost of repairs. According to Webb, State Farm wrongfully denied his claim for repairs when his policy provided coverage for such losses, and State Farm underpaid some of his claims "by not providing full coverage for the damages sustained by Plaintiff, as well as under-scoping the damages during its investigation." Webb asserted claims for fraud, conspiracy to commit fraud, breach of contract, unfair settlement practices, failure to promptly pay as required by the Texas Insurance Code, and breach of the common law duty of good faith and fair dealing. Webb also sought to recover attorney's fees.

         The jury found that State Farm failed to comply with the terms of the insurance policy and awarded Webb $15, 000 for breach of contract. The jury also found that State Farm knowingly engaged in an unfair or deceptive act or practice that caused damages to Webb by failing in good faith to effectuate a prompt, fair, and equitable settlement when liability had become reasonably clear, and by refusing to pay the claim without conducting a reasonable investigation. The jury awarded $20, 000 in damages for the unfair settlement practices and awarded $60, 000 in additional damages because the unfair or deceptive practice was committed knowingly.

         In addition, the jury awarded Webb attorney's fees of $80, 000 for representation in the trial court, $50, 000 for representation in the Court of Appeals, $15, 000 for representation at the petition for review stage in the Supreme Court, $10, 000 for the merits briefing stage at the Supreme Court, and $10, 000 for oral argument and the completion of proceedings in the Supreme Court. The jury did not answer question number eight, which asked the jury to determine the reasonable fee for the necessary services of Webb's attorneys during two timeframes. The jury answered "N/A" in the blank for each timeframe.

         State Farm objected to the verdict and moved for a mistrial, complaining that there were inherent conflicts in the jury's answers and that the jury failed to answer question eight. The trial court overruled State Farm's objections to the verdict, denied State Farm's motion to instruct the jury to answer question eight, and denied its motion for a mistrial. The trial court granted Webb's motion for entry of final judgment and signed a final judgment, in which it found that Webb "is entitled to judgment against State Farm based upon the jury's answers to questions 1-7." The trial court awarded Webb all the damages the jury found. State Farm timely filed a motion for new trial, which was overruled by operation of law. State Farm then filed this appeal from the trial court's judgment.

         THE EVIDENCE

         In May 2012, Webb discovered a water leak at his home. Webb found a semicircle of water approximately one foot wide where his garage meets his driveway. Webb testified that the water was seeping up from underneath the house and coming out of an expansion joint between the garage and driveway slabs. Webb explained that the plumbing leak originated from a cold water line that runs under the garage and services the exterior hose bib. Webb testified that the leak occurred under the garage about eight to ten feet from the southeast corner of his home. Webb explained that the wet area in his garage got up to eight feet wide and there was a wet spot where his driveway meets the street. Webb testified that his grass was soggy and his water meter can was full of water. Webb contacted State Farm, and Janice Warner, an insurance adjustor, inspected the wet area in his garage and took photographs. Webb told Warner that he had contacted a plumber to repair the leak. The plumbing company tunneled under Webb's home, found the leak, and repaired a copper water pipe. When Warner inspected the plumbing repairs, Webb did not report having any cracked tiles. Webb paid $2500 for the plumbing repairs and sent Warner the receipt. Warner testified that she did not collect the plumber's invoice for payment, because she determined that there was no water damage to Webb's property, and thus, no coverage. Warner's determination was based on her observations that there were no water stains anywhere and there was nothing wet in the house. Warner also testified that while she did not investigate for foundation damage, she did not find any signs of foundation damage.

         Several weeks after Webb had the leak repaired, Webb contacted Warner and reported that he had found cracks in the ceramic tiles in his kitchen. Webb explained that he had the tile installed in 2005 or early 2006 after Hurricane Rita, and the tile contractor used a "very thin mortar product[, ]" and did not use an anti-crack membrane. When Hurricane Ike hit in 2008, Webb's ceiling fell in and water poured inside the home. Webb testified that he chipped twenty-five to thirty tiles while shoveling up mud and other debris from his floor, and the chipped tiles were located in the hallway, kitchen, and bathrooms. Webb explained that he was only able to replace sixteen of the chipped tiles because the manufacturer no longer made the tile. According to Webb, he did not have a problem with the tiles cracking until 2012, when the water leak occurred. Webb testified that other than the leak, nothing unusual had happened at his home during that time period that would explain why the tiles had cracked. Webb further testified that six weeks after the leak occurred, he noticed a crack in his garage floor.

         Warner transferred Webb's claim to the foundation unit and notified Webb that a foundation specialist would be handling his claim. Webb testified that the homeowner's policy that was in effect when the plumbing leak occurred indicates that in addition to the basic policy, Webb purchased additional coverage that includes a dwelling foundation endorsement and a water damage endorsement. Webb's policy indicates that the dwelling foundation coverage includes loss caused by seepage or leakage of water from within a plumbing system, including the "settling, cracking, shrinking, bulging, or expansion of pavements, patios or foundations." Webb's benefits under the foundation damage endorsement have a policy limit of $20, 000.

         In June 2012, Steve Leal, a weather and catastrophe claim representative who had worked with State Farm for twenty-seven years, took over Webb's foundation claim. Leal explained that when Webb reported having cracks in his garage and kitchen, his claim became a foundation loss claim. According to Leal, when Webb's claim changed nature and became a foundation related claim, it was a "normal movement" to transfer the claim to his unit. Leal explained that the first step to handling a foundation claim is to hire a plumber to investigate the pressure and drain lines for additional leaks, and the second step is to hire an engineer and provide the engineer with a copy of the plumbing report.

         According to Webb, Leal inspected the cracked tiles in the kitchen and the plumbing repairs. Webb requested that State Farm pay for the plumbing repairs, replace the cracked tiles, and stabilize the slab in the garage. State Farm hired Conestoga Rovers & Associates/HSA ("HSA"), an engineering firm, to investigate Webb's foundation claim and provide an engineering report. Leal relied on HSA's finding that the plumbing leak did not cause foundation movement in determining that Webb's claim was not covered. Leal testified that he is not an engineer, and he does not have the credentials to verify an engineer's conclusions. Leal explained that he exercises his independent judgment as an adjuster using an adjuster's skills when he reviews an engineering report, and he compares the conclusions to the evidence to ensure that the report makes sense. According to Leal, he did not see anything in the engineering report that was unreasonable.

         When Leal issued Webb a letter denying coverage due to lack of causation, Webb submitted an engineering report from his expert, Peter Rabner, for State Farm's review. Leal forwarded Rabner's report to HSA, and HSA rendered a decision stating that its findings were unchanged. According to Webb, Leal told him that his policy did not cover the repairs, but that Leal did not have a problem stabilizing the slab in the garage. Leal denied having told Webb that State Farm would stabilize the home's foundation, and he asserted that he has never told a customer his claim was covered or not covered before the investigation was completed. Leal testified that he treated Webb fairly by adhering to the terms of the policy and investigating the claim thoroughly. Webb testified that after he dealt with Leal, another adjuster, Ernest Perez, began handling the claim.

         Perez, State Farm's corporate representative, testified that he has worked as a licensed insurance adjuster and team manager for almost thirty years. Perez managed the team of adjusters that handled Webb's claim, which was known as the large loss complex team. Perez explained how State Farm handles a claim for foundation damage. Perez testified that the investigation takes time and is not a "'one-and-done type claim[].'" First, State Farm notifies the policyholder about the investigative parts of the claim and talks with the customer about hiring a plumber at State Farm's expense. State Farm hires a plumbing company from a rotation list to inspect the property's supply line and sewage line and to render a report concerning its findings. Perez explained that State Farm hires a plumber first because it wants to pinpoint the type of leak and its location. If there is a below-grade leak, State Farm assigns an engineer to investigate the cause of the plumbing leak. In this case, Webb had the plumbing leak repaired before State Farm could inspect the property, so State Farm sent Insurance Services to test the sewage and supply lines to ensure that there were no additional plumbing leaks underneath the foundation. Insurance Services reported there were no additional leaks.

         Perez testified that in September 2012, State Farm issued a reservation of rights letter in Webb's case, because at that point in the investigation, State Farm did not know if there was coverage because it was too early in the file to determine whether an exclusion applied. Perez explained that State Farm has a regional list of engineering companies that it has approved to be used for foundation claims, and HSA is one of the companies on the list. Perez testified that State Farm based its decision on HSA's engineering report. According to Perez, he has to be consistent in the manner he handles claims, and if an engineer finds no causation, then he has to render a decision based on the engineer's finding. Perez believed it was reasonable for State Farm to rely on HSA's report, and he also stated that State Farm exercised its independent judgment in evaluating that report.

         Perez explained that when a customer disagrees with State Farm's decision to deny coverage, State Farm is open to receiving additional information, and in this case, State Farm considered Webb's expert's engineering report in making its determination regarding coverage. According to Perez, State Farm agreed that Webb had a plumbing leak under the garage slab, Webb had coverage in place for damage caused by plumbing leaks, a significant amount of water leaked underneath Webb's house as a result of the plumbing leak, there are expansive clay soils underneath Webb's house, and that Webb's foundation moved, causing the tile to crack. However, Perez testified that, according to the HSA report, there were multiple factors that could have caused Webb's foundation to move and the plumbing leak was not one of them. State Farm offered no opinion as to what caused Webb's foundation to move.

         Perez maintained that the duty of good faith and fair dealing requires a licensed insurance adjuster to be fair and equitable when handling an insured's claim and to investigate a claim promptly and advise the insured about any potential exclusions. Perez agreed that an adjuster must conduct a reasonable investigation, and that once liability is clear, there is a duty to pay a claim within a timely manner. Perez testified that State Farm handled Webb's claim in good faith, and he did not see any instances in which State Farm treated Webb in an unfair manner.

         In August 2012, Brandon English, a structural engineer employed by HSA, inspected Webb's house and performed a three-hour investigation, including measuring the elevations in the home and taking photographs. English also reviewed Webb's water consumption records and soil information from Webb's area. English testified that State Farm hired HSA to ascertain whether structural damage had occurred to Webb's dwelling due to a reported domestic water supply line leak below the foundation in the area of the garage. According to English, ...


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