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Garcia v. Liberty Insurance Corp.

United States District Court, S.D. Texas, Houston Division

January 17, 2019

MIGUEL GARCIA and LUPE GARCIA, Plaintiffs,
v.
LIBERTY INSURANCE CORPORATION[1]and JEFF DIXON, Defendants.

          MEMORANDUM AND RECOMMENDATION

         Pending before the court[2] is Defendants' Motion for Summary Judgment (Doc. 14). The court has considered the motion, the response, the summary judgment evidence, all other briefing on the motion, and the applicable law. For the reasons set forth below, the court RECOMMENDS that the motion be GRANTED. Plaintiffs' request for a hearing on Defendants' motion for summary judgment is DENIED.

         I. Case Background

         This insurance action arose out of a loss claim for storm damage under Plaintiffs' homeowners insurance policy.

         A. Factual Background[3]

         For the period May 19, 2014, to May 19, 2015, Defendant Liberty Insurance Corporation (“Liberty”) issued a homeowners policy to Plaintiffs on their residential property (“Policy”).[4]The deductible for losses resulting from wind and/or hail was $2, 590.[5]

         The Policy required that Defendant Liberty notify Plaintiffs of its decision to pay or deny within fifteen business days of receiving any information requested from Plaintiffs.[6] The loss-payment provision stated in relevant part:

If we [Defendant Liberty] notify you [Plaintiffs] that we will pay your claim, or part of your claim, we must pay within 5 “business days” after we notify you. If payment of your claim or part of your claim requires the performance of an act by you, we must pay within 5 “business days” after the date you perform the act.[7]

         The loss-settlement provision stated that the limit of liability for covered losses to the dwelling would be replacement cost value (“RCV”) subject to listed limitations.[8] However, Defendant Liberty agreed to “pay no more than the actual cash value (“ACV”) of the damage until actual repair or replacement [was] complete.”[9] An appraisal provision in the Policy stated:

If you [Plaintiffs] and we [Defendant Liberty] fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the “residence premises” is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss. Each party will:
1. Pay its own appraiser; and
2. Bear the other expenses of the appraisal and umpire equally.[10]

         On May 26, 2015, Plaintiffs submitted a claim to Defendant Liberty regarding water damage to the insured dwelling, which Plaintiffs claimed was caused by a storm on April 19, 2015.[11]Plaintiffs sought “repair and/or replacement of the roof and interior water damages to the [p]roperty.”[12] Defendant Jeff Dixon (“Dixon”), an adjuster, inspected Plaintiffs' residence three days after Plaintiffs filed the claim.[13]

         Defendant Dixon noted in the claim activity report that he found hail damage to the gutters on three sides of the residence but no hail damage to the visible portions of the roof.[14] He also noted that two tarpaulins on five-foot-by-ten-foot sections of the roof precluded verification of missing or damaged shingles in those areas but found that the placement of the tarpaulins caused damage to the roof which necessitated the replacement of the affected shingles.[15] Defendant Dixon further observed water stains in the ceilings of the master bedroom and bathroom.[16]

         In Defendant Dixon's estimate report, which was dated June 4, 2015, he assessed the damage to the roof shingles, gutters, and master bedroom and bathroom ceilings, as well as costs for the disposal of debris and the replacement of a damaged grill cover.[17]Defendant Dixon concluded that the RCV for all damage was $1, 909.58 and the ACV was $1, 833.63.[18] In a letter dated June 4, 2015, Defendant Liberty informed Plaintiffs that the amount of loss did not exceed their Policy deductible of $2, 590.[19] Subsequently, Plaintiff Miguel Garcia hired Mars Roofing to provide a repair bid.[20] On July 6, 2015, Mars Roofing provided an estimate of $2, 236.48, an amount that also was less than the deductible.[21]

         On April 14, 2017, Plaintiffs filed suit against Defendants in Texas state court.[22] On September 5, 2017, Defendant Liberty sent Plaintiffs a letter invoking Defendant Liberty's right to appraisal under the terms of the insurance contract.[23] The appraisal award was issued six months later on March 5, 2018.[24] Plaintiff was awarded a total RCV of $29, 891.13, which resulted in a post- depreciation ACV amount of $25, 284.45.[25]

         On March 19, 2018, ten business days after the issuance of the appraisal award, Defendant Liberty notified Plaintiffs' attorney that it accepted the appraisal award and made payment.[26] Defendant Liberty enclosed a check for $22, 694.45, which represented the ACV award less Plaintiffs' deductible.[27] According to the letter, the payment was made unconditionally.[28] The letter further stated, “With respect to any applicable deadline for the payment of recoverable depreciation, it is [Defendant] Liberty's position that such deadline shall commence to run effective with the date this payment is received by you.”[29]

         B. Procedural Background

         According to Plaintiffs' state court petition, “a severe hail storm and/or windstorm” caused “extensive damage” to Plaintiffs' roof and, consequently, “[w]ater intrusion through the roof caused damage throughout the entire home including, but not limited to the ceilings, walls, insulation, and flooring.”[30] Plaintiffs further alleged that they submitted a claim to Defendant Liberty for “the cost of repairs to the [p]roperty, including but not limited to, repair and/or replacement of the roof and interior water damages.”[31]The pleading stated that Defendant Liberty assigned Defendant Dixon to adjust the claim but that he “conducted a substandard inspection of Plaintiffs' [p]roperty.”[32]

         Plaintiffs alleged that Defendant Dixon “was improperly trained and failed to perform a thorough investigation of Plaintiffs' claim” in that he “spent an inadequate amount of time inspecting [the] entire [p]roperty for [s]torm damages, ” “failed to include all of [the] damages noted upon inspection, ” “omitted properly covered [s]torm damages” including interior damages, “underestimated and undervalued the cost of the repairs” included in the estimate, and “underestimated the cost of materials required for necessary repairs and improperly withheld prospective contractors' overhead and profit.”[33]

         Plaintiffs further alleged that Defendant Liberty “failed to thoroughly review and properly oversee the work of its assigned adjusters, including Defendant Dixon, ultimately approving an improper adjustment and an inadequate resolution to Plaintiffs' claim.”[34] According to Plaintiffs' pleading, Defendant Liberty breached the Policy by “fail[ing] to perform its contractual duties to adequately compensate Plaintiffs under the terms of the Policy.”

         Against Defendant Dixon, Plaintiffs presented claims of unfair settlement practices under the Texas Insurance Code, fraud, and conspiracy to commit fraud.[35] Against Defendant Liberty, Plaintiffs presented claims of breach of contract, unfair settlement practices under the Texas Insurance Code, common-law bad faith, non-prompt payment of the claim under the Texas Insurance Code, fraud, and conspiracy to commit fraud.[36] Plaintiffs sought full payment of their claim and additional damages resulting from unspecified losses due to nonpayment.[37] They also sought damages for mental anguish/emotional distress and economic hardship.[38] Finally, Plaintiffs sought statutory treble damages with eighteen percent interest, common-law exemplary damages, costs, and attorneys' fees.[39]

         On May 12, 2017, Defendants filed an answer and, on May 24, 2017, removed the action to this court on the basis of diversity jurisdiction.[40] On September 20, 2017, the court set October 20, 2017, as the deadline for joining parties and amending the pleadings.[41] On October 19, 2017, the parties jointly moved to extend certain deadlines by sixty days to allow sufficient time for the completion of the appraisal process.[42] Among the deadline extensions that the parties sought were those for adding new parties and amending the pleadings.[43] On October 31, 2017, the court granted the motion in part but denied the request to extend the deadlines for adding new parties and amending the pleadings.[44]

         In January 2018, the parties jointly sought additional 120-day extensions on all of the unexpired deadlines, citing the incomplete appraisal process.[45] The parties did not anticipate amending the pleadings and did not request any extension of time to do so.[46] On March 9, 2018, the court granted the motion with minor adjustments to the deadlines for the joint pretrial order and the objections to exhibits and witnesses.[47]

         In May 2018, the court referred the case to the undersigned.[48] Days later, the parties sought another 120-day continuance of the remaining deadlines but did not mention any need to amend the pleadings.[49] The court again granted a continuance with only minor modifications.[50]

         On April 18, 2018, Defendants filed the pending motion for summary judgment and attached as exhibits the Policy, Defendant Dixon's estimate, Mars Roofing's bid, the appraisal award, and letters from Defendant Liberty to Plaintiffs.[51] Plaintiffs timely responded but submitted no additional summary judgment evidence.[52]The parties filed four additional briefs, and Plaintiffs submitted Defendant Liberty's claim activity report as an exhibit.[53] After the parties completed briefing, they jointly filed another two motions for continuance, which the court granted.[54]

         At no time after the issuance of the appraisal award or Defendant Liberty's payment of $22, 694.45, both of which occurred in March 2018, did Plaintiffs seek leave to amend their state-court pleading to include factual allegations related to the appraisal or to Defendant Liberty's post-appraisal payment.

         II. Summary Judgment Standard

         Summary judgment is warranted when the evidence reveals that no genuine dispute exists on any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp., 477 U.S. at 322; Stauffer v. Gearhart, 741 F.3d 574, 581 (5th Cir. 2014). A material fact is a fact that is identified by applicable substantive law as critical to the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Ameristar Jet Charter, Inc. v. Signal Composites, Inc., 271 F.3d 624, 626 (5th Cir. 2001). To be genuine, the dispute regarding a material fact must be supported by evidence such that a reasonable jury could resolve the issue in favor of either party. See Royal v. CCC & R Tres Arboles, L.L.C., 736 F.3d 396, 400 (5th Cir. 2013)(quoting Anderson, 477 U.S. at 248).

         The movant must inform the court of the basis for the summary judgment motion and must point to relevant excerpts from pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of genuine factual issues. Celotex Corp., 477 U.S. at 323; Topalian v. Ehrman, 954 F.2d 1125, 1131 (5thCir. 1992). If the moving party carries its burden, the nonmovant may not rest on the allegations or denials in his pleading but must respond with evidence showing a genuine factual dispute. Stauffer, 741 F.3d at 581 (citing Hathaway v. Bazany, 507 F.3d 312, 319 (5thCir. 2007)).

         III. Analysis

         Defendants move for summary judgment on all of Plaintiffs' claims. Citing Blum's Furniture Company v. Certain Underwriters at Lloyds London, 459 Fed.Appx. 366 (5th Cir. 2012)(unpublished), Defendants argue that Plaintiffs cannot maintain a claim for breach of the Policy because Defendant Liberty timely paid the full appraisal award. Defendants then contend that Plaintiffs' extra-contractual claims fail because they are founded in the alleged breach of contract.

         Plaintiffs argue in response that they are not estopped from pursuing the breach-of-contract claim because Defendant Liberty's payment of the appraisal award was neither timely nor full. Regardless, Plaintiffs contend, USAA Texas Lloyds Company v. Menchaca (hereinafter “Menchaca II”), 545 S.W.3d 479 (Tex. 2018), confirms that Plaintiffs can pursue the extra-contractual claims even if they do not have a valid breach of contract claim.[55]

         A. Breach-of-Contract Claim Against Defendant Liberty

         Plaintiffs contend that Defendant Liberty breached the Policy by failing to adequately compensate Plaintiffs at the time of the initial claim.

         An insurer's “tender of the amount owed based on the amount of loss in the appraisal award estops the insured from bringing a breach-of-contract claim against the insurer” and “applies with special force where the parties agreed to provide for a binding appraisal process in their contract.” Zhu v. 1st Cmty. Ins. Co., 543 S.W.3d 428, 433-34 (Tex. App.-Houston [14th Dist.] 2018, pet. filed)(citing cases). With a moderate degree of variations, this estoppel rule has been repeated many times. See, e.g., Jimenez v. Liberty Ins. Corp., Civil Action No. H-16-1866, 2017 WL 6368663, at *4 (S.D. Tex. Nov. 9, 2017)(slip copy)(quoting Anderson v. Am. Risk Ins. Co., NO. 01-15-00257-CV, 2016 WL 3438243, at *4 (Tex. App.-Houston [1st Dist.] June 21, 2016, no pet.)(unpublished)) (stating that, “[b]y payment of the full amount of an appraisal award, the insurer ‘complies with every requirement of the contract, and it cannot be found to be in breach'”); Nat'l Sec. Fire & Cas. Co. v. Hurst, 523 S.W.3d 840, 845 (Tex. App.-Houston [14th Dist.] 2017, pet. filed)(citing Brownlow v. United Servs. Auto. Ass'n, No. 13-03-758-CV, 2005 WL 608252, at *2 (Tex. App.-Corpus Christi Mar. 17, 2005, pet. denied)(unpublished) (stating that, “[g]enerally, tender of the full amount owed pursuant to the conditions of an appraisal clause is all that is required to estop the insured from raising a breach of contract claim”); Blum's Furniture Co., 459 Fed.Appx. at 368 (quoting Franco v. Slavonic Mut. Fire Ins. Ass'n, 154 S.W.3d 777, 787 (Tex. App.-Houston [14th Dist.] 2004, no pet.))(stating that “timely payment of a binding and enforceable appraisal award” that is accepted by the insured estops the insured “from maintaining a breach of contract claim against [the insurer]”).

         Additionally, any difference in amount between an initial payment by the insurer and the appraisal award is not evidence of a breach of contract. See Blum's Furniture Co., 459 Fed.Appx. at 368-69 (citing Breshears v. State Farm Lloyds, 155 S.W.3d 340, 343 (Tex. App.-Corpus Christi-Edinburg 2004, pet. denied)(further holding that the prohibition against using the difference as evidence of breach is also especially relevant when the contract in question “provides for resolution of disputes through appraisal”). A Texas intermediate appellate court observed that, by paying the difference following appraisal, the insurer fulfilled its duty to pay the insured all benefits available under the policy. Biasatti v. GuideOne Nat'l Ins. Co., 560 S.W.3d 739, 742 (Tex. App.-Amarillo 2018, pet. filed).

         Without a doubt, the estoppel rule is well established and prevents an insured from pursuing a breach-of-contract claim after receiving a timely and full payment of an appraisal award. Plaintiffs contend that Defendant Liberty's payment did not estop their claim because it was neither timely nor full.

         Plaintiffs argue that Defendant Liberty's payment was not timely because the loss-payment provision of the Policy required Defendant Liberty to make payment within five business days of the ...


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