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LP v. Griffith

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

June 26, 2019


          On appeal from the 206th District Court of Hidalgo County, Texas.

          Before Chief Justice Contreras and Justices Benavides and Hinojosa.


          Gina M. Benavides, Justice.

         Appellee John Griffith's house was damaged in a hail storm that struck McAllen in the spring of 2012. Griffith filed suit against appellant USAA Texas Lloyd's Company (USAA) and others, [1] alleging various causes of action related to their handling of his insurance claim. The jury found USAA liable as alleged and awarded Griffith roughly $776, 000 in actual damages, treble damages, exemplary damages, penalty interest, attorney's fees, and expert witness fees. USAA appeals contending there is legally insufficient evidence to support the jury's findings of breach of contract, knowing violations of the insurance code, fraud, expert witness fees, and damages arising from these findings. In addition, USAA argues that the jury charge was erroneous, and the award of attorney's fees must be reversed. We affirm in part and reverse and render in part.

         I. Background

         A. Trial Evidence

         Griffith held a USAA policy on his house in McAllen, which had a sizeable roof composed of wood shakes, a type of wood-plank shingling. The roof was newly built in the early 2000's. Shortly before the storm, Griffith had maintenance performed on the roof which included replacing some damaged shakes and oiling the rest.

         Six weeks before the storm, USAA sent an inspector to survey Griffith's house for the purpose of underwriting a new insurance policy. In his report, the inspector documented the home's good condition, took photos showing there were no holes in the roof visible from the attic, and increased the home's appraisal value by over $100, 000.

         In April 2012, McAllen was struck by a hail storm. There was evidence of sixty-mile-per-hour winds and 3.2-inch sized hail at Griffith's house. Griffith reported home damage to USAA within four days.

         USAA sent an inspector from Allcat Claims Service, LP, to assess the damage, which the Allcat inspector agreed was caused by the hail storm. The Allcat inspector's photos showed that there were now holes in the roof where daylight could be seen from the attic. The inspector found that other than hail damage, the roof was well maintained and had minimal wear and tear.

         The Allcat inspector used a "test square" method, whereby he evaluated a test patch on each slope of the roof, counted the number of damaged shakes in each patch, and used those numbers to extrapolate the damage to the rest of the roof. He found broken shakes on each slope, with a total of eighty-seven shakes split by hail in the test patches. Based on these tests, he determined that the right slope of the house should be replaced entirely, and that the other three slopes could be spot-repaired, with an estimated 1, 730 shakes to be individually replaced on the other three slopes. He estimated the cost to repair Griffith's roof and other areas of his property at $41, 077, which, after depreciation and deductibles, would result in a $32, 190 payment to Griffith.

         USAA relied on the Allcat estimate and issued Griffith a check for $32, 190. Griffith saw that his neighbors' roofs were being replaced, not spot repaired, and he wanted a full replacement as well. He retained Rimkus, an inspection company often used by insurers, to perform an estimate. The Rimkus inspector determined that the roof should be replaced because all slopes showed significant damage, with over fifty percent of the shakes damaged on at least two slopes. Additionally, the punctured felt underlayment needed to be replaced or else the roof would leak. He estimated that USAA owed Griffith $119, 850.45, including $73, 405 for replacement of the roof. The remainder included damage to windows and screens, a satellite dish, and pool decking.

         Griffith submitted the Rimkus estimate to USAA and requested additional payment. USAA in turn submitted Rimkus's estimate to a third-party engineering firm called Project Time and Cost (PTC). Seven months after the storm, PTC sent an engineer to survey the roof. The PTC engineer determined that most of the damage to the roof was caused by natural wear and tear and "mechanical damage" such as foot traffic. He concluded that fewer than twenty shakes were damaged by hail, and that the largest hail at Griffith's house was probably one inch in diameter at most. Citing PTC's report, USAA sent Griffith a partial denial indicating that it would not pay any more than its initial offer of $32, 190 based on Allcat's estimate. Griffith then sued USAA.

         At trial, the parties submitted additional expert testimony on the roof, its condition, the source of the damage, and the prospects of repairing it. USAA called Steve Patterson, an engineer hired during the litigation, to testify. After inspecting the roof, Patterson found it to be in good condition with some damage attributable to hail. He testified, however, that he believed there was a construction defect which caused the holes in the attic: certain boards were misaligned so that the underlying felt paper was exposed, increasing the risk that hail would puncture the felt. Patterson believed that it was feasible to repair 1, 700 shakes individually, and the underlying felt could be patched as well using caulking compounds. Patterson agreed that, contrary to PTC's report, the holes in the underlayment could not have been caused by natural wear occurring prior to the storm. Another of USAA's experts Alan Berryhill, a roofing expert hired during the litigation, testified that the roof was in good condition when he surveyed it years after the storm. He agreed that there were no signs that the roof was leaking and that the roof could be repaired effectively for $32, 190.

         Griffith submitted the expert testimony of engineer Greg Becker and consultant Phil Spotts. Griffith's experts testified that to restore the home to its pre-storm condition, it was essential to replace the felt underlayment, or else the roof would not effectively shed water. They explained that because four years had passed since the storm the hail marks had faded; it would be very difficult to tell which boards were damaged without manually checking each one, and it would be hard to replace individual shakes without damaging the rest. Ultimately, Griffith's experts viewed the option of spot repairs as ineffective and impractical, and they felt USAA's proposal was "absurd." They agreed that the attic holes were caused when hail "shot the gap" between shakes that had shifted due to wind or where the shakes were laid with slight gaps.

         B. Procedural History

         At the conclusion of the evidence, the court submitted the case on three theories: breach of policy, bad faith violations of the insurance code, and fraud. The jury found in favor of Griffith on all theories. The jury found that USAA breached the insurance policy, and that it should have paid $76, 500 more than the $32, 190 it had already paid. The jury further found that USAA knowingly committed bad faith violations of the insurance code and the jury awarded treble damages on that basis. See Tex. Ins. Code Ann. § 541.060(a).

         The jury also found that USAA committed fraud, for which it additionally awarded $33, 000 to compensate for the premiums that USAA had wrongfully collected. Finally, the jury found that USAA acted with malice in committing fraud, and it awarded exemplary damages. Griffith elected to recover primarily under his insurance code theory that USAA had refused to pay the claim without conducting a reasonable investigation, for which USAA alone was liable. Griffith also elected to recover any nonduplicative damages under his fraud theory. The trial court rendered judgment awarding Griffith: under his insurance code theory, $76, 500 for damages, $153, 000 in treble damages, penalty interest of $64, 285.29, and $199, 000 in attorney's fees; and under his fraud theory, $33, 000 in lost premiums and $200, 000 in exemplary damages. The judgment also awarded Griffith $26, 423.04 to compensate for his testifying experts under rule of civil procedure 167, as well as pre- and post-judgment interest. Tex.R.Civ.P. 167. USAA appeals.

         II. Standard of Review Legal Sufficiency

         A legal sufficiency challenge will be sustained only if: (1) there is a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence conclusively establishes the opposite of a vital fact. City of Keller v. Wilson, 168 S.W.3d 810, 822 (Tex. 2005). In our review, we are mindful that jurors are the sole judges of the credibility of the witnesses and the weight to be given their testimony. Id. at 819. We review the evidence presented at trial in the light most favorable to the jury's verdict, crediting favorable evidence if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. Del Lago Partners, Inc. v. Smith, 307 S.W.3d 762, 770 (Tex. 2010).

         In determining a question of insurance coverage, we look first to the language of the policy. Gilbert Tex. Constr., LP v. Underwriters at Lloyd's London, 327 S.W.3d 118, 126 (Tex. 2010). We give the policy's terms their ordinary and generally-accepted meaning unless the policy shows the words were meant in a technical or different sense. Id. Since insurance policies are contracts, we construe them according to general rules of contract construction to ascertain the parties' intent. USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 488 (Tex. 2018).

         III. Breach of Insurance Policy

         By its first issue, USAA contends that there is legally insufficient evidence to demonstrate that USAA breached the insurance policy. USAA argues that, as a matter of law, it complied with the contract, and Griffith was not entitled to more policy benefits than the $32, 190 that USAA paid. Citing Menchaca, USAA argues that Griffith cannot recover on his theory of bad faith violations of the insurance code. 545 S.W.3d at 490 ("The general rule is that an insured cannot recover policy benefits for an insurer's statutory violation if the insured does not have a right to those benefits under the policy.").

         A. Applicable Law

         To establish a breach of contract, a plaintiff must prove (1) the existence of a valid contract, (2) the plaintiff's performance or tender of performance, (3) the defendant's breach of contract, and (4) the plaintiff's damages as a result of the breach. S&S Emergency Training Sols., Inc. v. Elliott, 564 S.W.3d 843, 847 (Tex. 2018); Davis v. Nat'l Lloyds Ins. Co., 484 S.W.3d 459, 468 (Tex. App.-Houston [1st Dist.] 2015, pet. Denied) (citing Certain Underwriters at Lloyd's v. KKM Inc., 215 S.W.3d 486, 489 (Tex. App.- Corpus Christi-Edinburg 2006, pet. denied)). Thus, in the context of an insurance policy, a plaintiff must prove the existence of a valid insurance policy covering the denied claim and entitlement to money damages on that claim. Davis, 484 S.W.3d at 468.

         USAA admits that Griffith's roof was covered for hail damage by a policy that was in force on the date of the hail storm. The policy provided:

In return for payment of premium and subject to all terms of this policy, we will provide the insurance described. . . . We insure against "sudden and accidental," direct physical loss to tangible property described in PROPERTY WE COVER . . . . Windstorm or hail. We will pay our cost to repair or our cost to replace the damaged property with similar construction and for the same use on the premises shown in the Declarations . . . .

         The policy excluded losses caused by microbial organisms, weather conditions, wear and tear, loss caused by "birds, rodents, insects," or defective construction, among others.

         Under the doctrine of concurrent causes, when covered and non-covered perils combine to create a loss, the insured is entitled to recover that portion of the damage caused solely by the covered peril. Travelers Indem. Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971); Dall. Nat'l Ins. Co. v. Calitex Corp., 458 S.W.3d 210, 222 (Tex. App.- Dallas 2015, no pet.); Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 198 (Tex. App.-Houston [14th Dist.] 2003, pet. denied); Allison v. Fire Ins. Exch., 98 S.W.3d 227, 258 (Tex. App.-Austin 2002, judgm't vacated w.r.m.). The doctrine of concurrent causation is not an affirmative defense or an avoidance issue. Calitex, 458 S.W.3d at 222. Because an insured can recover only for covered events, the burden of segregating the damage attributable solely to the covered event is a coverage issue for which the insured carries the burden of proof. Id.; see Cooper Indus., LLC v. Am. Int'l. Specialty Lines Ins. Co., 273 Fed.Appx. 297, 308 (5th Cir. 2008). The insured is also required to produce evidence which will afford a reasonable basis for estimating the amount of damage or the proportionate part of damage caused by a risk covered by the insurance policy. Calitex, 458 S.W.3d at 222-23. Failure to segregate covered and noncovered perils is fatal to recovery. Id. at 223. "Although a plaintiff is not required to establish the amount of his damages with mathematical precision, there must be some reasonable basis upon which the jury's finding rests." Tex. Windstorm Ins. Ass'n v. Dickinson Indep. Sch. Dist., 561 S.W.3d 263, 273 (Tex. App.-Houston [14th Dist.] 2018, pet. filed); Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 304 (Tex. App.-San Antonio 1999, pet. denied).

         B. Discussion

         USAA disputes whether Griffith was entitled to the cost to replace the roof, as the jury found or only to the cost of repair. USAA was contractually obligated to either repair or replace the hail-damaged roof, but under the language of the policy, USAA had the sole discretion to either repair or replace the roof. USAA paid Griffith $32, 190 to repair the roof, but there was evidence before the jury that replacing the roof would have cost USAA $73, 405 more than it already paid. There was other evidence that repairing the roof would have in fact cost far more, to the point that repairing the roof was regarded by many witnesses as impractical and even absurd. The jury evidently found this evidence credible and awarded Griffith the cost to replace the roof as damages-the least amount necessary to legitimately fulfill USAA's obligation under the policy. This amount of damages was supported by legally sufficient evidence. See City of Keller, 168 S.W.3d at 820 (holding that the standard of review requires that we resolve inconsistencies in the evidence in favor of the jury's verdict).

         USAA next disputes coverage, arguing that the loss falls into one of many exclusions from coverage. Griffith's policy incorporated exclusions for "wear and tear, marring, deterioration," "microbial organisms, including but not limited to mold," and "mechanical breakdown, latent defect, inherent vice, or any quality of the property that causes it to damage or destroy itself." USAA now argues that the roof's deterioration and design flaws acted as concurrent causes of damage to the roof, and it was Griffith's burden to segregate the damages attributable to these concurrent causes. USAA contends that because Griffith failed to supply a reasonable basis to apportion damages to these concurrent causes, his award cannot stand.

         USAA's argument is contradicted by the evidence at trial. There was general consensus among the witnesses that the roof was well maintained and in good condition before the storm. Griffith explained that he had the roof regularly maintained, including service to repair any broken boards just months before the storm. There was also evidence USAA found the home to be in good condition and increased its appraisal value $100, 000 just six weeks before the storm while taking photographs which documented the structural integrity of the roof. Following the storm, photographic evidence documented broken shakes, holes in the roof, and hail-pocked surfaces. Many witnesses, including the Allcat inspector who was hired by USAA, testified that any damage to the shakes was due solely to hail. The jury was entitled to credit this testimony and to reject evidence to the contrary.

         More importantly, there was no evidence that wear or fungus acted as a concurrent cause of the damage to the roof. There was no testimony that hail synergized with natural wear or fungus to cause even greater damage than the hail might have otherwise caused to a newer roof. There was no evidence that natural wear and fungus required the roof to be replaced independent of any hail damage. In fact, USAA conceded at closing, "USAA didn't deny any of the damage that it found to Mr. Griffith's roof, that [the Allcat adjuster] Mr. Ellis found on Mr. Griffith's roof, didn't deny any of that based on wear and tear and deterioration or construction defects."

         The central theme in USAA's case was that one slope of the roof needed replacement, but the rest of the roof could be spot-repaired. Only one witness suggested that wear or a design flaw was to blame for damage to the roof-the PTC engineer-but a reasonable jury could have disregarded this disputed testimony. See Del Lago Partners, 307 S.W.3d at 770.

         Viewed in the light most favorable to the jury's verdict, this evidence would enable a rational jury to conclude that hail was the sole cause of Griffith's loss requiring replacement. See id. We conclude that there is more than a scintilla of probative evidence supporting the jury's finding that USAA breached the policy by failing to pay for the full extent of the hail damage. See Davis, 484 S.W.3d at 472 (deferring to the jury's resolution of conflicting testimony on the nature of a loss).

         We overrule USAA's first issue.

         IV. ...

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