Douglas v. State Farm Lloyds

Decision Date22 February 1999
Docket NumberNo. CIV.A. H-97-3985.,CIV.A. H-97-3985.
PartiesRobert and Sally DOUGLAS, Plaintiffs, v. STATE FARM LLOYDS, Defendant.
CourtU.S. District Court — Southern District of Texas

George H Lugrin, IV, Griggs & Harrison, Houston, TX, for Robert Douglas, Sally Douglas, plaintiffs.

Christopher W. Martin, Bracewell and Patterson, Houston, TX, for State Farm Lloyds, defendants.


CRONE, United States Magistrate Judge.

Pending before the court is Defendant State Farm Lloyds's ("State Farm") Motion for Partial Summary Judgment (# 17). Having reviewed the motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that State Farm's motion should be granted.

I. Background

On May 10, 1996, Plaintiffs Robert and Sally Douglas ("the Douglases") reported cracking and settling damage to the interior of their home and foundation, which they believed to be caused by plumbing leaks. State Farm hired a licensed professional engineering company, S.E.A., Inc. ("S.E.A."), and a plumbing company, Plumbing Testing Services ("P.T.S."), to assist in the investigation of the claim. At the same time, State Farm sent a reservation of rights letter informing the Douglases that the damages they were claiming might not be covered under the terms of their Texas Standard Homeowners' Policy.

On July 24, 1996, S.E.A. issued its initial engineering report on the Douglases' residence. The report concluded that the reported damage to the interior of the residence was not caused by plumbing leaks. Rather, S.E.A. determined the interior damage was similar to the damage reported in the Douglases' pre-purchase inspection performed six years earlier and was aggravated by twenty-seven exterior foundation piers previously installed in the home in 1987. State Farm denied coverage of the Douglases' claim on July 31, 1996. Approximately four months later, however, State Farm received an engineering report dated December 17, 1996, from Harris Engineering Real Estate Inspections, Inc. ("Harris"). Harris had inspected the Douglases' home and opined that "major" plumbing leaks had caused damage to the interior of the home.

State Farm forwarded the Harris report to S.E.A. and asked if the report would change S.E.A.'s opinion regarding the cause of damage to the Douglases' residence. S.E.A. recommended that P.T.S. perform a flow test on the Douglases' plumbing system to determine if a major leak actually existed. Following the flow tests, S.E.A. provided their second engineering report on February 24, 1997. Based on P.T.S.'s findings that the plumbing did not leak under normal service conditions, S.E.A.'s second report opined that, "it is still the opinion of S.E.A., Inc. that the subject movement of the interior foundation of the Douglas residence is not related to a reported leak in the drain pipe servicing the washing machine and guest bathroom." Following receipt of S.E.A.'s report and an additional investigation by State Farm, another denial letter was mailed to the Douglases on June 5, 1997.

On November 5, 1997, the Douglases filed their original petition in Harris County Court at Law No. 1, asserting claims for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Act ("DTPA"). The Douglases maintain that after their house suffered structural and cosmetic damages as a result of foundation movement caused by a plumbing leak, State Farm wrongfully withheld payment of insurance benefits. On December 5, 1997, State Farm removed the case to federal court on the basis of diversity of citizenship, asserting that the amount in controversy exceeds $75,000.00, exclusive of interest and costs. In the instant motion, State Farm seeks dismissal of the Douglases' extra-contractual claims alleging breach of the duty of good faith and fair dealing and violation of the Texas Insurance Code and the DTPA.

II. Analysis
A. Standard for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Marshall v. East Carroll Parish Hosp. Serv. Dist., 134 F.3d 319, 321 (5th Cir.1998); Wenner v. Texas Lottery Comm'n, 123 F.3d 321, 324 (5th Cir.1997), cert. denied, ___ U.S. ___, 118 S.Ct. 1514, 140 L.Ed.2d 667 (1998). The moving party, however, need not negate the elements of the nonmovant's case. See Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir.1996) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994)).

Once a proper motion has been made, the nonmoving party may not rest upon mere allegations or denials in the pleadings, but must present affirmative evidence, setting forth specific facts, to show the existence of a genuine issue for trial. See Celotex Corp., 477 U.S. at 322-23, 106 S.Ct. 2548; Anderson, 477 U.S. at 257, 106 S.Ct. 2505; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Marshall, 134 F.3d at 321-22; Wallace, 80 F.3d at 1047; Little, 37 F.3d at 1075. All the evidence must be construed "in the light most favorable to the non-moving party without weighing the evidence, assessing its probative value, or resolving any factual disputes." Williams v. Time Warner Operation, Inc., 98 F.3d 179, 181 (5th Cir.1996) (citing Lindsey v. Prive Corp., 987 F.2d 324, 327 n. 14 (5th Cir. 1993)); see Marshall, 134 F.3d at 321; Messer v. Meno, 130 F.3d 130, 134 (5th Cir.1997), cert. denied, ___ U.S. ___, ___, 119 S.Ct. 794, 142 L.Ed.2d 657 (1999); Hart v. O'Brien, 127 F.3d 424, 435 (5th Cir.1997), cert. denied, ___ U.S. ___, 119 S.Ct. 868, 142 L.Ed.2d 770 (1999). "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49 n. 5, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990) (quoting Anderson, 477 U.S. at 255, 106 S.Ct. 2505); see Marshall, 134 F.3d at 321.

Nevertheless, the nonmovants' burden is not satisfied by "some metaphysical doubt as to material facts," conclusory allegations, unsubstantiated assertions, speculation, or "only a scintilla of evidence." Little, 37 F.3d at 1075; see Hart, 127 F.3d at 435; Wallace, 80 F.3d at 1047; Douglass v. United Serv. Auto. Ass'n, 79 F.3d 1415, 1429 (5th Cir.1996) (citing Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871, 115 S.Ct. 195, 130 L.Ed.2d 127 (1994)). Summary judgment is mandated if the nonmovants fail to make a showing sufficient to establish the existence of an element essential to their case on which they bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548; Wenner, 123 F.3d at 324. "In such a situation, there can be `no genuine issue as to any material fact' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. at 322-23.

B. Duty of Good Faith and Fair Dealing

The Douglases allege that State Farm's denial of their claim amounted to a breach of the duty of good faith and fair dealing. State Farm maintains, however, that the Douglases are not entitled to recover on their bad faith claim because a bona fide dispute existed regarding State Farm's liability for foundation damage under the Douglases' homeowner's policy.

"Under Texas law, there is a duty on the part of the insurer 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 County Mut. Fire Ins. Co. 725 S.W.2d 165, 167 (Tex.1987)); Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 340 (Tex.1995); Viles v. Security Nat'l Ins. Co., 788 S.W.2d 566, 567 (Tex.1990). "A cause of action 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 or when the insurer fails to determine or delays in determining whether there is any reasonable basis for denial." Higginbotham, 103 F.3d at 459 (citing Arnold, 725 S.W.2d at 167); Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 50-51 (Tex.1997) (quoting Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 18 (Tex. 1994)); Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex.1994). "In order to sustain such a claim, the insured must establish the absence of a reasonable basis for denying or delaying payment of the claim and that the insurer knew, or should have known, that there was no reasonable basis for denying or delaying payment of the claim." Higginbotham, 103 F.3d at 459 (citing Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex. 1988)). In determining whether a reasonable basis existed for denying a claim, the facts available to the insurer at the time of denial are considered. See Viles, 788 S.W.2d at 567.

An insurer's liability under an insurance contract is separate and distinct from its liability for breach of the duty of good faith and fair dealing. See Lyons v. Millers Cas. Ins. Co. of Texas, 866 S.W.2d 597, 600 (Tex.1993); Viles, 788 S.W.2d at 567....

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