Higginbotham v. State Farm Mut. Auto. Ins. Co.

Decision Date21 January 1997
Docket NumberNo. 96-20238,96-20238
Citation103 F.3d 456
CourtU.S. Court of Appeals — Fifth Circuit

Ivar Nelson Heggen, Houston, TX, Leslie Werner Soliz, Victoria, TX, for plaintiff-appellant.

Scott Rothenberg, Bellaire, TX, Kathleen Crouch, Nistico & Crouch, Houston, TX, for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REYNALDO G. GARZA, JONES and DeMOSS, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

John Higginbotham brought suit against State Farm Mutual Automobile Insurance Company alleging both contractual and extra-contractual causes of action. After the

contractual claim was tried, Judge Lee Rosenthal of the Southern District of Texas, Houston Division granted summary judgment in favor of the defendant on plaintiff's extra-contractual claims. After assessing attorney fees, Judge Rosenthal proceeded to award and then retract an 18 percent statutory fee against the defendant. Plaintiff appeals both the summary judgment and the retraction of this fee. We affirm in part and reverse and remand in part.


John Higginbotham owned a used 1988 Porsche 911 for which he had purchased insurance from State Farm Mutual Automobile Insurance Company under policy number 7504-618-D01-53E. In short, the car was stolen on June 8, 1993, from an unsecured parking lot next to Higginbotham's residence. The Porsche was ultimately recovered later that day, but it had been severely damaged by whomever had taken the vehicle. It was discovered approximately 25 miles away from Higginbotham's apartment complex and it was stripped of its top, seats, interior and exterior trim, and any untraceable parts of value. The stripping operation was conducted in such a manner so as not to damage or destroy mechanical connections, wiring harnesses, or the engine.

Naturally, Higginbotham reported the theft of his vehicle to State Farm on June 9, 1993, and made a claim for proceeds under his policy. The policy specifically provided coverage for direct and accidental loss to an automobile. Upon conclusion of its investigation, State Farm determined Higginbotham's "loss was not accidental and therefore not a covered loss under [his] policy." State Farm informed Higginbotham of this decision on November 19, 1993, five months after his initial claim.

Higginbotham filed suit in state court in Harris County, Texas, asserting breach of contract for State Farm's failure to pay damages resulting from the theft and vandalism to his Porsche. State Farm removed the suit to federal court on the basis of diversity. After removal, Higginbotham amended his complaint to assert additional causes of action for violations of the Texas Deceptive Trade Practices Act ("DTPA"), violations of the Texas Insurance Code under article 21.21, negligence, and breach of the duty of good faith and fair dealing. Higginbotham also contended that State Farm had violated article 21.55 of the Insurance Code and requested imposition of an 18 percent penalty fee provided for by the statute. State Farm filed a motion for summary judgment seeking relief from Higginbotham's extra-contractual claims, but the court denied the motion without prejudice. The parties then filed a joint motion to bifurcate and requested separate trials for the contract claim and extra-contractual claims. The joint motion was granted and the breach of contract issue went to trial. The jury returned a verdict in favor of Higginbotham and awarded him $30,000, the amount of his coverage.

State Farm then filed, and the court granted, an amended motion for partial summary judgment on Higginbotham's extra-contractual causes of action. After granting State Farm's motion, the district court heard evidence on the various fees that Higginbotham should be awarded on his breach of contract claim. After deliberating its decision, the court entered an order requiring State Farm to pay Higginbotham, inter alia, the 18 percent statutory fee imposed by article 21.55 of the Texas Insurance Code. State Farm next filed a motion for reconsideration complaining of this 18 percent fee. The court granted the motion and retracted the statutory fee. Judge Rosenthal entered a final judgment that same day. Higginbotham timely filed his notice of appeal from this final judgment.

I. Extra-contractual claims

In his first point of error, Higginbotham argues that the district court erred by granting partial summary judgment on his bad faith claim in favor of State Farm. The standard for reviewing a summary judgment is well established. The movant has the initial burden of showing that because of the absence of genuine issues of material fact, it is entitled to judgment as a matter of law. The critical issue in this appeal is whether 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. Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987). 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. Id. 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. Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 213 (Tex.1988). The insured must prove that there were no facts before the insurer which, if believed, would justify denial of the claim. State Farm Lloyds Inc. v. Polasek, 847 S.W.2d 279, 284 (Tex.App.--San Antonio 1992, writ denied). However, insurance carriers maintain the right to deny questionable claims without being subject to liability for an erroneous denial of the claim. St. Paul Lloyd's Ins. v. Fong Chun Huang, 808 S.W.2d 524, 526 (Tex.App.--Houston [14th Dist.] 1991, writ denied) (citing Aranda, 748 S.W.2d at 213). A bona fide controversy is sufficient reason for failure of an insurer to make a prompt payment of a loss claim. Id. As long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith. Lyons v. Millers Casualty Insurance Co., 866 S.W.2d 597, 600 (Tex.1993).

State Farm proved that, as a matter of law, it acted in good faith in denying Higginbotham's claim.

Here, State Farm denied Higginbotham's claim based on a number of suspect facts it discovered during its investigation. It was these facts which provided a reasonable basis for denial.

Higginbotham was associated with Tommy Vander, the owner of Luxury Auto Unlimited (LAU). LAU was a luxury car repair shop which specialized in Porsches and other luxury cars. Higginbotham was listed as a purchaser with buyer's privileges extended to LAU for car auctions. In fact, Vander and Higginbotham regularly attended automobile auctions to purchase damaged automobiles for repair and resale. Vander pled guilty in 1991 to felony theft when he was arrested for driving a stolen Porsche with a completely different vehicle identification number from a Porsche which had been completely burned.

When Higginbotham began parking the Porsche at his complex, he would normally leave the car in a parking lot surrounded by a fence and secured access gate. However, approximately two weeks before the theft, he began parking it in an unsecured lot near the complex, even though both he and his girlfriend claimed to have had prior auto break-ins from the unsecured lots at the apartment complex. The manager and assistant manager of Higginbotham's complex both stated that Higginbotham's girlfriend complained that on June 4, 1993 (four days before the theft) Higginbotham's car had been stolen and that this was justification for a late move-out notice.

Higginbotham's Porsche was recovered 25 miles from Higginbotham's apartment complex, but only 1.6 miles away from Vander's shop. The car was stripped in a manner so as not to damage or destroy mechanical connections, wiring harnesses, or the engine. Pro Technik, Porsche specialists hired by State Farm to investigate Higginbotham's claim, concluded that approximately two auto technicians with proper tools would require at least eight hours to strip the Porsche in the manner that it had been left. Higginbotham's car was discovered approximately six hours after it had last been seen by Higginbotham.

Higginbotham rebuts these facts by claiming that State Farm pursued a targeted investigation so as to make him look like an accomplice. He cites a number of cases which uphold the proposition that an "outcome determinative" investigation constitutes bad faith. He refers to a number of instances in which State Farm allegedly refused to cooperate and merely was looking for excuses We are far from pointing fingers and claiming that Higginbotham was actually an accomplice in stealing his car, but given the undisputed facts set out in the record, State Farm had a reasonable basis to dispute the validity of Higginbotham's claim. There was a bona fide dispute between the parties which justified State Farm's failure to pay Higginbotham. As a matter of law, State Farm did not act in bad faith.

not to pay Higginbotham. However, none of the facts Higginbotham presents contradicts the facts set out above and, unlike the cited cases, State Farm did perform a fairly detailed investigation that began early on and without any preconceived notions. Although the investigation didn't become so detailed as to "catch the bad...

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