Millers Cas. Ins. Co. of Texas v. Lyons

• Decision Date: 13 September 1990
• Docket Number: No. 11-89-039-CV,11-89-039-CV
• Citation: 798 S.W.2d 339
• Parties: The MILLERS CASUALTY INSURANCE COMPANY OF TEXAS, Appellant, v. Golda A. LYONS, Appellee.
• Court: Texas Court of Appeals

Page 339

798 S.W.2d 339

The MILLERS CASUALTY INSURANCE COMPANY OF TEXAS, Appellant, v. Golda A. LYONS, Appellee.

No. 11-89-039-CV.

Court of Appeals of Texas Eastland.

Sept. 13, 1990.

Rehearing Overruled Nov. 29, 1990.

Scott P. Stolley, Leo John Jordan, Thompson, Coe, Cousins & Irons, Dallas, for appellant.

Steve Sumner, Brian Bethune, Kyle A. Morrow, Sumner & Schick, Dallas, Christine Karol Roberts, Carona Del Mar, Cal., for appellee.

OPINION

McCLOUD, Chief Justice.

Golda Lyons sued her insurer, The Millers Casualty Insurance Company of Texas, on an insurance contract and for unfair claims settlement practices. Lyons alleged that her home was damaged on April 29, 1984, as a result of a windstorm. Millers answered that the damages were caused by "settling, cracking, bulging, shrinkage, or expansion" of the foundation, a condition excluded by the policy of insurance. The jury found that 75 percent of the damages to plaintiff's home was proximately caused by "settlement of structure" and that 25 percent was caused by "windstorm." The jury determined that it would cost $25,000 to repair plaintiff's residence. The trial court reduced this amount by 25 percent, the damage caused by windstorm, and awarded plaintiff $6,250 for damages under the contract. The jury further found that Millers' refusal to pay plaintiff's claim was in bad faith and that Millers had knowingly engaged in false, misleading, or deceptive acts or practices in relation to plaintiff. The jury found actual damages of $75,000 in addition to the cost of repair damages and found exemplary damages of $8,700 under Section 17.50(b)(1) of the Texas Deceptive Trade Practices Act, TEX.BUS. & COM.CODE ANN. § 17.41 et seq. (Vernon 1987 & Supp.1990). We reverse and render in part, and we reverse and remand in part.

Good Faith and Fair Dealing

The jury found in Question No. 3 that Millers' refusal to pay plaintiff's claim was in bad faith. The instruction accompanying Question No. 3 defined bad faith in the language set forth in Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex.1988), stating that an insurance company acts in bad faith when there is no reasonable basis to deny the claim and the insurance company knew or should have known that there was no reasonable basis to deny the claim.

The first element of bad faith requires an objective determination of whether a reasonable insurer under similar circumstances would have denied the plaintiff's claim. The second element balances the right of Millers to reject an invalid claim and the duty of Millers to investigate and pay compensable claims. This element is met by establishing that Millers actually knew there was no reasonable basis to deny the claim or that, based on its duty to investigate, Millers should have known that there was no reasonable basis for denial. Under the test, insurers will "maintain the right to deny invalid or questionable claims" and will not be subject to liability for an erroneous denial of a claim. Aranda v. Insurance Co. of North America, supra at 213; Yancey v. Floyd West & Company, 755 S.W.2d 914, 922 (Tex.App.--Fort Worth 1988, writ den'd).

The record reflects that plaintiff lived in a two-story frame structure. The outside walls were covered with brick veneer. A wooden staircase was located at the back of the house and served as an outside entrance to an upstairs apartment. The wooden staircase was supported by four "4 X 4 legs."

On April 29, 1984, a storm occurred. Plaintiff heard a loud noise, but she did not know whether anything actually hit her house. The following morning, she went into her backyard with a next-door neighbor. One of a cluster of hackberry trees, located approximately five feet away from the house on the outside edge of the staircase, had fallen perpendicular to and in the opposite direction from the staircase and back wall of the house. Another tree in the cluster, located near the outer edge of the staircase, remained standing. The morning after the storm was the first time plaintiff noticed that the back wooden stairway was standing "out of kilter" and that there was damage to the brick veneer.

On May 7, 1984, an independent insurance adjuster, Hal Benoy, inspected the residence. On May 15, 1984, Benoy returned to plaintiff's residence; took photographs of the home; and brought Charlie Herman, a contractor in the building and reconstruction business, to inspect the residence. Herman had been in the reconstruction business for 12 years and in construction for 25 years. In the previous 12 years, he had examined thousands of homes, and he had specifically examined brick veneers to determine the cause of damage to the veneers and had examined homes to determine the existence of foundation settlement. Herman observed a deteriorated, rotten, and unsafe staircase landing; numerous cracks around the house; a cracked foundation to the right of the staircase; and that brick veneer had fallen off around the stairwell and window. On May 15, 1984, Herman sent a written report addressed to plaintiff and to Benoy expressing Herman's opinion that the damage to plaintiff's brick veneer wall was caused by severe shifting of the foundation. On May 20, 1984, Benoy sent the first letter to plaintiff denying the claim, advising that no claim was present under the policy, and stating that, in his opinion as well as Herman's, the damage was not caused by the windstorm but rather the shifting of the foundation.

Plaintiff disagreed with the determination of the cause of damage. Benoy then employed a second person to inspect plaintiff's home. On September 5, 1984, Clyde M. Hardy of Hardy Engineering Company, a registered professional engineer specializing in damage and failure analysis, inspected plaintiff's home. Hardy observed cracks and separation in the mortar between bricks that had been refilled, a tremendous amount of separation from corners of masonry openings and various panels of brick, a rotten staircase landing, and considerable space between the inside edge of the staircase and the brick wall. On September 20, 1984, Hardy sent Benoy a written report which included diagrams and photographs of the home and expressed the opinion that:

There is no question but what the cracks and movements were pronounced and large prior to the storm. The storm did not produce the cracks and separations observed on this wall. We do not believe that the storm caused the brick veneer to fall out from the structure.

CONCLUSION

It is our opinion that the partial collapse of the brick veneer on the west one-half of the Lyon's duplex is the ultimate result of differential settlements of this foundation and the lack of maintenance to the structure. It is also our opinion that the falling tree did not cause the partial collapse observed.

The photographs showed numerous old cracks and separations in the brick veneer wall of the house. Several cracks had been "re-pointed" or patched in the past. The photographs showed clearly the different colored mortar used in the past to repair the brick veneer.

On October 5, 1984, Benoy sent a second letter to plaintiff denying the claim and enclosed a copy of the Hardy Engineering Company report. The letter stated that settlement [of structure] was specifically excluded in plaintiff's policy and concluded: "We therefore repeat our former assertion that no claim is present under your policy, and is herewith denied."

On August 19, 1985, 16 months after the storm, Marcus Avila, an expert retained by Lyons, inspected plaintiff's home. On August 26, 1985, he sent a written report to Lyons stating that the:

[B]rick veneer was dislocated outward as a result of the windstorm, which probably produced normal (perpendicular) wind loads of approximately 24,000 P.S.F. [pounds per square foot] at the stair landing (2nd floor) level and approximately 26,000 P.S.F. at a location approximately 3 feet below the stair landing level.

The report concluded: "The dislodged brickwork was a direct result of the wind forces which were transmitted by the falling tree(s), Directly onto the face brick." (Emphasis in original)

Avila's degree was in architecture, but he was not licensed. He did not have a degree in engineering nor was he a registered professional engineer. His experience was primarily designing cement plants and rock crushing plants. Plaintiff's home was his only experience in investigating or inspecting a residential foundation, although he had looked at foundations of cement plants.

By the time Avila inspected the home, a second storm had occurred and the stairway had completely collapsed. The brick veneer had also fallen away, exposing the exterior wood structure. This was after Millers' insurance coverage had expired.

The information available to Millers concerning plaintiff's claim showed that plaintiff heard a crash during the storm but that she did not know if anything actually hit her house. There is no evidence that any of plaintiff's neighbors spoke to Millers about plaintiff's damage. There is no evidence in the record of any information given to Millers other than the opinions, reports, photographs, and diagrams following inspections by Millers' adjuster and two experts except plaintiff's position that the fallen tree hit her house and Avila's written report dated August 26, 1985, which was based on an inspection 16 months after the storm and after the stairway had collapsed and some of the brick veneer had fallen from the wall.

Avila's report theorized that the windstorm caused the damage by causing the remaining standing tree from the cluster to hit the stairway and that the brick veneer was dislocated outward by the storm's "wind loads of approximately 24,000 P.S.F. ... and 26,000 P.S.F. ..." at two contact points. Avila's theory that the remaining tree hit the wooden staircase and caused damage to the house was different than plaintiff's claim that the fallen tree hit her house.

As the case was prepared for...