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Texas Says ‘No Way’ to One Way’s Hail Damage Claim

Texas Law360
September 28, 2016

By Jennifer L. Gibbs
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In a recent opinion, U.S. District Judge Sidney Fitzwater delivered the final blow to One Way Investments Inc. in its hail damage lawsuit against property insurer Century Surety Company — granting summary judgment in favor of the insurer and dismissing One Way’s claims with prejudice.[1] 

The opinion can be summarized as follows:

Strike 1: Failure to allocate damage caused by covered perils and noncovered perils

Strike 2: Failure to provide evidence that repairs are reasonable and necessary

Strike 3: Failure to provide evidence that insurer did not have a reasonable basis for denying claim

Factual Background

The One Way case illustrates an all-too-common scenario: Aged and deteriorated roof meets hail storm.

The holding in the One Way case also illustrates well-established principles regarding the insured’s burden of proof and what constitutes a bona fide coverage dispute.

In One Way, the aged and deteriorated roof sat over One Way’s hotel, named Han Gil Hotel Town. One Way claimed the hotel roof was damaged during a June 13, 2012, weather event and sought over $400,000 from Century Surety for repairs to the roof, air conditioning units and interior water damage.

Century Surety retained Haag Engineering to inspect and evaluate the hotel for evidence of hail damage. Haag observed roofs in poor to very poor condition, noting that in one area of the hotel, 70 percent of the roof had been patched with modified bitumen membrane, but that the membrane had not been installed properly. Other areas exhibited such severe loss of gravel, that the underlying flood coat was visible. Based upon the Haag report, Century Surety’s adjuster measured the amount of the recoverable damage to be below the insured’s deductible.

Dissatisfied with this determination, One Way brought suit, claiming breach of contract, breach of the common law duty of good faith and fair dealing, unfair settlement practices and violations of the Texas Insurance Code. Two years into the litigation, Century Surety moved for summary judgment, arguing that One Way had failed to allocate damage attributable to a covered peril and failed to present expert testimony as to the necessity and reasonableness of its repair costs. Century Surety also sought summary judgment on the extracontractual claims.

Insured’s Burden to Allocate and Segregate Covered and Noncovered Damage

One Way claimed it was entitled to over $400,000 for roof repairs and interior damage contending that all of the damage resulted from a June 2012 hail event. The evidence provided by One Way, even if it could cure its failure to timely designate an expert, was an engineering report identifying damage to the roof from a hail event. The report, however, failed to state how much of the damage to the roof was attributable to hail and how much resulted from wear and tear. The insured also submitted a self-serving affidavit, stating that the roof had not been leaking prior to the 2012 storm.

Century Surety argued that this evidence did not satisfy One Way’s burden to allocate and segregate the covered and noncovered damage, and produced its own engineering report which attributed the damage and interior leaks to excluded causes, such as wear and tear and deterioration.

The court, even after granting the insured’s motion to extend time to designate experts, found as a matter of law that One Way failed to carry its burden to allocate and segregate.

Insured’s Burden to Prove Reasonable and Necessary Costs to Repair Damages

One Way also failed to timely designate an expert as to the reasonableness and necessity of its claimed repair costs. Prior to the hearing on Century Surety’s motion for summary judgment, One Way filed a motion to extend time to designate expert witnesses and proposed amended expert designations.

One Way argued that expert testimony was not required to prove causation or the amount of damage in a storm damage insurance coverage case. One Way argued that lay testimony was sufficient where general experience and common sense provided a strong, logically traceable causal connection between the storm and the damage.[2] One Way also argued that lay testimony and circumstantial evidence could suffice to allocate damages between covered and excluded perils.[3]

In an attempt to defeat Century Surety’s motion for summary judgment, One Way provided an affidavit executed by the insured stating that the damage to the roof and resulting water damage to the interior were caused by the hail storm of 2012. One Way also introduced a report prepared by A&L Engineering and Consulting and an estimate prepared by Accord Services, identifying storm damage in the amount of $416,471.68.

Century Surety argued that even if the lay testimony offered by One Way could under other circumstances qualify as sufficient evidence regarding the cause of the damage, the case at hand involved more complex and technical questions — specifically the allocation of damage attributable to hail versus the excluded causes of wear and tear and deterioration.

The court considered the proffered expert designations, and although it granted One Way’s motion, it found that the designations did not change the result or reasoning of its opinion granting summary judgment. The court concluded that One Way’s estimate to repair the property did not present any evidence that would enable a reasonable jury to find the repair costs were reasonable and necessary.

Bona Fide Dispute

A claim for breach of the duty of good faith and fair dealing is precluded if there is a “bona fide dispute” e.g., a reasonable basis for denying coverage.[4] To support Century Surety’s contention that summary judgment was appropriate with respect to One Way’s extracontractual claims, Century Surety pointed to the testimony of its expert who concluded that “hail damage to the roof did not cause or contribute to roof leakage and that there was no wind damage to the roof” and that “the poor condition of the roof was not caused by hail or any storm event but by the age of the roofing materials and normal wear and tear.”[5]

The court found that One Way had not provided any evidence either to refute Century Surety’s expert’s conclusions or that would otherwise enable a reasonable jury to find that Century Surety did not have a reasonable basis for denying One Way’s claim.[6]

Conclusion

The key takeaway from this decision is that even when the insured produces an engineering report and repair estimate to support its claimed cause of loss and damages, the insured’s burden of proof to segregate and allocate between covered and noncovered damage will be strictly enforced. Failure to segregate the physical damage attributable to covered perils from the physical damage attributable to noncovered perils is fatal to the insured’s recovery. Thus, there was no way around meeting this burden for One Way.

—By Jennifer L. Gibbs, Zelle LLP

Jennifer Gibbs is a senior associate at Zelle's Dallas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] One Way Investments Inc. v. Century Surety Co., No. 3:14-CV-2839-D, (N.D. Tex. Sept. 21, 2016).

[2] Plaintiff’s Response to Defendant’s Motion for Summary Judgment, (N.D. Tex. Sept. 22, 2015).

[3] Id.

[4] See Higginbotham v. State Farm Mut. Auto Insurance Co., 103 F.3d 456, 460 (5th Cir. 1997).

[5] One Way.

[6] Id.

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