A Cautionary Tale. . .

Originally published by Tara Mireur.

In USAA Texas Lloyds Company v. Griffith, 2019 WL 2611015 (Tex.App. –Corpus Christi, June 26, 2019), the Corpus Christi Court of Appeals affirmed a Hidalgo County jury verdict that awarded Plaintiff John Griffith $776,000 after USAA seemingly performed an unreasonable investigation of his roof claim. The case provides insurers with an example of how a simple oversight can turn a bona fide dispute into a bona fide mess.

Griffith held a USAA policy on his home in McAllen, Texas.  His roof was newly built in the early 2000s and was well maintained.  Six weeks prior to the date of loss, USAA sent an inspector to survey Griffith’s house for underwriting purposes. The underwriting inspection revealed a roof in “solid condition” and resulted in an increased valuation of the home.  In April 2012, a large hailstorm struck McAllen with evidence of sixty mile per hour winds and 3.2-inch sized hail at Griffith’s house.  Griffith notified USAA of the claim, and USAA assigned an independent adjuster who reported that one slope of the roof should be replaced, but the other three slopes only required a spot-repair.  USAA relied on the adjuster’s estimate and issued a check for $32,190.  Seeing that his neighbors’ roofs were being replaced, Griffith retained Rimkus Engineering to perform an inspection.  Rimkus concluded that Griffith was owed $119,850.45, which included a full roof replacement.  USAA submitted the Rimkus estimate to a third-party engineering firm, who concluded that fewer than twenty shakes were damaged by hail, and any remaining damage was due to wear and tear and foot traffic.  Relying on this engineering opinion, USAA reaffirmed its offer of $32,190.  Suit followed.

At trial, the jury found USAA liable and awarded Griffith approximately $776,000 in actual damages, treble damages, exemplary damages, penalty interest, attorneys’ fees, and expert witness fees.  The jury found in favor of Griffith on breach of contract, bad faith violations of the Texas Insurance Code, and fraud. The court of appeals affirmed the verdict on breach of contract and bad faith, but reversed the jury’s finding of fraud. While there were a number of alleged errors highlighted by the Plaintiffs, we think the most significant factor supporting the jury’s bad faith verdict was the fact that USAA did not supply the original adjuster assigned to the claim or the third-party engineer retained to review the decision with the underwriting photos taken six weeks prior to the loss. In its review of the evidence, the Corpus Christi Court of Appeals used the Texas Supreme Court’s decision in State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448 (Tex. 1997) as a road map, noting the following facts which supported a “similar scenario” to the facts that the Nicolau court found supported a finding of bad faith”

• Griffith received Allcat’s estimate, Griffith retained Rimkus to perform his own estimate, but USAA, Allcat, and PTC did not contact Rimkus to resolve any conflict between their reports.       Instead, in response to the Rimkus report, USAA retained and relied on PTC, whose engineer did only a visual investigation from a ladder and found fewer than twenty damaged shakes. He attributed any remaining damage to preexisting causes—a conclusion that was contradicted by photographic evidence, the consensus among witnesses that the roof was in good condition prior to the storm, and the Allcat adjuster’s finding of over eighty broken shakes in small test areas.

The court of appeals expressed deference to the findings of the jury, stating “[W]hile we may see the evidence somewhat differently than did the jury, we must remain mindful that we do not sit as the thirteenth juror.” Id. at *10.

Viewing the evidence most favorable to the jury’s verdict, the Court of Appeals also noted the following:

• The original adjuster did not inspect the entire roof, but only extrapolated test squares from the lower section, which led to inaccurate assessment of total damage;
• USAA’s engineer only evaluated the roof from a ladder nine months after the storm in contrast to Griffith’s engineering expert who climbed on the roof soon after the storm;
• Griffith’s expert claimed that the original adjuster incorrectly assigned the wrong repair difficulty factor;
• Conclusions of the adjuster regarding repair vs. roof replacement conflicted with USAA’s own internal guidelines; and
• General problems with the original inspection, including inaccurate pricing of repair, biases evidenced by claims that the marks were caused by a “baseball bat,” only a brief inspection due to being overworked by USAA, suspicious use of USAA’s estimating software which allowed USAA to make changes without leaving evidence, etc.

The court upheld the jury’s findings that USAA knowingly conducted an outcome-oriented investigation based on the above evidence, as well as evidence that USAA refused to engage with its insured directly even though USAA knew he disagreed with the original estimate.  The court found that there was insufficient evidence to support the jury’s finding of fraud and reduced the damage award by $233,000 – the amount of exemplary damages and claimed lost premiums.  In addition, while upholding the award of $114,000 in attorneys’ fees, the court held that Griffith could not collect the expert fees because Griffith never made a qualifying settlement offer to USAA under T.R.C.P. 167.

Takeaway: Plaintiffs in first-party insurance cases often attempt to use underwriting inspections to support an argument that wind or hail is the only explanation for the post-storm condition of the roof.  After all, the carrier was happy to write the policy and assess premiums for it! Carriers argue that underwriting inspections are often more cursory than a claim inspection and are not designed to reveal every pre-existing problem. However, insurance claims professionals should be mindful of the existence of pre-claim evidence regarding the condition of the house or roof,  particularly when the inspection occurs close to the date of loss, and make sure that investigators have access to the information.

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