Last week in my post titled Can a Bad Faith Claim Include a Claim for Mental Anguish in Texas?, I addressed Texas Farmers Ins. Co. v. Cameron, 24 S.W.3d 386 (Tex. App. 2000). The portion of the case that I wrote about specifically addressed an insured’s success against an insurance company when pursuing a claim for mental anguish as part of the bad faith lawsuit. This week, I am discussing another aspect of the case.

The case arose from a fire that destroyed the Insured’s residence. The Insureds, Alfred and Cloteal Cameron, ultimately filed a bad faith lawsuit against their carrier, Texas Farmers Insurance Company (“Texas Farmers”), for breach of contract, breach of the duty of good faith and fair dealing, violations of the Deceptive Trade Practices Act and violations of the Texas Insurance Code. The Court began with a basic principle in evaluating the claim against Texas Farmers for breach of the duty of good faith and fair dealing.

To establish a breach of the duty of good faith and fair dealing, the Camerons had to prove that Farmers had no reasonable basis for denying the claim and that Farmers knew or should have known that there was no reasonable basis for denying the claim [citation omitted].

The Texas Appellate Court pointed out that the evidence was undisputed that the cause of the fire was arson.

Although there was no evidence that either of the Camerons had set the fire, neither was there anything in the Cameron file to implicate any other arson suspect.

One of the factors was the proximity of the date of the issuance of the policy and the date of the fire. The Cameron’s policy with Texas Farmers had gone into effect approximately three months before the fire. The branch manager for Texas Farmers, Tony Poncio, testified that a claim on a new policy is a possible arson indicator. The insurer also questioned whether certain items on the contents list prepared by the Insureds’ public adjuster were actually inside the house at the time of the fire. When Texas Farmers’ claims adjuster walked through the residence after the fire and prepared an inventory, she noticed that some of the items were outside the house. Despite the alleged discrepancies between the public adjuster’s list and the claims adjuster’s list, it was noted that nothing of any real or sentimental value was removed from the house before the fire. This is important because arsonists frequently remove valued items from premises before they set the fire. Mrs. Cameron testified that she lost irreplaceable family photographs in the fire, including photographs of her deceased father and other deceased relatives.

When Cloteal’s father became ill with cancer, the Camerons took him in to care for him. He ultimately died in the house. Shortly after his death, Cloteal put the house up for sale. She did not want to be reminded of her father’s death. A few days before the fire, Cloteal told her daughter that she thought they had a buyer for the house and, in fact, an earnest money contract was signed the day before the fire. The agreed sales price was $46,500. Although the house was insured for more than it was worth, Alfred estimated the value of the contents at $53,000. Thus, according to the Camerons, they had a net financial loss.

The foregoing analysis demonstrates that the fire actually constituted a financial loss to the Camerons. As such, any argument that might be presented by Texas Farmers that the Camerons set fire to their home for financial gain was moot.

The Texas Appellate Court also considered that Texas Farmers paid for temporary living expenses. When the claims adjuster initially met with the Camerons, she gave them $500 for temporary living expenses. The adjuster did not know that Alfred was temporarily estranged from Cloteal, so he had already rented an apartment of his own. Cloteal chose not to disclose any marital problems to Texas Farmers because she believed it was not any of the carrier’s business. Texas Farmers ultimately paid the Camerons a total of $10,044.62 in temporary living expenses and these payments continued even after Texas Farmers had rejected the claim. When asked why Farmers continued to make additional payments, the claims adjusters replied that she wanted to give the Camerons enough time to figure out where they needed to go.

Another claims investigator for Texas Farmers, Collinsworth, conducted an investigation that revealed the house had been listed for sale for over six months before the fire. He also noted that the Dallas County tax records reflected an appraisal of $49,060 for the realty and improvements, although the policy limit for the structure was $60,000. The last notation in Collinsworth’s report indicates that the Camerons’ public adjuster was coordinating a time when Collinsworth could meet with the Camerons to obtain their statements. After the statements were obtained, he was to submit a follow up report, however, the record did not reflect that a follow-up report was ever done, nor did it reflect why it was not done.

The Texas Appellate Court ruled against Texas Farmers on this issue and held as follows:

That the cause of the fire was arson appears undisputed. That the Camerons were the arsonists, however, was not established. Although High noticed some discrepancies between her working contents list and Hordge’s [the Camerons’ public adjuster], High [Texas Farmers’ claims adjuster] never did a follow-up or inquired further into those discrepancies. She said merely that, by the time she would have obtained management’s approval to proceed, the Camerons’ claim had already been rejected. Similarly, the record does not show any follow-up by Collinsworth to his preliminary investigation, and Farmers did not attempt to explain why. The Dallas County taxing authorities assessed the value of the structure at $49,060, and the Camerons had just received an offer from a prospective purchaser for $46,500. The structure was insured for $60,000. Nonetheless, there was evidence that the fire represented a net financial loss to the Camerons. There was no evidence that anyone had preserved valuables by removing them from the house before the fire. The Camerons had filed claims with their insurer before, once for a fire at a rental property they owned and four times for the theft of and damage to motor vehicles. But there was absolutely no evidence whatsoever that these incidents entailed any insurance fraud and, indeed, although Farmers knew about the earlier fire in the rental property, it made no effort whatsoever to investigate it. Although Farmers knew when it denied the Camerons’ claim that it was obligated to pay off the bank mortgage, it did not do so and made only a nominal effort to contact the bank. Farmers did not even interview the Camerons’ alibi witnesses. There was conflicting evidence on the Camerons’ financial condition and, aside from an unobjected-to hearsay statement, no evidence that Alfred had any gambling debts. Sanders, the Camerons’ expert, testified that Farmers’ investigation into the claim was incomplete and, in many respects, unlike how Sanders would have expected an insurer to conduct an investigation. Sanders concluded that Farmers’ investigation was possibly an “outcome determin[a]tive investigation.” Consequently, we cannot say that the jury’s findings that Farmers breached its duty of good faith and fair dealing, engaged in an unfair claim settlement practice, and acted knowingly or intentionally in violation of the DTPA and the Texas Insurance Code, were so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust.

Please consider that the ruling above is specific to Texas. The holdings in other jurisdictions may vary.