The U.S. District Court for the Southern District of Texas granted State Farm Lloyds’ summary judgment motion as to three statutory bad faith claims, finding that the plaintiff failed to allege sufficient facts to support claims of bad faith conduct, but denied the insurer’s summary judgment motion as to the policyholder’s breach of contract claim. Nasti v. State Farm Lloyds, No. 4:13-cv-1413, 2015 WL 150468 (S.D. Tex. Jan. 9, 2015),
State Farm Lloyds (State Farm) issued a homeowners’ insurance policy to Garry Nasti for a residence in The Woodlands, Texas. Mr. Nasti’s house allegedly sustained damages from a storm on July 12, 2012, and he filed a claim with State Farm. State Farm investigated, sending two different adjusters to inspect Mr. Nasti’s home. The first adjuster found the storm-related damages did not exceed the policy’s $6,584 deductible, and the second adjuster found no storm damage at all. Mr. Nasti hired his own expert adjuster, who estimated the covered damage to be almost $50,000.
After State Farm declined coverage based on its adjusters’ inspections, Mr. Nasti filed suit against State Farm in Texas state court, asserting a cause of action for breach of contract, and three statutory bad faith claims under Texas law. State Farm removed to the Southern District of Texas, and filed a motion to dismiss plaintiff’s claims for failure to meet the federal pleading standard, or in the alternative, for a motion granting summary judgment. The court granted State Farm’s summary judgment motion as to the bad faith claims, but denied the motion as to the breach of contract claim.
Under Texas law, a successful bad faith claim requires a finding that the insurer knew its actions were false, deceptive, or unfair. A bad faith claim does not arise merely because the insurer is incorrect about the factual basis for the denial of a claim. Here, Mr. Nasti presented evidence of a factual dispute regarding the amount of storm-related damages, but he presented no evidence of bad faith conduct.
Accordingly, the bad faith causes of action were resolved in favor of State Farm, but the case will proceed as to plaintiff’s breach of contract claim.
In this case, State Farm successfully challenged costly bad faith claims early in the litigation, leaving only the breach of contract claim for further litigation or settlement discussions. Eliminating the extra-contractual claims can avoid expensive and intrusive discovery, substantially reduce the risk of a trial, and put the insurer in a much better position to negotiate a favorable settlement.