An Unhappy Insured is Not Evidence of Bad Faith

Refusal to Pay the Amount the Insured Deems Appropriate Is Nothing More than a Good Faith Coverage Dispute.

In Vernon Humphries and Rebecca Humphries v. State Farm Lloyds, Civil Action No. 3:20-CV-01163-X, United States District Court, N.D. Texas, Dallas Division (March 9, 2022) State Farm Lloyd’s (State Farm) successfully moved the USDC for partial summary judgment on Vernon and Rebecca Humphries’ suit for breach of the duty of good faith and fair dealing and related statutory claims.

FACTUAL BACKGROUND

In October 2019, Vernon and Rebecca Humphries submitted a claim to State Farm under their homeowners insurance policy for damages sustained in a tornado. Shortly thereafter, an independent adjuster named Chris Chivers inspected the property, confirming that wind had blown the chimney into the back slope of the roof. Based on his inspection, Chivers wrote a repair estimate of $51,299.76. On the same day, State Farm claim representative Ed Hand inspected for personal property damage. Hand wrote a personal contents inventory summary totaling $3,162.88, and, after subtracting depreciation, State Farm issued $2,117.82 to the Humphries for personal property damage.

In January 2020, the Humphries sent State Farm a Texas Deceptive Trade Practices Act (DTPA) demand and a Texas Insurance Code Chapter 542A notice letter, alleging actual damages of $120,370.41, and with a total DTPA demand of $365,511.23. In response, State Farm scheduled a second inspection and asked the Humphries to send the estimate that provided the basis for the $120,370.41 in actual damages, but the Humphries did not do so. In March 2020, State Farm claim representative Bryon Turner conducted a second inspection of the property. Based on additional damage he found, Turner wrote a new repair estimate of $66,177.38, and State Farm issued a supplemental payment to the Humphries to make up for the discrepancy between State Farm’s first and second estimate. At that time, State Farm also told the Humphries that, based on the status of repairs, it would continue paying for the Humphries temporary housing until June 10, 2020.

Unsatisfied, the Humphries filed suit against State Farm in Texas state court in April, 2020, and State Farm removed the case to Federal Court. Since filing suit, the Humphries changed the amount they claim is necessary for repairs five times based on different estimates by their expert, Duane Smith, settling on $247,138.71, more than double their original claim. This increase seems to be due in significant part to a report they obtained from an electrician after filing suit, which claims that rewiring is necessary throughout the entire house. Meanwhile, at Mr. Humphries’s deposition, the Humphries produced an $80,000 contract between the Humphries and a contractor, HNL. According to Mr. Humphries, this contract covers all necessary repairs as well as some additional items, including installing an outdoor pergola that the Humphries did not have before the storm. For its part, State Farm has also changed its estimate since this suit was filed and it conducted a further inspection, arriving at $70,200.90. State Farm issued another supplemental payment reflecting this new estimate.

Analysis

The Humphries predicate their claim of bad faith on their characterization of State Farm’s investigation as outcome-oriented and pretextual. But the Humphries “[do] not provide any expert testimony, proof of standard industry practice, or legal authority” whatsoever to support their claim that State Farm’s investigation was not conducted adequately and in good faith. For example, the Humphries argue that the length of time the adjuster spent on the initial inspection was unreasonably short, but point to no evidence indicating that it was at all atypical by State Farm or industry-wide standards. Similarly, they contend that State Farm should have sent an engineer rather than an adjustor to conduct the first inspection because structural damage was involved and should also have at some point sent an electrician, but fail to allege that State Farm’s decisions represented a deviation from standard practice.

While the Humphries characterize Mr. Humphries’s lack of expertise as a feature of their argument, it is in fact a flaw. For there is no factual or legal basis to equate Mr. Humphries’ opinion with expert testimony or reasonable industry standards capable of challenging the reliability of an adjustor’s work. Allowing an interested layman’s negative opinion of a technical investigation to serve as adequate evidence of the investigator’s bad faith would be deeply problematic.

Here the Humphries present no investigative standards against which State Farm’s investigation can be judged deficient, much less purposefully so. In sum, the Humphries fail to point to any evidence suggesting that State Farm’s refusal to pay the Humphries the amount they deem appropriate reflects anything more than a good faith coverage dispute.

Accordingly, the Court granted State Farm’s motion for partial summary judgment on the Humphries’ common law breach of the duty of good faith and fair dealing and related statutory claims. The breach of contract action will proceed.

It takes more than an upset insured to bring a case for bad faith. Although Mr. Humphries was certain the adjuster was inadequate that is not evidence any more than his lack of expertise would allow him to prove a medical malpractice claim even though he knew nothing about medicine. This case teaches that to prove a bad faith claim it is necessary to present expert testimony that the insurer failed to act within the custom and practice of the industry or acted wrongfully and in bad faith. Rather, the fact that State Farm raised the amounts it paid to the Humphries when evidence was presented to them, they immediately and in good faith paid.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created a library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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