Recently, the Houston Court of Appeals affirmed a take nothing judgment in favor of an insurer based on affirmative defenses that served to negate breach of contract and extra-contractual findings against them. In League City v. Texas Windstorm Insurance Association, 2017 WL 405816 (Tex. App. - Houston [1st Dist.] January 31, 2017), Texas Windstorm Insurance Association (TWIA) insured 140 buildings or structures listed on the policy with each having its own deductible. Two days after Hurricane Ike struck on September 13, 2008, League City reported damage and TWIA assigned an adjuster to handle the claim.
In November 2008, the adjuster told TWIA that League City was still working to determine which structures were damaged, and he opined that many locations would not exceed the deductible. Then in May 2009, League City submitted a spreadsheet with supporting documents to the adjuster. The adjuster reported to TWIA that much of the damage reported was for structures or locations not covered by the policy. Payments were issued in June 2009, and again in August 2009 after a TWIA claims supervisor admonished the adjuster for letting the claim “drag on” and instructed him to issue payment based on his own estimates. In October 2011, after paying a supplement, TWIA sent League City a letter detailing its payments for damage to the City Hall and paid withheld depreciation. TWIA never sent a letter to League City denying coverage in relation to the Hurricane Ike claims. And League City did not request any additional payments until it filed suit alleging breach of contract and other extra-contractual allegations against TWIA. League City alleged in part that TWIA ignored or improperly inspected “numerous additional structures.”
In its defense, TWIA argued that the policy required prompt written notice of loss including a description of the property, receipts and records of repairs and that damage now claimed was unknown when the claim was under investigation. They also asserted that TWIA closed the file with an open invitation to League City to submit additional damage discovered later. “TWIA argued throughout the trial that it paid every claim made by League City, which sued without ever providing notice of any additional damage.” The jury found that TWIA breached the contract, the duty of good faith and fair dealing and violated the Texas Insurance Code. But they also found in favor of TWIA on the affirmative defense asserting lack of notice and failure to keep repair receipts. And, that TWIA was prejudiced by League City’s lack of prompt notice and failure to keep repair receipts. The court disregarded the jury findings in favor of League City and entered a take-nothing judgment based on TWIA’s affirmative defenses.
On appeal, the court analyzed TWIA’s affirmative defenses based on “prompt written notice” and other insured’s duties after loss, along with the court’s instructions to the jury on these duties and the associated prejudice requirements. The court found sufficient evidence to support the findings in favor of TWIA. The court then focused on materiality arguments and reviewed Texas case law addressing this issue. The court concluded that the lack of notice was material in that TWIA did not know that League City was expecting further investigation or payments. Accordingly, the court concluded that League City’s failure to comply with the prompt notice requirement prejudiced TWIA and negated League City’s breach of contract claim. Further, the court applied Texas law rejecting extra-contractual claims when coverage is resolved in the insurer’s favor, and found there was no extreme conduct producing damages independent of the policy. Accordingly, the court affirmed the trial court’s take-nothing judgment in favor of TWIA.