Johnson et al v. Seutter et al

Filing 77

Memorandum Opinion and Order granting in part and denying in part 34 Motion for Summary Judgment (Ordered by Judge Jane J. Boyle on 3/6/2017) (ykp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
CORRINE MICHEL JOHNSON and
JOHNATHAN SHANE JOHNSON,

§
§
§
Plaintiffs,
§
§
v.
§
§
SAFECO INSURANCE COMPANY OF §
INDIANA,
§
§
Defendant.
§

CIVIL ACTION NO. 3:15-CV-1939-B

MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Safeco Insurance Company of Indiana’s Motion for Summary
Judgment. Doc. 34. For the following reasons, the Court GRANTS in part and DENIES in part
Safeco’s Motion.
I.
BACKGROUND
This is an insurance coverage dispute. The basic facts are not much at issue. Plaintiffs owned
a home in Richardson, Texas. Doc. 1, Ex. A, Pls.’ Orig. Pet. ¶ 11. They insured it with a Texas
Homeowner’s Policy (Policy) issued by Safeco. Doc. 45, Pls.’ Resp. to Def.’s Mot. for Summ. J. ¶ 6
[hereinafter Pls.’ Resp.]. The Policy was in effect from December 14, 2013, through December 14,
2014. Id.
Towards the end of March 2014, Plaintiffs’ washing machine overflowed and flooded parts
of their home. Id. ¶ 7. “Plaintiffs dried the home to the best of their ability using towels, a wet
vacuum, and rented high speed water remediation fans which ran for three days.” Id. Plaintiffs
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believed that their actions would mitigate any damage. See id. ¶ 8. It did not.1 Id.
As a result, Plaintiffs considered repairing the water damage and, while they were at it,
making some improvements to the property. Id. To that end, they spoke with a few architects about
plans and even applied for a home improvement loan. Id. But in the end, they decided against repair
and opted instead to sell the house. Id.
Plaintiffs listed the property for sale on July 3, 2014. Doc. 35, Def.’s Br. 4. As part of the
listing process, Plaintiffs completed and signed a disclosure notice describing the property’s condition.
Id. at 4–5 (citing Doc. 36, Def.’s App. Supp. Def.’s Mot. for Summ. J. 160:4–161:9 [hereinafter Def.’s
App]). It did not mention any water damage. Id. (citing Doc. 36, Def.’s App. 160:4–15, 179–83,
219:16–220:3). Nevertheless, Plaintiffs entered into a contract to sell the home to Shaddock
Caldwell Builder & Developers for $219,300.00 on July 14, 2014. Id.; Doc. 45, Pls.’ Resp. ¶ 9. The
transaction closed on July 28, 2014. Doc. 35, Def.’s Br. 5.
But three days before, on July 25, 2014, Plaintiffs—who continued to live at the house for
several months after selling it—filed a claim2 with Safeco for water damage from the March washing
machine overflow. Doc. 45, Pls.’ Resp. ¶¶ 10–11. That claim eventually gave rise to this suit.
Safeco contends—and Plaintiffs do not contest—that Plaintiffs never informed it that their
home had been sold and “notified Shaddock Caldwell that they intended to remove a sign identifying

1

The extent of damage to Plaintiffs’ home is the subject of some debate here. See id. ¶¶ 8–10; Doc.
35, Def.’s Br. Supp. Mot. for Summ. J. 4–6 [hereinafter Def.’s Br.]. That the parties disagree over how much
damage there was and how it impacted the home’s value is, as will soon become apparent, key here. But
parsing out the exact details of that damage is not. So the Court declines to rehash an itemized list of things
harmed by the washing machine’s overflow.
2

Plaintiffs actually filed two claims but only one is at issue here, so the Court addresses it alone. See
Doc. 35, Def.’s Br. 5 n.1.

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the [p]roperty as a lot for sale before insurance adjusters arrived.” Doc. 35, Def.’s Br. 6 (citing Doc.
36, Def.’s App. 190:7–191:3, 193:13–16, 207). Safeco, thus operating on the assumption that
Plaintiffs still owned the home, inspected and adjusted parts of Plaintiffs’ claim for property damage.
Id.; Doc. 45, Pls.’ Resp. ¶ 10. After applying the Policy’s deductible of $1,879.00, Safeco paid
Plaintiffs $176.51. Doc. 35, Def.’s Br. 6 (citing Doc. 36, Def.’s App. 2); Doc. 45, Pls.’ Resp. ¶ 11.
Plaintiffs’ claim also involved some personal property damage by the washing machine
overflow. Doc. 35, Def.’s Br. 6. Safeco “sent a letter to Plaintiffs enclosing payment for certain
personal property items and attaching an inventory identifying [other] items of property for which
[it] needed additional information” before payment could be issued.” Id. at 6 (citing Doc. 36, Def.’s
App. 122–26). Safeco maintains that Plaintiffs never provided the requested information, and
“[a]fter several months of requests by Safeco for Plaintiffs to provide additional information went
ignored, Safeco closed the claim.” Id. (citing Doc. 36, Def.’s App. 4–5, 130–32, 167:11–22,
168:24–169:3). Plaintiffs, by contrast, opine that Safeco had all the information it needed either in
possession or available for inspection, but just chose to underpay for their personal property. Doc.
45, Pls.’ Resp. ¶ 12.
At any rate, Plaintiffs felt that Safeco “grossly underpaid” them for their claim. Id. So they
retained counsel and invoked appraisal. Id. (citing Doc. 45-1, Pls.’ App. Supp. Pls.’ Resp. 187–89
[hereinafter Pls.’ App.]). Safeco, in turn, designated an appraiser. Id. But before the dispute was
resolved by appraisal, Safeco learned that Plaintiffs had sold their home. Id. For that reason, Safeco
concluded that appraisal was unnecessary. Id. (citing Doc. 45-1, Pls.’ App. 190). Safeco concludes
even more so now that Shaddock Caldwell has demolished the house. See Doc. 35, Def.’s Br. 8.
Plaintiffs concluded otherwise, and on that basis filed suit in Texas state court asserting
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claims against Safeco for fraud, breach of contract, violations of chapters 541 and 542 of the Texas
Insurance Code, and breach of the duty of good faith and fair dealing. Doc. 1, Ex. A, Pls.’ Orig. Pet.
¶¶ 30–32, 40–53. Safeco removed the case to federal court on diversity grounds.3 Doc. 1, Notice of
Removal. Then it moved for summary judgment on all of Plaintiffs’ claims. Doc. 34, Def.’s Mot. for
Summ. J. Plaintiffs responded. Doc. 45, Pls.’ Resp. Safeco replied in turn. Doc. 49, Def.’s Reply
Opp’n Pls.’ Resp [hereinafter Def.’s Reply]. The Motion is therefore ready for review.
II.
LEGAL STANDARD
Summary judgment is appropriate “if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
A dispute “is ‘genuine’ if the evidence is sufficient for a reasonable jury to return a verdict for the
non-moving party.” Burrell v. Dr. Pepper/Seven Up Bottling Grp., 482 F.3d 408, 411 (5th Cir. 2007).
And a fact “is ‘material’ if its resolution could affect the outcome of the action.” Id.
The summary judgment movant bears the burden of proving that no genuine issue of material
fact exists. Latimer v. Smithkline & French Labs., 919 F.2d 301, 303 (5th Cir. 1990). Usually, this
requires the movant to identify “those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrate
the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
3

Plaintiffs initially brought suit against both Safeco and Safeco’s adjuster on Plaintiffs’ claims, Lisa
Seutter. See Doc. 1, Ex. A., Pls.’ Orig. Pet. Safeco, however, contended that Plaintiffs improperly joined
Seutter to defeat diversity jurisdiction. Doc. 1, Notice of Removal ¶ 5. Plaintiffs disagreed and moved to
remand the case to state court. See Doc. 6, Mot. Remand. But soon after, Plaintiffs withdrew their Motion
to Remand (see Docs. 10–12) and voluntarily dismissed their claims against Seutter. See Doc. 14, Notice of
Dismissal. With all of that in mind, the Court determines that Safeco’s removal was proper and concludes
that it has jurisdiction over this case.

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(internal quotation marks omitted). But if the non-movant ultimately bears the burden of proof at
trial, the movant may satisfy its burden just by pointing to the absence of evidence supporting the
non-movant’s case. Id. at 322–23.
If the movant meets that burden, then it falls to the non-movant to “show with significant
probative evidence that there exists a genuine issue of material fact.” Hamilton v. Segue Software Inc.,
232 F.3d 473, 477 (5th Cir. 2000) (internal quotation marks omitted) (citing Conkling v. Turner, 18
F.3d 1285, 1295 (5th Cir. 1994)). And significant probative evidence is just that: significant. See
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam). “[M]etaphysical doubt
as to material facts,” “conclusory allegations,” “unsubstantiated assertions,” or a mere “scintilla of
evidence” will not do. Id.(internal citations and quotation marks omitted). Rather, “the non-movant
must go beyond the pleadings and present specific facts indicating a genuine issue for trial.”
Bluebonnet Hotel Ventures, L.L.C. v. Wells Fargo Bank, N.A., 754 F.3d 272, 276 (5th Cir. 2014)
(citing Celotex, 477 U.S. at 324).
To be sure, the court views evidence in the light most favorable to the non-movant when
determining whether a genuine issue exists. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000). The
presence of cross-motions does not change this approach: The court will “review each party’s motion
independently, viewing the evidence and inferences in the light most favorable to the nonmoving
party.” Ford Motor Co. v. Tex. Dep’t of Transp., 264 F.3d 493, 498 (5th Cir. 2001). But it need not
“sift through the record in search of evidence to support a party’s opposition to summary judgment.”
Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (quoting Skotak v. Tenneco Resins,
Inc., 953 F.2d 909, 915–16 & n.7 (5th Cir. 1992)). Simply put, the non-movant must “identify
specific evidence in the record” and “articulate the precise manner in which that evidence supports
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[its] claim.” Id. If it cannot, then the court must grant summary judgment. Little, 37 F.3d at 1076.
III.
ANALYSIS
There are, as mentioned above, a number of claims at play here. But as laid out below, most
more or less turn on a single question: Did Safeco breach the terms of the Policy when it denied
Plaintiffs’ claim?
A.

The Contractual Claim: Did the Policy Cover the Damages to Plaintiffs’ Home?
To recap, Plaintiffs’ washing machine overflowed and flooded parts of their home. They

believed that their initial efforts to contain the water damage were successful but, before long,
realized that they were not. After weighing their options, Plaintiffs decided to sell the house rather
than repair the damage. The house sold in a matter of weeks. But a few days after the closing,
Plaintiffs, who continued to live in the house for a few months until Shaddock Caldwell demolished
it, filed a claim with Safeco for water damage from the washing machine overflow.
Safeco now argues that Plaintiffs’ breach of contract claim should be dismissed for two
reasons. First, Safeco contends that Plaintiffs have no insurable interest because they sold the house.
Doc. 35, Def.’s Br. 8. Second, Safeco maintains that, as a result of the sale and demolition, Plaintiffs
suffered no actual loss for which the Policy could indemnify them. Id. Plaintiffs respond that whether
they sold the house is irrelevant—they had an insurable interest at the time of loss and Safeco was
obligated to indemnify them for the cost of repairing the water damage regardless of whether they
actually repaired it. See Doc. 45, Pls.’ Resp. ¶¶ 19–24, 27–33.
1.

Did Plaintiffs Have An Insurable Interest?

As to Safeco’s first argument, “[i]nsurance policies are contracts.” Harken Expl. Co. v. Sphere
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Drake Ins. PLC, 261 F.3d 466, 471 n.3 (5th Cir. 2001). And “[i]n diversity cases such as this one,
[courts] apply state law rules of construction. Therefore, Texas’s rules of contract interpretation
control.” Id. (internal citations omitted).
Under Texas law, “[a] party must have an insurable interest in the insured property to
recover under an insurance policy.” Jones v. Tex. Pac. Indem. Co., 853 S.W.2d 791, 794 (Tex.
App.—Dallas 1993, no writ). “A claimant has the burden to prove an insurable interest, which is a
question of law.” Rhine v. Priority One Ins. Co., 411 S.W.3d 651, 660 (Tex. App.—Texarkana 2013,
no pet.) (citing id.). “‘An insurable interest exists when the assured derives pecuniary benefit or
advantage by the preservation and continued existence of the property or would sustain pecuniary
loss from its destruction.’” Id. (quoting Smith v. Eagle Star Ins. Co., 370 S.W.2d 448, 450 (Tex.
1963)). Put another way, “[i]f a claimant cannot suffer any pecuniary loss or derive any benefit from
the property, he has no insurable interest.” Jones, 853 S.W.2d at 794.
Therein lies the crux of Safeco’s theory: Plaintiffs sold their house—which is now
demolished—so they don’t stand to gain or lose anything from it. See Doc. 35, Def.’s Br. 8. But as
Plaintiffs point out in their Response, Safeco misses the mark because Plaintiffs’ insurable interest
is not measured as of the date they filed their claim or as of now. Doc. 45, Pls.’ Resp. ¶¶ 28–33.
A property insurance policy is an indemnity contract “for the insurable interest possessed by
the insured “at the time of issuance of the policy, and also at the time of the loss.” Highlands Ins. Co. v. City
of Galv., 721 S.W.2d 469, 471 (Tex. App.—Houston [14th Dist.] 1986, writ ref’d n.r.e.) (emphasis
added). The Policy itself says so. Doc. 36, Def.’s App. 44 (explaining that Safeco “will not be liable
in any one loss . . . to the insured for more than the amount of the insured’s interest at the time of
loss”). Plaintiffs undisputedly owned the house when the Policy was issued and when the washing
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machine overflowed and caused water damage. Plaintiffs have therefore met their burden of proving
an insurable interest—apparent foot dragging in filing their claim with Safeco does not change that.
See id; Highlands Ins., 721 S.W.2d at 471. Safeco also argues that Plaintiffs’ insurable interest was
extinguished when they sold their home because the sale proceeds made them whole. See Doc. 49,
Def.’s Br. 7–9. That angle, however, tangles together with Safeco’s second argument.4 The Court will
thus consider them in tandem. Accordingly, the Court rejects Safeco’s first ground for dismissing
Plaintiffs’ breach of contract claim.
2.

Did Plaintiffs Suffer A Pecuniary Loss?

Turning to the second, Safeco contends that Plaintiffs suffered no loss from which the Policy
could indemnify them because they sold the house. Id. at 8. “An insurance contract is by definition
a contract of indemnity, under which an insurer cannot be required to pay its insured more than the
amount of his actual loss.” State Farm Fire & Cas. Co. v. Griffin, 888 S.W.2d 150, 156 (Tex.
App.—Houston [1st Dist.] 1994, no writ). The Texas Supreme Court has clarified “that there is no
pecuniary loss when the loss has been made good out of a related transaction.” Leggio v. Millers Nat’l
Ins. Co., 398 S.W.2d 607, 610 (Tex. App.—Tyler 1965, writ ref’d n.r.e.) (citing Paramount Fire Ins.
Co. v. Aetna Cas. & Surety Co., 353 S.W.2d 841, 844 (Tex. 1962)). In other words, courts should
“analyze the reality of a loss” by “‘look[ing] to the substance of the whole transaction rather than to
seek a metaphysical hypothesis upon which to justify a loss that is no loss.’” Chambless, 123 F. Supp.
4

Safeco argues that Plaintiffs had no insurable interest because they suffered no pecuniary loss. See
Doc. Doc. 49, Def.’s Reply 3. But that position contradicts how courts in this District have interpreted Texas
case law on the issue. See Chambless v. Travelers Lloyds of Tex. Ins. Co., 123 F. Supp. 2d 1028, 1033 (N.D.
Tex. 2000). There are three basic questions at play here: (1) was there an insurable interest; (2) was there
a pecuniary loss; and (3) if there was a pecuniary loss, was it negated by a related transaction? Id. Safeco tries
to condense all three into a single inquiry. The Court refuses to do so and instead considers each point
separately.

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2d at 1031 (quoting Paramount, 353 S.W.2d at 844). In so doing, courts should aim to prevent
windfall recoveries in which insureds who ultimately suffer no pecuniary loss are still entitled to
recover under their insurance polices. See Paramount, 353 S.W.2d at 844.
Safeco maintains that Plaintiffs are after a windfall recovery. Doc. 35, Def.’s Br. 8. In
particular, Safeco says that Plaintiffs suffered no loss because Safeco adjusted claims for the minor
repairs that Plaintiffs made and there is no evidence of the house’s diminution in value at the time
of sale. Id. at 8–9. In short, Safeco paid for Plaintiffs’ out-of-pocket costs and Plaintiffs sold the house
for what it would have sold for anyways, so any additional recovery would constitute a windfall. Id.
Plaintiffs, for their part, counter that Safeco misapprehends the issue. See Doc. 145, Pls.’
Resp. ¶ 19. More specifically, Plaintiffs contend that “per the terms of the Policy and Texas law, the
actual cash value of the cost of repairs is the proper measure of damages under the facts of this case.”
Id. It makes no difference that Plaintiffs sold the house—Safeco owed them for the repairs but did
not pay. See id. ¶¶ 19–24. Therefore, Plaintiffs conclude, a loss exists that merits indemnity. Id.
At bottom, the fate of Plaintiffs’ breach of contract claim turns on whether Plaintiffs suffered
a pecuniary loss. Said differently, would Plaintiffs’ bottom line have been the same had they not sold
the house and Safeco paid whatever claim would normally have been due under the Policy. And to
determine whether Plaintiffs suffered a pecuniary loss under Texas law, the Court must look to the
terms of the Policy itself: “The liability of the insurer is based upon the contract, and in an action for
damage brought upon a lawful contract of insurance, the provisions of the contract govern the
measure of the insured’s recovery.” Griffin, 888 S.W.2d at 156.
i.

Insurance policy interpretation under Texas law

Under Texas law, insurance policies are subject to the same rules of interpretation and
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construction applicable to contracts generally. Progressive Cty. Mut. Ins. Co. v. Sink, 107 S.W.3d 547,
551 (Tex. 2003). That means the Court’s “primary concern in construing a written contract ‘is to
ascertain the true intent of the parties as expressed in the instrument.’” Fed. Ins. Co. v. Northfield Ins.
Co., 837 F.3d 548, 552 (5th Cir. 2016) (quoting Nat’l Union Fire Ins. Co. v. CBI Indus., Inc., 907
S.W.2d 517, 520 (Tex. 1995)).
To that end, the Court “evaluates the contract based on its plain meaning, determining what
the words of the contract say the parties agreed to do.” Tetra Tech., Inc. v. Cont’l Ins. Co., 814 F.3d
733, 746 (5th Cir. 2016) (internal quotation marks and citations omitted). The Court “‘must
examine the policy as a whole, seeking to harmonize all provisions and render none meaningless.’”
Id. (quoting In re Deepwater Horizon, 470 S.W.3d 452, 464 (Tex. 2015)). Any “[a]mbiguous
language—in particular, exclusionary language—must be construed ‘strictly against the insurer and
liberally in favor of the insured.’” Id. at 747 (quoting Am. Int’l Specialty Lines Ins. Co. v. Rentech Steel
LLC, 620 F.3d 558, 563–64 (5th Cir. 2010)).
ii.

The terms of the Policy

The Policy5 provides in pertinent part:
SECTION I—PERILS INSURED AGAINST
COVERAGE A—DWELLING
...
COVERAGE C—PERSONAL PROPERTY
...
SECTION I—PROPERTY CONDITIONS
...
6. Loss Settlement. Covered property losses are settled as follows:

5

The following terms are gathered from the Policy, i.e., Plaintiffs’ Texas Homeowner’s Policy with
Safeco. Doc. 36 Def.’s App. 36–58, Ex. A-1, Policy No. OY6615588.

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a. Replacement Cost. Property under Coverage A or Coverage B at replacement cost, not
including wood fences and structures that are not buildings, subject to the following:
(1) We will pay the full cost of repair or replacement, but not exceeding the
smallest of the following amounts:
(a) the limit of liability under the policy applying to Coverage A or B;
(b) the replacement cost of that part of the damaged building for
equivalent construction and use on the same premises as determined
shortly following the loss;
(c) the full amount actually and necessarily spent to repair or replace the
damaged building as determined shortly following the loss;
(d) our pro rata share of any loss when divided with any other valid and
collectible insurance applying to the covered property at the time of loss.
...
(3) If the cost to repair or replace is $1,000 or more, we will pay the difference
between the actual cash value and replacement cost only after the damaged or
destroyed property has actually been repaired or replaced.
...
(4) You may disregard the replacement cost loss settlement provisions and make
claim under this policy for loss or damage to buildings on an actual cash value
basis but not exceeding the smallest of the following amounts:
(a) the applicable limit of liability;
(b) the direct financial loss you incur; or
(c) our pro rata share of any loss when divided with any other valid and
collectible insurance applying to the covered property at the time of loss.
You may make a claim for loss on an actual cash value basis and then make a
claim under replacement cost after you have repaired or replaced the property.
...
POLICY DEFINITIONS
...
2. “Actual Cash Value”
a. When the damage to the property is economically repairable, actual cash value means
the cost of repairing the damage, less reasonable deduction for wear and tear,
deterioration and obsolescence.
b. When the loss or damage to the property creates a total loss, actual cash value means
the market value of property in a used condition equal to that of the destroyed property,
if reasonably available on the used market.

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c. Otherwise, actual cash value shall mean the market value of new, identical or nearly
identical property, less reasonable deduction for wear and tear, deterioration and
obsolescence.
d. When applicable to Personal Property We Cover, actual cash value does not include
taxes, or any expense unless incurred following the loss.

iii.

The Policy’s terms are unambigous: Safeco’s liability is limited to either the full
amount Plaintiffs actually and necessarily spent to repair the water damage or the
direct financial loss Plaintiffs incurred as a result of the water damage

Plaintiffs’ argument for recovery under the Policy is straightforward. Given the facts at hand,
Plaintiffs contend, actual cash value is the proper measure of damages. Doc. 45, Pls.’ Resp. ¶¶ 19–20.
The water damage to Plaintiffs’ home was repairable and did not cause a total loss. Id. ¶ 20. So under
the Policy’s definition, “actual cash value” means repair cost here. Id. What’s more, Plaintiffs
continue, “Safeco’s obligation to pay the actual cash value of the damaged or destroyed property is
not conditioned on the property being repaired.” Id. ¶ 24. Thus, Safeco owes Plaintiffs for the cost
to repair the water damage. See id. ¶¶ 22–24.
Safeco’s retort is similarly frank: Plaintiffs’ recovery is limited by Texas law to the pecuniary
loss that they suffered. Doc. 35, Def.’s Br. 8. Under the Policy’s terms, that means the direct financial
loss that Plaintiffs suffered. Id. And Plaintiffs suffered no direct financial loss from the water damage
because there was no diminution in market value when they sold their home. Id. Therefore, Safeco
concludes, Plaintiffs cannot recover. Id.
The Court agrees with Safeco as far as Policy interpretation is concerned. The Policy’s terms
plainly set forth two distinct loss settlement processes. The first, as it applies here, is for property
damage to Plaintiffs’ house. See Doc. 36, Def.’s App. 45. That process allows Plaintiffs to file a claim
for either: (1) replacement cost of the damage to the house, but not exceeding the full amount

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actually and necessarily spent to repair or replace the damage as determined shortly following the
loss; or (2) actual cash value for the loss or damage, but not exceeding the direct financial loss that
Plaintiffs incurred. Id. The upshot of both options is that Plaintiffs’ recovery is limited to their actual,
tangible loss. See id. The policy goes on to explain that Plaintiffs have the option to “make a claim
on an actual cash value basis and the make a claim under replacement cost after you have repaired
or replaced the property.” Id. The second process is for water damage to Plaintiffs’ personal property.
It provides that Safeco will pay for personal property at actual cash value at the time of loss but not
more than the amount required to repair or replace. Id.
The main fight here is over the first loss settlement process for property damage to Plaintiffs’
home. To support their claim for recovery, Plaintiffs point both to the Policy’s definition of “actual
cash value” and to the choice to first file a claim on an actual cash value basis and then follow up
with a replacement cost claim. Doc. 45, Pls.’ Resp. ¶¶ 23–25. If the Policy provides that Safeco will
pay for the difference between actual cash value and replacement cost only after the damage property
has been repaired, Plaintiffs posit, then it necessarily provides for payments before or irrespective of
repair. Id. Perhaps.
Yet as Safeco points out, that recovery would still be limited to the lower bound of whichever
option Plaintiffs chose, the amount actually and necessarily spent for repairs for replacement cost or
Plaintiffs’ direct financial loss for actual cash value. See Doc. 49, 1–2. In other words, it’s conceivable
that under some circumstances an insured could recover for property damage without repairing the
property. That recovery, however, would be limited to the insured’s direct financial loss. See Doc. 36,
Def.’s App. 45. Plaintiffs themselves concede as much in their Response. Doc. 45, Pls.’ Resp. ¶ 23.
Thus, the Court concludes that the Policy does not provide Plaintiffs with a blanket entitlement to
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recovery absent repair; rather, Plaintiffs’ recovery for property damage is limited to either the amount
they actually and necessarily spent on repairs to the water damage or their direct financial loss. See
Doc. 36, Def.’s App. 45.
But given the evidence submitted by the parties to the summary judgment record, the Court
concludes that how to figure those amounts is ambiguous here. Both sides agree that Safeco made
some initial payment to Plaintiffs for their early efforts to repair the water damage. Doc. 35, Def.’s
Br. 6; Doc. 45, Pls.’ Resp. ¶ 10 (citing Doc. 45-1, Pls.’ App. 178–86). So the real task is determining
the actual cash value of Plaintiffs’ claim by calculating the direct financial loss they suffered from the
water damage. And that, as explained above, requires digging into Plaintiffs’ sale of their home.
Safeco argues that Plaintiffs suffered no direct financial loss from the water damage because
it did not negatively impact the home’s sales price. Doc. 35, Def.’s Br. 8–9. Said differently, Safeco
claims that Plaintiffs sold their home for no less with water damage than they would have without
it. Id. Plaintiffs, however, contest that they accepted an arguably lowball offer due to their concern
about the home’s condition, especially the water damage. Doc. 45, Pls.’ Resp. ¶ 33 (citing Doc. 45-1,
Pls.’ App. 160). Safeco concedes that Plaintiffs sold the house for less than its fair market value.6
Doc. 45, Def.’s Br. 9. But that lower than average sales price, Safeco continues, is not the result of
water damage; rather, it stemmed from the buyer Shaddock Caldwell’s assumption of closing costs
normally born by the seller. Id. What’s more, Safeco goes on, Plaintiffs continued to live in the house
rent free for months after they sold it. Id. So factoring those in, Safeco concludes, Plaintiffs actually

6

The Court realizes that Plaintiffs challenge the source of this valuation, Safeco’s expert Jim
Goodrich. Safeco similarly challenges Plaintiffs’ expert on that point. Yet the Court need not rule on the
admissibility of expert testimony to make its point here.

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profited from their sale. Id.
Based upon the summary judgment record and having considered the parties’ arguments, the
Court concludes that there is a genuine issue of material fact as to both: (1) whether Plaintiffs
suffered a direct financial loss here; and (2) if so, the extent of that loss. And with those issues
unresolved, the Court cannot render a decision as to whether Safeco breached its obligation under
the Policy to pay Plaintiffs for property damage to their home.
The same goes for Plaintiffs’ personal property coverage. Safeco maintains that it closed
Plaintiffs’ personal property claims because Plaintiffs failed to provide information necessary for
Safeco to process those claims. See Doc. 35, Def.’s Br. 6. Plaintiffs, by contrast, point out that unlike
the home that has been demolished, the personal property items at issue have been and still are
available for Safeco’s inspection. See Doc. 45, Pls.’ Resp. ¶ 12 (citing Doc. 145-1, Pls.’ App. 169). In
essence, Plaintiffs claim that Safeco failed to carry out a reasonable investigation of their personal
property despite that property being available for inspection. Doc. 45, Pls.’ Resp. ¶ 28. In light of that
argument and the evidence presented, the Court similarly finds that there is a genuine fact issue as
to whether Safeco breached the Policy as to Plaintiffs’ personal property claims.
As to Safeco’s argument that Plaintiffs’ potential lack of pecuniary loss divests them of an
insurable interest, the Court disagrees. That conclusion comports with Texas law and precedent from
this District interpreting it. As referenced, there are two basic steps to recover from an insurance
policy under Texas law. First, a person must have an insurable interest in the property at issue both
when the policy is issued and when the loss occurs. See Jones, 853 S.W.2d at 794; Highlands Ins., 721
S.W.2d at 471. Second, if the person has the required insurable interest, then his or her recovery is
limited to the amount of his or her pecuniary loss. See Chambless, 123 F. Supp. 2d at 1031–34.
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Plaintiffs had an insurable interest when the Policy was issued and at the time of loss. But there is
a genuine issue of fact as to whether they suffered any pecuniary loss that would entitle them to
recovery under the Policy. For that reason, the Court concludes that Safeco failed to meet its burden
here and DENIES its Motion for Summary with respect to Plaintiffs’ breach of contract claim.
B.

The Extracontractual Claims
Plaintiffs’ breach of contract claim was the lynchpin in their theory of recovery. In addition

to that claim, though, Plaintiffs asserted a litany of extracontractual claims. The Court considers
each in turn.
1.

Texas Insurance Code

The Court first addresses Plaintiffs’ claims against Safeco for violations of chapters 541 and
542 of the Texas Insurance Code. See Doc. 1, Ex. A, Pls.’ Orig. Pet. ¶¶ 42–51. Safeco argues that
it is entitled to summary judgment on all of those claims because the Policy did not cover the damage
to Plaintiffs’ home and Plaintiffs failed to allege any injury independent of the denial of coverage.
Doc. 35, Def.’s Br. 9–11. Plaintiffs say they did suffer injury independent of the denial, and contend
that their extracontractual claims should survive because even if Safeco did not breach the Policy,
it misrepresented Texas law when it withdrew from the appraisal process. Doc. 45, Pls.’ Resp.
¶¶ 25–27.
i.

Chapter 541

To recover under Chapter 541 of the Texas Insurance Code, a party must establish that: (1)
“the insurer committed one or more of the acts prohibited by Chapter 541"; and (2) those “acts
resulted in actual damages to the insured independent of the underlying claim.” Hulcher Servs., Inc.
v. Great Am. Ins. Co., No. 4:14-cv-231, 2015 WL 3921903, at *11 (E.D. Tex. June 25, 2015) (citing
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Parkans Int’l LLC v. Zurich Ins. Co., 299 F.3d 514, 519 (5th Cir. 2002) (“There can be no recovery
for extracontractual damages for mishandling claims unless the complained of actions or omissions
caused injury independent of those that would have resulted from a wrongful denial of policy
benefits.”))
Plaintiffs assert a slew a violations under Chapter 541. See Doc. 1, Ex. A, Pls.’ Orig. Pet.
¶¶ 42–46 . Yet they fail to provide any proof of damages independent of the alleged wrongful denial
of policy benefits. Id. The only real damages Plaintiffs allege are those associated with Safeco’s alleged
mishandling of their claim. See id. ¶¶ 51–61.
Indeed, the crux of Plaintiffs’ independent injury claim is the expense of preparing for
litigation in this case. Doc. 45, Pls.’ Resp. ¶ 34. That is not enough. See, e.g., Mt. Olive Missionary
Baptist Church v. Underwriters at Lloyd’s, London, No. H-16-234, 2016 WL 4494439, at *5 (S.D. Tex.
Aug. 26, 2016) (summarizing independent injury requirement). And so the Court concludes that
Plaintiffs suffered no injury independent of the alleged wrongful denial of policy benefits. See Hulcher
Servs., 2015 WL 3921903, at *11.
There is, however, some authority to suggest that, “to the extent [a] policy affords coverage,
extracontractual claims [may] remain viable” even absent independent injury. State Farm Lloyds v.
Page, 315 S.W.3d 525, 532 (Tex. 2010); see also In re Oil Spill by the Oil Rig DEEPWATER
HORIZON in Gulf of Mexico, on April 20, 2010, MDL No. 2179, 2014 WL 5524268, at *14–17 (E.D.
La. Oct. 31, 2014) (noting apparent conflict in Fifth Circuit precedent over independent injury
requirement when claims are covered by underlying policy). And as explained above, it is unclear
from the evidence presented whether the Policy affords coverage under these circumstances. If it
does, then Plaintiffs may still have a viable claim. But if it does not, then Plaintiffs’ claims under
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Chapter 541 should be dismissed because Plaintiffs suffered no independent injury. See Page, 315
S.W.3d at 532 (explaining that “when the issue of coverage is resolved in the insurer’s favor,
extracontractual claims do not survive”). Safeco maintains that the Policy’s exact coverage is
somewhat irrelevant here because there is a bona fide dispute over coverage—Plaintiffs bore the
burden of proof to show that Safeco knew or should have known that it was reasonably clear that
the claim was covered. Doc. 35, Def.’s Br. 12.
The Court concludes that it is unclear from the evidence presented how the Policy applies
in this context. And that opacity transfer over to Plaintiffs’ claims under Chapter 541 of the
Insurance Code—the Court just cannot tell whether Plaintiffs’ claims were covered or if Safeco had
a reasonable basis for denying Plaintiffs’ claims. See Greil v. Geico, 184 F. Supp. 2d 541, 545 (N.D.
Tex. 2002). For that reason, the Court DENIES Safeco’s Motion as to Plaintiffs’ claims under
Chapter 541.
ii.

Chapter 542

To maintain a claim under Chapter 542 of the Texas Insurance Code, a party must show:
(1) “a ‘first-party’ claim under an insurance policy”; (2) “the insurer’s liability for that claim”; and
(3) “the insurer’s failure to follow one or more sections of the statute with respect to handling that
claim.” Hulcher Servs., 2015 WL 3921903, at *11 (citing GuideOne Lloyds Ins. Co. v. First Baptist
Church of Bedford, 268 S.W.3d 822, 830 (Tex. App.—Fort Worth 2008, no pet.)); see also WeiserBrown Op. Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 518 (5th Cir. 2015). In other words,
liability for the claim is a precondition to liability under Chapter 542. Wellisch v. Un. Servs. Auto.
Ass’n, 75 S.W.3d 53, 57 n.2 (Tex. App.—San Antonio 2002, pet. denied). As referenced, Safeco’s
liability under the Policy is unclear at this time. Thus, the Court DENIES Safeco’s Motion as to
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Plaintiffs’ claims under Chapter 542.
2.

Good Faith and Fair Dealing

The Court next addresses Plaintiffs’ claim against Safeco for breach of its common law duty
of good faith and fair dealing. Doc. 1, Ex. A, Pls.’ Orig. Pet. ¶¶ 52–53. Safeco again argues that it is
entitled to summary judgment because there was a bona fide dispute about its liability under the
Policy. Doc. 35, Def.’s Br. 12. As explained above, however, the Court lacks sufficient evidence from
which to conclude that Safeco had a reasonable basis for denying Plaintiffs’ claim. See Greil, 184 F.
Supp. 2d at 545. For that reason, the Court DENIES Safeco’s Motion as to Plaintiffs’ bad faith
claims.
3.

Fraud

Finally, the Court addresses Plaintiffs’ fraud claim against Safeco. See Doc. 1, Ex. A, Pls.’
Orig. Pet. ¶¶ 30–32. Safeco argues that it is entitled to summary judgment for two reasons. Doc. 35,
Def.’s Br. 13–15. First, Safeco contends that it did not make a misrepresentation to Plaintiffs. Id. at
13. Second, Safeco continues that, even if it had misrepresented something, Plaintiffs did not rely
on it. Id. at 13–15.
To prevail on their fraud claim, Plaintiffs must have shown that: (1) Safeco or its agents made
a material representation that was false; (2) they knew the representation was false or made it
recklessly as a positive assertion without any knowledge of its truth; (3) they intended to induce
Plaintiffs to act upon the representation; and (4) Plaintiffs actually and justifiably relied on the
misrepresentation and suffered injury. Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d
573, 577 (Tex. 2001). Skipping over the first three elements, the Court agrees with Safeco that
Plaintiffs did not rely on Safeco’s post-loss statements.
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The gist of Plaintiffs’ argument is that Safeco and its adjuster misrepresented Texas law to
Plaintiffs when they withdrew from the appraisal process. See Doc. 35, Pls.’ Resp. ¶ 34. As a result,
Plaintiffs conclude, they were forced to “file a lawsuit to resolve the value of the loss and obtain
coverage.” Id. That is, to be blunt, not reliance. What’s more, the Court agrees with Safeco that postloss statements likely are not actionable in this context.
While most case law on this point deals with statutory claims under the Texas Deceptive
Trade Practices Act or Insurance Code, the causes of actions are largely analogous with respect to
reliance. Compare Ernst & Young, 51 S.W.3d at 577 (laying out reliance requirement for fraud)
with Tex. Bus. & Comm. Code § 17.50(a) (setting out reliance requirement under DTPA). And
[a]mple case law has held that an insured normally cannot bring a misrepresentation claim for any
alleged representations made after a loss.” W. Tex. Agriplex v. Mid-Continent Cas. Co., No. 5:03-cv199-C, 2004 WL 1515122, at *13 (N.D. Tex. July 7, 2004). Therefore, the Court GRANTS Safeco’s
Motion as to Plaintiffs’ fraud claim.
IV.
CONCLUSION
Based on the foregoing, the Court GRANTS in part and DENIES in part Safeco’s Motion
for Summary Judgment. To that end, the Court DISMISSES with prejudice Plaintiffs’ fraud claim
against Safeco.

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SO ORDERED.
SIGNED: March 6, 2017.

_________________________________
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE

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