Metro Hospitality Partners, LTD. v. Lexington Insurance Company
MEMORANDUM AND ORDER entered DENYING 20 MOTION to Strike Experts, GRANTING in PART and DENYING in PART 21 MOTION for Summary Judgment . A Status Conference is set for 5/16/2017 at 05:00 PM in Courtroom 11B before Chief Judge Lee H Rosenthal. (Signed by Chief Judge Lee H Rosenthal) Parties notified.(leddins, 4)
United States District Court
Southern District of Texas
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
METRO HOSPITALITY PARTNERS, LTD,
d/b/a CROWNE PLAZA HOTEL,
LEXINGTON INSURANCE COMPANY,
March 24, 2017
David J. Bradley, Clerk
CIVIL ACTION NO. H-15-1307
MEMORANDUM OPINION AND ORDER
When a business sues its property insurer and the type of damage is clearly covered, the usual
pattern is that the insurance company has failed to pay anything, has failed to pay anything close to
what the insured claimed, or has taken too long to pay. This case is different. Here, the property
insurer promptly adjusted the claim the insured presented and paid a large sum within the month after
the hailstorm that damaged the insured’s hotel. The insurer identified and paid what it concluded
were the remaining amounts owed about two months after that. The insured claimed that more
money was owed. The insurer asked for documents and information substantiating the demand for
additional payment. The insured refused. The policy required the insured to “cooperate” with the
insurer. What we have here, says the insurer, is a failure to cooperate.1 What we have here, says the
insured, is a breach of the insurance contract and of the duty of good faith and fair dealing.
The insured, Metro Hospitality Partners, Ltd., owns a hotel in Houston, Texas. After a
hailstorm damaged the hotel, Metro promptly notified its property insurer, Lexington Insurance
Company. Lexington quickly responded, inspected, adjusted, paid part of the claim as an advance,
and identified the amount of covered damage and the amount it owed. The total amount approved
COOL HAND LUKE (Warner Brothers Entertainment, Inc. 1967).
and paid before subtracting the deductible and depreciation was $820,649.42. The parties disputed
whether the hailstorm damage justified a insurer-paid new roof, or whether normal wear and tear
made a new roof Metro’s responsibility.
Metro presented a $2,664,427.44 estimate of its added covered losses over five months later,
including the cost of a new roof, again without substantiating documents or information. Lexington
asked for substantiation. Without complying ,and before Lexington issued a final decision, Metro
sued. After filing this suit, Metro submitted an estimate for about $10 million in covered losses and
damages. Before and after Metro filed this lawsuit, Lexington continued to ask for documents and
information supporting the claims. Metro asserted and continues to assert that Lexington did not need
most of the documents or information and therefore that Metro had no duty to provide them.
After discovery, Lexington moved for summary judgment, Metro responded, and Lexington
replied. (Docket Entry Nos. 21, 23, 25). Based on a careful review of the motion, response, and
reply; the record; and the relevant law, this court grants Lexington’s motion for summary judgment
dismissing Metro’s extracontractual claims for breach of the duties of good faith and fair dealing.
The court denies Lexington’s motion for summary judgment on the breach of contract claims, but
without prejudice and with leave for Lexington to reurge its motion after Metro complies with the
The insured, Metro Hospitality, is ORDERED to produce the documents and
information the insurer, Lexington Insurance, previously sought, updated as explained
below, relating to Metro’s claims that Lexington pay additional losses and damages.
To avoid confusion, Lexington must give Metro a copy of the outstanding requests,
updated as necessary to reflect information learned and events occurring since the
requests were made, no later than April 7, 2017. Metro is ordered to fully respond
no later than May 8, 2017.
Counsel and a representative from each party are also ORDERED to appear for a hearing on
May 16, 2017, at 5:00 p.m., in Courtroom 11-B. The court will review the documents and
information produced with counsel and the parties, and will set a scheduling and docket control order
to expeditiously and fairly resolve the remaining issues in the case.
The reasons for these rulings are stated below.
Metro owns and operates the Crowne Plaza Hotel in Houston, Texas. The hotel is made up
of seven buildings built between 1965 and 1985. Lexington Insurance Company issued Policy
Number 64203238-02, with effective dates of December 4, 2012 to December 4, 2013. (Docket
Entry No. 21, Ex. G).
On April 27, 2013, a hailstorm passed through Houston. Metro reported storm damage to the
The summary judgment evidence includes deposition excerpts from: Steve Hardgrave, Lexington’s
expert (Docket Entry No. 21, Ex. B); Shabahram Yazdani-Beioky, Metro Hospitality’s owner (Docket Entry
No. 23, Ex. C); Byron Woodword, a National General Adjuster for Vericlaim (Docket Entry No. 21, Ex. E);
Sina Maria Alvarado, Lexington’s claims handling expert (Id., Ex. F); The record also includes affidavits
and declarations from: Byron Woodward, a National General Adjuster for Vericlaim, Inc. (Docket Entry No.
21., Ex. A); Billy Haley, Metro Hospitality’s expert (Docket Entry No. 23, Ex. A); Hoyt Long, Metro
Hospitality’s expert (Id., Ex. B); Shabahram Yazdani-Beioky, Metro Hospitality’s owner (Id., Ex. C);
The record evidence also includes the insurance policy (Docket Entry No. 21, Ex. G); Metro Hospitality’s
initial disclosures (Id., Ex. D), Metro Hospitality’s answers to interrogatories (Id., Ex. E); Lexington’s
designation of experts (Id., Ex. F); the April 29, 2013 property loss notice (Docket Entry No. 23, Ex. G); the
expert report of Dr. Lee E. Branscome, Lexington’s expert (Id., Ex. H); the original state-court petition and
answer (Id., Exs. I–J); emails between Woodward and a Lexington claims examiner (Id., Ex. K); a May 27,
2013 letter from Lexington to Yazdani (Id., Ex. L); emails between Metro Hospitality’s public adjuster and
Lexingon’s adjuster (Id., Exs. M, S); a February 11, 2014 letter from Vericlaim including the estimate
prepared by Metro Hospitality’s public adjuster (Id., Ex. N); a June 11, 2014 letter from Vericlaim to Metro
Hospitality (Id., Ex. O); the July 22, 2014 report by Vericlaim (Id., Ex. P); the October 17, 2014 report by
Vericlaim (Id., Ex. Q); a February 24, 2015 letter from Vericlaim to Metro Hospitality’s independent adjuster
(Id., Ex. R); an August 5, 2013 internal Lexington email (Id., Ex. T); emails between Yazdani and Lexington
(Id., Ex. U); and a stipulation for the business-interruption claim (Id., Ex. V).
hotel to Lexington on April 29, 2013. The next day, Lexington assigned Byron Woodward of
Vericlaim, Inc. to adjust the loss. Woodward met with Metro on May 1—less than a week after the
hailstorm—and started inspecting the hotel on May 4—less than a week after Metro reported its
claim. (Id., Ex. A at ¶ 4). Woodward quickly hired three experts to help adjust the claim: Joseph
Kennedy from LWG Consulting, Inc., to assess the HVAC system; Howard Jones (and later Steve
Hardgrave) from JS Held, to look at interior damage; and James R. Bailey, Ph.D., from Exponent,
Inc., to assess the roof. (Id.).
It did not take long for disputes to arise. Hardgrave from JS Held reported in a May 4 email
that the claims-adjustment process “might get ugly” because Metro’s principal and owner,
Shabrahram Yazdani-Beioky, told Hardgrave in a meeting that “if this doesn’t go my way my PA
and his team are ready.” (Id., Ex. B-3). Woodward sent Vericlaim’s First Report to Lexington within
a month after the notice of loss. The report noted that Metro reported its roof contractor’s finding
that the entire roof needed replacing. Metro did not, however, identify the roof contractor. Metro
also reported that it had cancelled large events and rented damaged rooms at discounted rates. Metro
did not respond to requests for information about the claimed income loss. (Id., Ex. A at ¶¶ 8–9).
By May 23, 2013, Lexington had advanced Metro $249,000 on its claims. (Id. at ¶ 6). Based
on the initial inspections, Lexington, through Kennedy at LWG Consulting, identified an additional
$272,738.04 in compensable actual-cash-value losses to the HVAC system. Through Jones at JS
Held, Lexington identified an added $412,961.56 in compensable actual-cash-value losses to the hotel
building interiors. (Id. at ¶ 5). Dr. Bailey—who has a Ph.D. in engineering—found no covered roof
damage because the problems resulted from age and poor maintenance, not from the recent hailstorm
damage, and reported his findings to Lexington. (Id.).
On July 2, 2013, Woodward asked Metro for documents and information supporting its
claimed losses. Woodward asked Metro for quotes or bids on the cost and work needed to replace
the roof, the HVAC, and skylights, and to make interior repairs. (Id. at ¶ 9; id., Ex. A-5). Dan Parra
responded for Metro on July 16, 2013. Parra stated that he was collecting the information and would
send it as received. (Id. at ¶ 9). But on July 17, 2013, Yazdani sent Woodward at Vericlaim a letter
complaining that Lexington had “asked for several categories of documents . . . not necessary . . . to
adjust this claim,” which was “unreasonably delaying the [claims-adjusting] process.” (Id. at ¶ 9; id.,
Ex. A-6; id., Ex. C-16).
Nonetheless on July 25, 2013, Yazdani signed a statement of loss agreeing that $820,649.42
was the total covered damage amount. The signed statement noted Metro’s failure to substantiate
“Emergency Remediation/Extraction,” “Business Personal Property,” or “Business Income” losses.
(Id., Ex. A at ¶ 7; id., Ex. A-1). Yazdani also signed sworn proofs of loss in early August, one for
the advance payment of $249,000 and one for the added $336,649.42 payment—the total undisputed
losses that JS Held identified, less depreciation and deductible. (Id., Exs. A-2, A-3). After
Lexington’s last payment, Vericlaim issued another report noting that the file “remains open pending
insured providing the information regarding the emergency services, carpet pricing and financial
information needed to continue with the settlement of this claim.” (Id., Ex. A at ¶ 10; id., Ex. A-8).
On January 28, 2014, Metro submitted a “Xactimate” damage estimate for an additional
$2,664,427.44 from its public adjuster. Metro submitted no underlying documents or added
information. (Docket Entry No. 23, Ex. C at ¶ 12; id., Ex. N at 4). Vericlaim’s sixteenth report,
dated March 16, 2015, stated that it had not received “anything from the CPAs” on Metro’s claimed
business-interruption losses, extra expenses, or revenue losses. (Docket Entry No. 21, Ex. A at ¶ 11).
Metro instead filed this suit. Metro subsequently submitted a second “Xactimate” damage estimate
from another public adjuster, this time claiming close to $10 million in added damages, again without
supporting documents and information.3 (Docket Entry No. 23, Ex. A at ¶ 25; id., Ex. A-6).
Metro sued Lexington on April 14, 2014 in Texas state court, before Lexington had made or
issued its final claim determination. (Docket Entry No. 1-5). Metro asserted a breach of contract
claim for Lexington’s alleged failure to pay the total Metro claimed was due under the insurance
policy. (Id. at ¶ 12). Metro also alleged that Lexington breached both common-law and Texas
statutory duties of good faith and fair dealing. (Id. at ¶¶ 13–15). Lexington timely removed on the
basis of federal diversity jurisdiction. (Docket Entry No. 1). Discovery and this dispositive motion
The Applicable Legal Standards
“Summary judgment is required when ‘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.’” Trent v. Wade,
776 F.3d 368, 376 (5th Cir. 2015) (quoting FED. R. CIV. P. 56(a)). “A genuine dispute of material
fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving
party.’” Nola Spice Designs, LLC v. Haydel Enters., Inc.,783 F.3d 527, 536 (5th Cir. 2015) (quoting
Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). “The moving party ‘bears the initial
responsibility of informing the district court of the basis for its motion, and identifying those
portions of [the record] which it believes demonstrate the absence of a genuine issue of material
fact.’” Id. (quoting EEOC v. LHC Grp., Inc., 773 F.3d 688, 694 (5th Cir. 2014)); see also Celotex
Lexington also states, without a record citation, that Metro sent a $3.7 million demand, without
supporting documents. (Docket Entry No. 21 at ¶ 17). Because this information is not in the record, the court
declines to consider it.
Corp. v. Catrett, 477 U.S. 317, 323 (1986).
“Where the non-movant bears the burden of proof at trial, the movant may merely point to
the absence of evidence and thereby shift to the non-movant the burden of demonstrating by
competent summary judgment proof that there is an issue of material fact warranting trial.” Id.
(quotation marks omitted); see also Celotex, 477 U.S. at 325. Although the party moving for
summary judgment must demonstrate the absence of a genuine issue of material fact, it does not
need to negate the elements of the nonmovant’s case. Boudreaux v. Swift Transp. Co., 402 F.3d 536,
540 (5th Cir. 2005). “A fact is ‘material’ if its resolution in favor of one party might affect the
outcome of the lawsuit under governing law.” Sossamon v. Lone Star State of Texas, 560 F.3d 316,
326 (5th Cir. 2009) (quotation omitted). “If the moving party fails to meet [its] initial burden, the
motion [for summary judgment] must be denied, regardless of the nonmovant’s response.” United
States v. $92,203.00 in U.S. Currency, 537 F.3d 504, 507 (5th Cir. 2008) (quoting Little v. Liquid
Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc)).
“Once the moving party [meets its initial burden], the non-moving party must ‘go beyond
the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and
admissions on file, designate specific facts showing that there is a genuine issue for trial.’” Nola
Spice, 783 F.3d at 536 (quoting EEOC, 773 F.3d at 694). The nonmovant must identify specific
evidence in the record and articulate how that evidence supports that party’s claim. Baranowski v.
Hart, 486 F.3d 112, 119 (5th Cir. 2007). “This burden will not be satisfied by ‘some metaphysical
doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only
a scintilla of evidence.’” Boudreaux, 402 F.3d at 540 (quoting Little, 37 F.3d at 1075). In deciding
a summary judgment motion, the court draws all reasonable inferences in the light most favorable
to the nonmoving party. Connors v. Graves, 538 F.3d 373, 376 (5th Cir. 2008); see also Nola Spice,
783 F.3d at 536.
The Extracontractual Claims
Metro alleged that Lexington breached both common-law and Texas statutory duties of good
faith and fair dealing. (Docket Entry No. 1-5 at ¶¶ 13–15). The standard for the common-law claim
for bad-faith breach of the duty of good faith and fair dealing carries over to statutory liability claims
under the Texas Insurance Code. Both have the same predicate for recovery. The absence of
evidence on one disposes of the other. See Reyna v. State Farm Lloyds, Civ. No. 7:14-cv-420, 2016
WL 3654761, at *8 (S.D. Tex. July 8, 2016) (citing Texas Mut. Ins. Co. v. Sara Care Child Care
Ctr., Inc., 324 S.W.3d 305, 317 (Tex. App.—El Paso 2010, review denied) (citing Progressive
County Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 922–23 (Tex. 2005) (per curiam)); Emmert v.
Progressive Cnty. Mut. Ins. Co., 882 S.W.2d 32, 36 (Tex. App.—Tyler 1994, writ denied)).
Lexington moved for summary judgment on the ground that Metro did not present evidence
of any injury independent of the injuries it claimed resulted from Lexington’s denial of the disputed
covered loss. See Parkans Int’l LLC v. Zurich Ins. Co., 299 F.3d 514, 519 (5th Cir. 2002) (citing
Provident American Ins. Co. v. Castaneda, 988 S.W.2d 189, 198–99 (Tex. 1998) (“There can be no
recovery for extra-contractual 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.”)); see also Great Am. Ins. Co. v. AFS/IBEX Fin. Servs., Inc., 612 F.3d 800, 808 n.1
(5th Cir. 2010) (rejecting the plaintiff’s argument that the “denial of insurance proceeds, standing
alone, entitled it to recover on its extracontractual claims” because that “assertion [did] not comport
with this court’s case law”).
Metro has presented no evidence showing or supporting an inference that it suffered an
injury from the extracontractual claims independent from the injury resulting from the denial of
policy benefits. Instead, Metro argues that it is not required to show an independent injury. In Vail
v. Texas Farm Bureau Mutual Insurance Co., 754 S.W.2d 129 (Tex. 1988), the Texas Supreme Court
held that an insured wrongfully denied policy benefits need not show an injury independent of the
denied policy benefits. Id. at 136. In Parkans International, 299 F.3d at 519, the Fifth Circuit
interpreted a more recent Texas Supreme Court opinion—Provident American Ins. Co. v. Castaneda,
988 S.W.2d 189, 198–99 (Tex. 1998)—as overruling Vail sub silentio. In 2015, the Fifth Circuit
certified the question of whether an independent injury is required for a Chapter 541 claim to the
Texas Supreme Court. See In re Deepwater Horizon, 807 F.3d 689, 698 (5th Cir. 2015), certified
question accepted (Dec. 4, 2015). Metro urges this court to wait for the Texas Supreme Court to
answer the question certified in 2015. In re Deepwater Horizon, 2015 Tex. LEXIS 1112, *1 (Tex.
Dec. 4, 2015). But the certified question has been withdrawn.
In re Deepwater Horizon, No.
15-0891, 2016 Tex. LEXIS 305 at *1 (Tex. Apr. 8, 2016) (“CAUSE DISMISSED AS MOOT:
certified question from the U.S. Court of Appeals for the Fifth Circuit, withdrawn.”). The Fifth
Circuit and Texas Supreme Court’s most recent decisions bind this court.
The decisions in Parkans International and Provident American Insurance require an insured
like Metro to show an injury independent of the insurer’s breach of contract to proceed on
extracontractual claims for breach of the duty of good faith and fair dealing, like those Metro asserts
here. Lexington’s motion for summary judgment dismissing the extracontractual claims is granted.
The Breach of Contract Claim
Metro also alleged that Lexington breached the insurance policy by failing to pay adequate
compensation for its claim. (Docket Entry No. 1-5 at ¶ 12). A plaintiff claiming breach of an
insurance contract must show that the contract covered the loss; that the contract was breached; that
the insured was damaged by the breach, and the resulting damages. Metro Hosp. Partners, Ltd. v.
Lexington Ins. Co., 84 F. Supp. 3d 553, 569 (S.D. Tex. 2015) (citing Block v. Employers Cas. Co.,
723 S.W.2d 173, 178 (Tex.App.—San Antonio 1986), aff’d, 744 S.W.2d 940 (Tex. 1988)). The
insured has the burden to plead and prove that the insurance policy covers the losses claimed and
the benefits sought. Id. (citing Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466,
471 (5th Cir. 2001)).
Under Texas law, insurance contracts are subject to the same construction rules as other
contracts. Performance Autoplex II Ltd. v. Mid–Continent Cas. Co., 322 F.3d 847, 853 (5th Cir.
2003); State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). The courts are to give
effect to the parties’ written expression of their intent, Utica Nat’l Ins. Co. v. Am. Indem. Co., 141
S.W.3d 198, 201 (Tex. 2004), and read all parts of the policy together. Id. If the insurance policy
is not ambiguous, “courts must give the words their plain, ordinary and generally accepted meaning
unless the policy shows that the words were meant in a technical or different sense.” Fed. Deposit
Ins. Corp. v. Firemen’s Ins. Co. of Newark, N.J., 109 F.3d 1084, 1087 (5th Cir. 1997). In this case,
the parties do not assert ambiguity.
Lexington moves for summary judgment on the ground that Metro did not comply with the
policy and therefore cannot sue its insurer for breaching that policy. The policy required Metro to
comply with policy requirements before suing Lexington for contract breach. It stated:
No suit or action on this policy for the recovery of any claim shall be sustainable in
any court of law or equity unless all the requirements of this policy shall have been
complied with, and unless commenced within twenty-four months next after inception
of the loss.
(Docket Entry No. 21, Ex. G at § 28). Similar “no action” or “suits against us” clauses are widely
used and are enforceable as a condition precedent under Texas law. See Harville v. Twin City Fire
Ins. Co., 885 F.2d 276, 279 (5th Cir. 1989) (citing Great American Ins. Co. v. Murray, 437 S.W.2d
264, 265 (Tex. 1969)); see also Johnson v. Liberty Mut. Fire Ins. Co., Civ. No. 4:14-cv-604, 2015
WL 11170153, at *2 (E.D. Tex. Oct. 30, 2015).
Lexington claims that Metro breached the “assistance and cooperation of the insured” clause,
and that the breach bars Metro’s suit under the “no suits” clause. The “assist and cooperate” clause
The Insured shall cooperate with the Company, and, upon the Company’s request and
expense, shall attend hearings and trials and shall assist in effecting settlements, in
securing and giving evidence, in obtaining the attendance of witnesses, and in
(Docket Entry No. 21, Ex. G at § 30). Lexington asserts that it made multiple requests to Metro for
documents and information supporting its claims and that Metro either provided nonresponsive
materials or none at all. As an example of Metro’s failure to cooperate, Lexington notes that Metro
did not provide a proof of loss, although the policy requires it:
In the event of loss or damage hereunder it is a condition precedent to the Insured’s
right of recovery that the Insured, within 90 days following demand therefor by the
Company, render a signed and sworn proof of loss to the Company or its appointed
representative stating: the place, time, and cause of the loss, damage, or expense; the
interest of the Insured and all others in the damaged or destroyed property; the value
of the property involved in the loss; and the amount of loss, damage, or expense.
(Docket Entry No. 21, Ex. G at § 24). Lexington presented a sworn affidavit from Byron Woodward,
the Vericlaim adjustor who worked on the Metro claim for Lexington. Woodward’s affidavit states
that, “[t]o my knowledge, Lexington and Vericlaim did not receive a response to the [request for a
proof of loss letter].” (Docket Entry No 21, Ex. A ¶ 12). Metro does not controvert this evidence.4
It does not identify or submit summary judgment evidence that it presented a proof of loss as the
policy required. The record evidence establishes that Metro did not provide a proof of loss.
Metro argues that Lexington did not plead the failure to provide a proof of loss as a condition
precedent in its answer and therefore cannot raise it in its summary judgment motion. This argument
fails to recognize that Lexington does not assert the proof-of-loss requirement as a condition
precedent. Instead, Lexington incorporates Metro’s failure to submit a proof of loss into its argument
that Metro breached the contract requirement to cooperate, and that this breach bars it from bringing
this suit under the “no suits” clause. (Docket Entry No. 25 at ¶ 10). Metro’s pleading argument is
Metro also argues that it did not have to comply with the proof-of-loss provision because it
was void. Metro points to TEX. CIV. PRAC. & REM CODE § 16.071(a), which states:
A contract stipulation that requires a claimant to give notice of a claim for damages
as a condition precedent to the right to sue on the contract is not valid unless the
stipulation is reasonable. A stipulation that requires notification within less than 90
days is void.
Case law forecloses Metro’s argument.
The Fifth Circuit rejected a similar argument by
distinguishing “event of loss or damage” from a “claim for damages.” Ridglea Estate Condo. Ass’n
v. Lexington Ins. Co., 415 F.3d 474, 478 (5th Cir. 2005), as amended on reh’g (Aug. 10, 2005) (citing
Community Bank & Trust v. Fleck, 107 S.W.3d 541, 542 (Tex. 2002); American Airlines Employees
Metro argues that this sentence from Woodward’s affidavit is incompetent summary judgment
evidence because the sentence starts with “to my knowledge.” Metro cites no cases supporting its argument.
Woodward does not disavow personal knowledge. To the contrary, Metro recognizes that Woodward was
the claims adjuster on the file and does not challenge the personal knowledge he had from that role.
Federal Credit Union v. Martin, 29 S.W.3d 86 (Tex. 2000)). A notice of a loss, as in a proof-of-loss
document, is not a “claim for damages,” but is instead a “notice of the happening of an event upon
which liability may or may not result.” Id. (quoting Commercial Standard Insurance Co. v. Harper,
103 S.W.2d 143, 145 (Tex. 1937)). As a result, § 16.071(a) does not make this provision void.
Metro also argues that Lexington waived its ability to assert the failure to provide a timely
proof of loss through its conduct. Metro notes that Lexington continued to “adjust and attempt to
settle Metro’s claim long after the time for filing a proof of loss pursuant to Lexington’s September
, 201, ‘demand’ expired.” (Docket Entry No. 23 at ¶ 27). For a year after the date for filing
a proof of loss expired, Lexington’s adjuster met with Metro’s public adjuster and received loss
estimates. Lexington “continued to communicate with, [and] solicit and obtain information from”
Metro to adjust and try to settle the claim. Metro argues that because Lexington did not deny liability
based on Metro’s failure to file a proof of loss during this year-long process, and instead continued
asking for information, working to finish adjusting the claim, and trying to reach a final decision,
Lexington waived its right to assert the proof-of-loss requirement. This argument seems to fall into
the “no-good-deed-goes-unpunished” category. It is also unsupported and unpersuasive.
Metro signed a sworn proof of loss for the advance payment on August 5, 2013, and it signed
a second sworn proof of loss on August 9, 2013. (Docket Entry No. 21, Exs A-2, A-3). Metro
forwarded the documents to Lexington on or about August 9, after clarifying that the amount was
only “the claim to date.” (Docket Entry No. 23, Ex. C at ¶ 10). By August 25, 2013, Lexington had
paid the undisputed part of Metro’s claim. (Docket Entry No. 21, Ex. A-7). On September 16, 2013,
Lexington sent a demand to Metro to file its proof of loss on the outstanding, disputed portion of
Metro’s claim. (Id., Ex. A-9). Under Texas law, by paying the undisputed part of the claim during
the insured’s time to submit its proof of loss for an additional part of the claim, the insurer does not
waive the right to require the insured to file its proof of loss on the outstanding claim. See Ridglea
Estate Condo. Ass’n, 415 F.3d at 477 (citing Stonewall Ins. Co. v. Modern Expl., Inc. v. Modern
Expl., Inc., 757 S.W.2d 432, 436 (Tex. App.— Dallas 1988, no writ) (“A waiver of a notice
requirement occurs when the insurer denies liability within the time limited for giving notice.”); cf.
Hanover Ins. Co. of New York v. Hagler, 532 S.W.2d 136, 138 (Tex. Civ. App.—Dallas 1975, writ
ref’d n.r.e.) (a voluntary payment of a portion of the claim before the time for filing the proof of loss
expired was “some evidence of waiver,” but the payment did not establish as a matter of law that the
insurer did not intend to insist on a proof of loss for the remainder of the claim).
Metro has cited no authority supporting its argument that an insurer who continues to try to
adjust a claim, rather than immediately denying a claim for failure to provide timely proof of loss,
waives the right to assert the contract provision requiring timely proof-of-loss submissions. The
Metro’s primary argument is that it did not breach the assist-and-cooperate clause by refusing
to comply with Lexington’s requests because most of the requested documents and information were
irrelevant and unnecessary to the claimed losses. As a result, Metro says, it did not have to comply.
As an example, Metro cites the requests for documents and information substantiating its claim for
lost business income during the investigation and adjustment process. Metro argues that after it filed
suit, it abandoned the lost-business-income claim, so its presuit refusals are irrelevant. (Docket Entry
No. 23, Ex. V). Metro also argues that Lexington and its experts had “unfettered access” to the hotel
and that Metro had no obligation to provide information about what Lexington could have observed
on its own. (Id., Ex. F, pp. 44–45). Metro finally argues that Lexington “knew from day one” that
Metro had performed the emergency and remedial water extraction and the cleanup work itself and
therefore did not have invoices from third parties showing the costs. (Id., Ex. E-4 at 13). None of
these arguments is persuasive.
Metro cites Oram v. State Farm Lloyds, 977 S.W.2d 163 (Tex. App.—Austin 1998, no pet.),
to support its argument that the cooperation clause did not require compliance with Lexington’s
document requests. The insurer in Oram asked the insured to produce an engineering report. Id. at
168. At trial, the insured testified that he did not remember turning the report over, but that he did
not intentionally withhold it. Id. There was evidence that another report was submitted to the insurer
but was “missing” from the claim file. Id. The insured argued that the jury could reasonably have
concluded that the engineering report at issue was submitted and then “gone missing.” Id. The court
found that the evidence did not conclusively establish the insured’s failure to cooperate with the
insurer’s document request. Id. Oram is readily distinguishable. In Oram, there was a factual
dispute about whether the insured had provided the requested document and thereby cooperated with
the insurer’s requests. The appellate court upheld the jury verdict in the insured’s favor based on the
conflicting evidence. Here, there is no question that Metro refused to comply with Lexington’s
requests for documents and information about the disputed portion of the claim.
Metro also cites Colonial County Mut. Ins. Co. v. Valdez, 30 S.W.3d 514 (Tex. App.—Corpus
Christi 2000, no pet.). In Colonial County, the insured sued his car insurer for unfair settlement
practices for failing to timely accept or deny his claim after his car was stolen. Id. at 522. The jury
returned a verdict for the insured. On appeal, the insurer argued that it could not timely adjudicate
the claim because the insured did not comply with requests for supporting documents. Id. (citing
TEX. INS. CODE art. 21.55, § 3 (a) (“an insurer shall notify a claimant in writing of the acceptance or
rejection of the claim not later than the 15th business day after the date the insurer receives all items,
statements, and forms required by the insurer, in order to secure final proof of loss”). The insurer’s
request included: (1) a completed theft-statement form; (2) a power of attorney document; (3) a
completed proof of loss form; (4) copies of vehicle service records; (5) recent photographs of the
vehicle; (6) a copy of the bill of sale or a licence registration receipt; (7) negotiable title or a copy of
the title; and (8) all sets of keys to the vehicle. Id. The insured provided the theft-statement form as
well as the power of attorney and the proof of loss. Id. The court found that the statute did not
require the additional items in the insurer’s request, and that the insurer had presented no evidence
or argument explaining why it needed the extra documents. Id. at 523. “Common sense indicates
that materials such as service records, sets of keys, and photographs of the vehicle are irrelevant to
proving the loss of the vehicle.” Id.
This case is also distinguishable. First, the claim here is not over the statutory requirement
of specific information to process the claim, but the contract term requiring the insured to “cooperate
with” the insurer and on the insurer’s request and at its expense, “assist in effecting settlements, [and]
in securing and giving evidence.” (Docket Entry No. 21, Ex. G at § 30). Metro does not dispute that
it refused to provide the supporting documents and information that Lexington requested to adjust
the disputed portion of the claim. Second, the scope and extent of what Lexington asked for are
clearly relevant and important to adjusting the disputed, unpaid part of Metro’s claims. For example,
the parties vigorously dispute the condition of the roof before the hailstorm. Lexington sought
documents and information about the roof condition and the basis for the repair or replacement
estimates. Metro refused to provide them. And although Metro points out that it abandoned its lostbusiness-income claim, it did not do so until after it filed this suit. Metro’s failure to provide the
information and documents relevant to this claim before it was abandoned is clearly relevant to the
failure to cooperate. And the fact that Metro gave Lexington access to the hotel to inspect the
conditions did not give Lexington the ability to identify or obtain documents or information on roof
conditions before the storm or on the basis for Metro’s other covered loss and damage estimates and
In short, Metro did not take reasonable steps to respond to Lexington’s requests for
information and documents that were in turn reasonably necessary to adjust the claim. Metro failed
to assist and cooperate as required under the policy. Metro cannot bring suit under the terms of the
“no suits” clause.
The Remedy for Metro’s Failure to Assist and Cooperate
Lexington asks this court to dismiss the case because Metro’s breach of the assist-andcooperate clause bars it from bringing this suit under the “no suits” clause. The court agrees that until
Metro complies, Lexington has no obligation to pay any part of the disputed portion of the claim.
But the court does not agree that dismissal now on the merits, as opposed to an abatement to allow
Metro one more opportunity to assist and cooperate, is appropriate.
“In the case of an insurer trying to enforce a condition precedent . . . a proper remedy is
abatement—or a stay of the proceedings—rather than barring the claim.” U.S. Pecan Trading Co.
v. Gen. Ins. Co. of Am., No. 08-cv-347, 2008 WL 5351847, at *2 (W.D. Tex. Nov. 6, 2008) (citing
Lidawi v. Progressive County Mut. Ins. Co., 112 S.W.3d 725, 735 (Tex. App.—Houston [14 Dist.]
2003, no pet.)). Lexington argues that the court should grant its motion for summary judgment on
the merits because Metro’s long and persistent record of noncompliance makes abatement futile.
Lexington argues that the only conclusion is that “Metro has not provided the information necessary
to complete a proof of loss because it cannot provide the requested information.” (Docket Entry No.
21 at 18 n.57). But in cases with similar facts, courts usually abate or stay for brief periods to allow
the insured one more chance to provide requested documents or information supporting its claim for
covered losses, if it can do so. See, e.g., Brown v. State Farm Lloyds, Nov.10-63, 2012 WL 1077668,
at *4 (S.D. Tex. Mar. 29, 2012) (denying a summary judgment motion without prejudice and staying
the case until the insured provided the insurer with “all documents previously requested in support
of his claimed loss”); Rossco Holdings, Inc. v. Lexington Ins. Co., Civ. No. 09-cv-04047, 2011 WL
1363799, at *3 (S.D. Tex. Apr. 11, 2011) (same); cf. Griggs v. State Farm Lloyds, 181 F.3d 694, 703
(5th Cir. 1999) (affirming summary judgment for the insurer after the insured failed to comply with
conditions precedent to coverage only after “[t]he district court. . . order[ed] State Farm Lloyds to
provide an itemized list of the required documentation and order[ed the insured]to produce some
reasonably comprehensible proof of his loss”).
Lexington’s remaining arguments do not weigh against a brief stay or abatement in this case.
It argues that Metro has not presented evidence that the insurance policy was breached. This
argument however, folds into Lexington’s contention that Metro failed to provide documents or
information supporting its covered loss and damages claims. Lexington’s argument that Metro failed
to segregate damages is similar.5
Having said that, Lexington’s frustration at giving Metro yet another chance is
understandable. Metro repeatedly refused Lexington’s reasonable requests for documents and
information, while making ever-increasing payment demands. Lexington patiently kept the file and
door open to allow Metro to respond. Metro responded by suing, alleging that Lexington breached
its contract and its duties, exposing it to added damages, penalties, and fees, by failing to pay the
claimed covered losses. All the while, Metro refused to comply with Lexington’s reasonable requests
to substantiate the claims. The court is aware of the time and steps Lexington has taken to allow
Metro’s compliance, to no avail. The time and effort already expended inform the court’s decision
Lexington also moves to strike Metro’s experts. (Docket Entry No. 20). Metro’s experts opine on
the cause and amount of the damage suffered by the hotel. The motion to strike experts is denied without
prejudice and may be reasserted depending on the extent of the documents and information Metro produces.
on how much time to allow Metro to comply now, as opposed to persuading the court to deny Metro
the opportunity to do so.
This case is briefly stayed to allow Metro one more opportunity to provide Lexington with
the documents and information it previously requested.6
Lexington’s motion for summary judgment on Metro’s extracontractual claims is granted.
(Docket Entry No. 21). Lexington’s motion for summary judgment on Metro’s contract claim is
denied, without prejudice and with leave to reurge after May 16, 2017, depending on Metro’s
compliance with the order entered below:
Metro is ORDERED to produce the documents and information Lexington previously
sought, updated as stated below, relating to Metro’s claims that Lexington pay
additional losses and damages. To avoid confusion, Lexington must provide Metro
with a copy of the outstanding requests, updated as necessary, no later than April 7,
2017. Metro is ordered to fully respond no later than May 8, 2017. The court also
ORDERS counsel and a representative from each party to appear for a hearing on
May 16, 2017, at 5:00 p.m., in Courtroom 11-B. The court will review the document
and information production with counsel and the parties and will set a scheduling and
This order does not cover or require the production of documents or information Lexington
previously requested to support Metro’s now-abandoned claim for loss of business income. (Docket Entry
No. 23, Ex. V).
docket control order to expeditiously and fairly resolve the remaining issues in the
SIGNED on March 24, 2017, at Houston, Texas.
Lee H. Rosenthal
Chief United States District Judge
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