Texas Appellate Court Affirms Jury Verdict Award Of Mental Anguish Damages Against First-Party Insurer
November, 2008
In State Farm Lloyds v. Hamilton, 2008 WL 3984045 (Tex. App. Dallas), a Texas appellate court affirmed a jury verdict finding State Farm liable for breach of contract, cost of repair damages, extra-contractual violations, and mental anguish damages after State Farm denied the insureds’ claim for leaking and signs of structural distress at the insureds’ home.
Facts
The Hamilton home was built in 1972; it experienced foundation problems prior to purchase by the insureds in 1990. The insureds did not notice foundational problems until 2002. These issues were resolved via installation of a draining system and skirting on the east side of the home. In early 2003, the insureds noticed leaking underneath their television in the living room, and reported the leak to State Farm. A plumber was called to investigate, but the leak could not be located. This claim was left open. In the summer of 2003, the insureds began noticing signs of “structural distress, including cracks in sheetrock and doors sticking. In September of that year, the [insureds] reported concerns about the foundation to State Farm, which then assigned the claim to [a] claims representative ...” State Farm hired Baker Brothers Plumbing to conduct plumbing tests.
In October 2003, the Baker Brothers found one leak outside the insureds’ home at the master cutoff valve, and three leaks in the sewer line inside the structure of the insureds’ home. Two of the leaks inside the structure were determined not to cause water loss under normal usage. The third leak, however -- discovered by happenstance when the plumbers had to break through the insureds’ living room floor to retrieve their camera -- consisted of a severely deteriorated cast iron pipe and over a foot of standing water under the insureds’ living room. State Farm then retained an engineering firm to evaluate the home and to determine whether “any of the leaks Baker Brothers found had caused or contributed to foundation damage in their home.” The engineer determined that the plumbing leaks did not affect the slab of the insureds’ home; State Farm denied the claim because coverage was only provided for foundation damage if the damage was caused by a plumbing leak. The insureds’ retained engineer, however, “concluded that the plumbing leak under the living room caused the [insureds’] foundation damage.” The insureds refused to allow the hole in their living room to be filled because their problem was unresolved; the hole was open at the time of trial.
Litigation ensued; the trial court awarded the insureds “actual damages for breach of contract and for violation of the Texas Insurance Code. The judgment also included an award of attorney’s fees, costs, pre- and post-judgment interest, and an insurance code penalty.” State Farm appealed.
Analysis
Hamilton addressed several issues appealed by State Farm, including whether the evidence was sufficient to support the jury’s finding that (1) State Farm breached its policy; (2) State Farm breached its duty of good faith; and (3) State Farm was liable for mental anguish damages. The Hamilton court concluded that the evidence was sufficient to support each of the jury’s findings.
First, the court held that the insureds’ expert’s testimony that the foundation damage was caused by a plumbing leak was sufficiently reliable to support the jury’s verdict that State Farm breached the policy: “[t]he data on which [the insureds’ expert] relied included the very same data on which State Farm relied plus the data [he] gathered in his own investigation.” The court also found the insureds’ expert’s opinions “were not conclusory.”
Second, the court held that that the facts supported the jury’s finding that extra-contractual damages were warranted. The court noted that the jury could have reasonably found, for example, that State Farm’s retained engineer was biased, his report was not “objectively prepared,” and that State Farm’s reliance on his report “was unreasonable.” The court specifically noted that State Farm’s engineer “was on the list of State Farm’s approved engineers,” that “ more than fifty percent of [his] business came from State Farm,” he had “investigated 1440 claims for State Farm,” State Farm paid the engineering firm “more than $3 million” over a four year period, and that he “had never testified against State Farm’s interests.”
Finally, the court held that there was sufficient evidence to support the jury’s finding of mental anguish damages. The Hamilton court noted that “[o]ur supreme court has stated that mental anguish awards will pass a legal sufficiency review if evidence is presented describing ‘the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiffs’ daily routine.’” The insureds testified that State Farm’s denial of their insurance claim led to emotional problems, depression, financial worries, marital discord, physical illness, fear, etc. The court found that this testimony was sufficient to demonstrate a “substantial disruption” of the insureds’ daily routine as a result of “State Farm’s handling of their claim.”
Learning Point
Appellate courts refrain from disturbing a jury’s verdict when evidence arguably sufficient to support the verdict exists.
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