When Insurance Companies Hide Behind their Experts in Texas

One tactic insurance companies use to circumvent bad faith liability is claiming that they reasonably relied on their experts’ reports to deny a claim. Texas law on bad faith states that an insurer breaches its duty of good faith when: (1) denies or delays payment of a claim for which liability is reasonably clear, and (2) the insurer knew or should have known that liability was reasonably clear. For that reason, insurance companies often claim that because their retained experts decided that there was no valid insurance claim, liability was not reasonably clear and they should not be found liable for bad faith. Courts typically side with insurance companies on this issue, but sometimes the facts of a case require courts to doubt this argument, just as the Texas Supreme Court did in State Farm Lloyds vs. Nicolau, 951 S.W.2d 444 (Tex. 1997). 

In Nicolau, a homeowner filed a lawsuit against its insurer for foundation and other structural damage that resulted from a plumbing leak that introduced water into the clay subsoil. The insurer retained an expert, HAAG Engineering¸ to conduct a study on the homeowner’s claim. It was established in Nicolau that the insurer hired HAAG Engineering with the belief that HAAG Engineering generally believed that leaks beneath a house would not cause foundation movement. As expected, the HAAG engineer concluded that there was no damage near the leak, but evidence showed that his investigation was not thorough because: (1) he did not isolate the leak; (2) he failed to determine the leak’s severity; and (3) he did not take any soil samples. The HAAG report concluded that the plumbing leak had not caused the damage, and the insurer denied the claim based on the HAAG report.

The Texas Supreme Court stated that an insurer’s reliance upon an expert’s report alone will not necessarily shield the insurer from liability if there is evidence that the report was not objectively prepared or the insurer’s reliance was unreasonable. Overturning an intermediate appellate court decision, the Texas Supreme Court found that there was evidence to support the jury’s finding that the insurer denied the claim in bad faith because there was evidence from which the jury could infer that HAAG’s reports were not objectively prepared, that the insurer was aware of HAAG’s lack of objectivity, and that the insurer’s reliance on the reports was merely pretextual.

Nicolau reaffirmed the long-established idea that insurance companies cannot expect their experts’ reports alone to shield them from bad faith liability.

Insurance companies commonly deny claims.  Here are some of the biggest rationales of the insurance industry.

1. Routinely adjusts valid claims with a predisposition of denial instead of paying it.

2. They routinely obscure the truth to their insured(s).

3. They routinely lowball their insured(s).

4. They routinely "drag their feet" in paying justified claims when all the facts and evidence merit prompt payment.

5. They routinely force their insured(s) into litigation - and why not? They have an army of attorneys in any given state and it's often cheaper to fight/deny the claim(s) than to pay it/them.

6. They routinely "force" their insured(s) to retain counsel to represent their interests in the litigation process.