A Texas Court of Appeals held that evidence that an insurer attempted to pay an estimate of damages despite the parties’ agreement to a higher estimate was legally sufficient for a jury to find that an insurer knowingly violated the Texas Insurance Code. United National Insurance Company v. AMJ Investments, LLC, Cause No. 14-12-00941-CV (Tex. App.—Houston [14thDist.] June 26, 2014).
The insured’s building, insured for $4 million at replacement cost value, was damaged. After inspection of the loss, the insurer’s consultant created an estimate with which the public adjuster agreed. However, the insurer’s adjuster created a separate estimate that was $300,000 lower than the agreed estimate. The insurer then paid the insured the lower estimate. Because the insurer attempted to pay an amount less than the parties’ agreed estimate, the court found that sufficient evidence existed to support the jury’s finding that the insurer knowingly failed to settle the claim in good faith once liability was reasonably clear.
The insurer tried to set aside the award on several grounds, including that the insured presented no evidence that the estimated cost of repairs were “reasonable and necessary” as set forth in the Texas Supreme Court’s decision of McGinty v. Hennen, 372 S.W.3d 625 (Tex. 2012). The appellate court held that the jury was never asked whether the estimated cost of repairs were reasonable or necessary; that even so, all parties used the same software program to estimate damages and there was evidence that the parties agreed to rely upon the software’s pricing. The appellate court seemed to gloss over the greatest distinction which was that the Supreme Court in McGinty construed remedial damages in a construction contract and not actual cash value damages in an insurance contract. A dissent relied upon McGinty to find that estimates of repair costs alone do not constitute evidence that such repairs were reasonable and necessary, and so, evidence of the damage was insufficient.