Bad Faith Claim in Texas Against Insurer Providing an Additional Insured Endorsement

In Coreslab Structures (Texas), Inc. v. Scottsdale Insurance Company, the plaintiff appealed after an insurer’s summary judgment motion was granted. His lawsuit had made claims for bad faith, breach of contract, and violations of the Prompt Payment of Claims Act. The case arose when a tower in Houston suffered water damage in two rain events. Two lawsuits were brought, and the claims for damages were more than $38 million. Claims were made by Memorial Hermann Hospital System, which owned the tower, against Coreslab Structures and its subcontractor. The lawsuits were consolidated.

Coreslab asked the subcontractor to defend it in connection with the lawsuits, demanding a defense as an additional insured under the subcontractor’s insurance policy. Scottsdale Insurance Company was the insurer that had issued the subcontractor’s commercial general liability policy. It notified Coreslab there was no additional insured coverage for Coreslab on the subcontractor’s policy.

Once Scottsdale refused to pay for Coreslab’s defense, Coreslab’s own insurer, Lexington, paid Coreslab’s defense attorney. Coreslab sued Scottsdale, claiming that it was an additional insured under the subcontractor’s policy. It asked the court for a declaratory judgment that Scottsdale owed it a duty to pay off the defense costs in the lawsuits, and it claimed statutory bad faith, breach of contract, and a Prompt Payment of Claims Act violation. The two lawsuits settled, and the trial court severed Coreslab’s claims so that they proceeded in a separate lawsuit.

The trial court ruled that Scottsdale owed a duty to defend Coreslab. After that, a portion of Coreslab’s defense costs were paid by Scottsdale. Nonetheless, Coreslab continued to try to get its attorney’s fees and expenses through the lawsuit against Scottsdale. The insurer filed a summary judgment motion, claiming that the total amount paid by Lexington and Scottsdale was more than Coreslab’s actual defense costs and its attorney’s fees in the lawsuit against Scottsdale. The insurer also argued that Coreslab couldn’t recover 18% interest as damages and that it wasn’t entitled to recover interest. The trial court granted the motion.

Coreslab appealed, arguing that the trial court was wrong in finding it was only entitled to a partial defense from Scottsdale. The appellate court explained that Scottsdale had submitted evidence proving that Lexington paid $825,642.32 to Coreslab’s defense counsel for attorney’s fees, and Coreslab didn’t disagree. Moreover, Scottsdale had paid $443,394.20 towards the attorney’s fees. This was disputed, and the evidence proved the insurer paid at least $409,509.53 to either the defense attorney or Lexington.

The appellate court explained that the Texas Supreme Court has held that when there are multiple policies of insurance on the same risk, and an insured recovers the total amount of loss from one of the insurance carriers but not all of them, it doesn’t have any more rights against the other insurers. The liability of those other insurers to the insured concludes, even if they didn’t do anything to defend or indemnify the insured.

It explained that even assuming Lexington should have paid less, and Scottsdale should have paid more, once the defense costs were fully paid, Coreslab’s right to recover ended. Coreslab argued that it had wanted Scottsdale to provide the full defense so that it could avoid adverse affects on its loss history and resulting changes to insurance premiums. However, it hadn’t submitted evidence on this point.

If you have a property insurance claim that you believe has been denied in bad faith by an insurer, contact the Hoch Law Firm at 1-800-828-5160 or through our online form.

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