The opinion
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
STATE AUTOMOBILE MUTUAL §
INSURANCE COMPANY, §
§
Plaintiff, §
§
v. § Civil Action No. 3:16-CV-2255-L
§
FREEHOLD MANAGEMENT, INC.; §
RETAIL PLAZAS, INC.; and §
RPI DENTON CENTER, LTD., §
§
Defendants. §
MEMORANDUM OPINION AND ORDER
Before the court is Defendants’ Amended Motion for Partial Summary Judgment on State
Auto’s Affirmative Defenses (Doc. 186), filed August 30, 2018; and State Automobile Mutual
Insurance Company’s Amended Motion for Summary Judgment (Doc. 193), filed August 30, 2018.
For the reasons herein explained, the court denies both parties’ summary judgment motions (Docs.
186, 193).
I. Factual and Procedural Background
On August 3, 2016, Plaintiff State Automobile Mutual Insurance Company (“Plaintiff” or
“State Auto”) filed this declaratory judgment action, pursuant to 28 U. S.C. § 2201 and 28 U. S.C.
§1332, against Defendants Freehold Management, Inc. (“Freehold”) and Retail Plazas, Inc.
(“Retail”), seeking a declaratory judgment regarding the parties’ rights and obligations under a
commercial insurance policy (“Policy”) issued by State Auto with a policy period of September 30,
2013, to September 30, 2014. At issue is whether roof damage alleged to have been sustained during
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a storm on April 3, 2014, to several properties located in a shopping center in Denton, Texas
(collectively, “Property”), is covered by the Policy. RPI Denton Center, Ltd. (“RPI”) was
subsequently allowed to join the action as a Defendant and Counterclaimant. The court refers
collectively to Freehold, Retail, and RPI as “Defendants” or “Freehold.”
Defendants have asserted counterclaims against State Auto based on theories of breach of
contract, violations of Chapters 541 and 542 of the Texas Insurance Code, violations of sections
17.46(5), (7), (12), and (20) of the Texas Deceptive Trade Practices Act (“DTPA”), and breach of
the duty of good faith and fair dealing under Texas common law. At the heart of these claims is
Defendants’ contention that State Auto failed to conduct an adequate and reasonable investigation
of their claim for additional damages before denying it, unreasonably delayed in denying their claim
for additional damages, used unfair claims settlement practices that involved the hiring of Haag
Engineering (“Haag”), an allegedly biased engineering firm, and failed to pay their claim for
additional damages after it knew or reasonably should have known, the claim for additional damages
was covered under the Policy. Plaintiff and Defendants have also both asserted a number of
affirmative defenses to each other’s claims.
Defendants originally countersued, seeking approximately $900,000. The parties agree that
State Auto paid Defendants $1,036,397.17 in 2014 for claimed damages that it determined were
covered under the Policy. Defendants, however, now contend that they are entitled to recover
approximately $16 million in additional damages to the Property under the Policy as a result of the
April 2014 storm.
On March 31, 2019, the court entered a memorandum opinion and order addressing the
parties’ various expert motions. As a result of this opinion, the testimony of several experts was
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excluded under Federal Rule of Civil Procedure 702 and Daubert v. Merrell Dow Pharmaceuticals,
Incorporated, 509 U.S. 579, 589 (1993), or Federal Rule of Civil Procedure 26. In their cross-
motions for summary judgment, which were filed before the court ruled on the parties’ expert
motions, the parties contend in part that they are entitled to judgment on the claims and defenses
asserted by the opposing party because the expert evidence relied on by the opposing party is
unreliable or inadmissible.
II. Summary Judgment Standard
Summary judgment shall be granted when the record shows that there is no genuine dispute
as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas
Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is “genuine”
if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary
judgment, the court is required to view all facts and inferences in the light most favorable to the
nonmoving party and resolve all disputed facts in favor of the nonmoving party. Boudreaux v. Swift
Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005). Further, a court “may not make credibility
determinations or weigh the evidence” in ruling on a motion for summary judgment. Reeves v.
Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477 U.S. at 254-55.
Once the moving party has made an initial showing that there is no evidence to support the
nonmoving party’s case, the party opposing the motion must come forward with competent summary
judgment evidence of the existence of a genuine dispute of material fact. Matsushita Elec. Indus.
Co. v. Zenith Radio, 475 U.S. 574, 586 (1986). On the other hand, “if the movant bears the burden
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of proof on an issue, either because he is the plaintiff or as a defendant he is asserting an affirmative
defense, he must establish beyond peradventure all of the essential elements of the claim or defense
to warrant judgment in his favor.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)
(emphasis in original). “[When] the record taken as a whole could not lead a rational trier of fact
to find for the nonmoving party, there is no ‘genuine [dispute] for trial.’” Matsushita, 475 U.S. at
587. (citation omitted). Mere conclusory allegations are not competent summary judgment
evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73
F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and
unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19
F.3d 1527, 1533 (5th Cir. 1994).
The party opposing summary judgment is required to identify specific evidence in the record
and to articulate the precise manner in which that evidence supports his or her claim. Ragas, 136
F.3d at 458. Rule 56 does not impose a duty on the court to “sift through the record in search of
evidence” to support the nonmovant’s opposition to the motion for summary judgment. Id.; see also
Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 & n.7 (5th Cir. 1992). “Only disputes over
facts that might affect the outcome of the suit under the governing laws will properly preclude the
entry of summary judgment.” Anderson, 477 U.S. at 248. Disputed fact issues that are “irrelevant
and unnecessary” will not be considered by a court in ruling on a summary judgment motion. Id.
If the nonmoving party fails to make a showing sufficient to establish the existence of an element
essential to its case and on which it will bear the burden of proof at trial, summary judgment must
be granted. Celotex, 477 U.S. at 322-23.
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III. Plaintiff’s Summary Judgment Motion
State Auto moves for summary judgment on Defendants’ counterclaims for breach of
contract, breach of the duty of good faith and fair dealing, and violations of Chapters 541 and 542
of the Texas Insurance Code and DTPA. State Auto contends that it is entitled to judgment on
Defendants’ breach of contract claim because it paid for covered losses and timely investigated
Defendants’ insurance claim; Defendants have not overcome their burden under the concurrent
causation doctrine of proving that the damages alleged were not caused by another event outside of
the Policy period or other matters expressly excluded under the Policy such as wear and tear,
cracking, inadequate maintenance, or water damage. In addition, State Auto asserts that Defendants
failed to adhere to unambiguous Policy requirements such as: (1) providing prompt notice of a claim
and submitting a sworn proof of loss within 91 days of a request by State Auto; (2) taking steps to
protect the covered Property from further damage and document expenses related to any mitigation
efforts; (3) cooperating with State Auto to investigate the insured’s claim.
State Auto contends that Defendants’ counterclaim for breach of the duty of good faith and
fair dealing also fails because such claims survive in the absence of a breach of contract by the
insurer. State Auto maintains that, even if the court determines that Defendants are able to produce
evidence demonstrating a breach of contract, they still cannot establish that State Auto acted in bad
faith in denying their claim, given that: (1) “it had a reasonable basis for denying or delaying
payment of Defendants’ ever-changing claim” and continuous revisions to their damage estimate
during the four years after the storm; (2) a bona fide dispute as to liability or coverage is not enough
to support a claim for bad faith, and it did not commit an act so extreme that it caused an
independent injury to Defendants; and (3) Defendants’ claim of bias by Haag, David Teasdale
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(“Teasdale”) of Haag, the engineering firm hired by State Auto to investigate Defendants’ claim, and
their contention that State Auto knowingly hired a biased engineer, are unsupported. Pl.’s S.J. Br.
9-11. Plaintiff contends that Defendants’ claims for alleged violations of the Texas Insurance Code
and the DTPA similarly fail, as the evidence refutes their contention that State Auto unreasonably
delayed the investigation of their claim, failed to properly investigate their claim, hired biased
consultants to assist with the investigation of their claim, and failed to pay for repair of Defendants’
Property and the entire amount agreed upon. In support of its summary judgment motion, State Auto
relies on the expert reports of Timothy Marshall and Teasdale.
Defendants object to Marshall’s and Teasdale’s expert reports on the grounds that they are
unsworn, unauthenticated, constitute hearsay, and include hearsay within hearsay. Defendants also
object to Plaintiff’s reliance on deposition testimony of Justin Kestner (“Kestner”), in light of the
magistrate judge’s ruling that Plaintiff could not use expert testimony from Kestner, who was not
designated timely.
In response to Plaintiff’s summary judgment arguments, Defendants contend that State Auto
is not entitled to judgment because it has established, by eyewitness testimony and its experts Gary
Treider (“Treider”) and Matt Phelps (“Phelps”), that the April 3, 2014 hail and windstorm caused
damage to the built-up gravel roofs of the Property. Defendants assert that there is no issue of
concurrent causation, and State Auto’s contention to the contrary is not supported by its pleadings
or evidence. Defendants contend that, under Texas law, arguments regarding concurrent causation,
policy exclusions, lack of a sworn proof of loss or other policy “conditions” alleged by State Auto
are affirmative defenses that must be pleaded and proved, and that State Auto waived any such
defenses by failing to plead them. Alternatively, Defendants assert that Treider’s and Phelps’s
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testimony rules out noncovered Policy perils as the cause of their damages; that they gave prompt
notice of their claim; that State Auto waived the proof of loss requirement for the built-up gravel
roofs; and that, in any event, State Auto has not shown that it was prejudiced by not receiving a proof
of loss within 91 days.
Regarding its breach of the duty of good faith and fair dealing claim, Defendants argue that
they do not have to prove an independent injury to recover. Defendants further assert that evidence
of Teasdale’s and Haag’s history of bias in other cases, State Auto’s knowledge that they had
previously been found to be biased in another case, and the inconsistencies in Teasdale’s report
support their contention that State Auto denied their claim without a reasonable basis. Defendants
also point to evidence, contending that State Auto hired and blindly relied on Teasdale to obtain a
favorable report on which it could deny their claim; that, shortly after hiring Teasdale, State Auto
retained litigation counsel to defeat coverage before even making a claims decision; and that
litigation counsel took control of the claims investigation and decision in this case. Finally,
Defendants contend that the evidence shows that, despite making multiple requests for proofs of loss,
State Auto adjuster Sherri King testified that she did not need the information to make a claims
decision.
With respect to their extra-contractual claims under the Texas Insurance Code and DTPA,
Defendants acknowledge that such claims have the same predicate for recovery as a bad faith claim
for a good faith and fair dealing violation, but they contend that an insurer’s good faith is not a
defense to violations of Chapter 542 in wrongfully delaying payment, and they have established a
valid bad faith claim. As a result, Defendants contend that State Auto is not entitled to judgment on
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their claims for alleged violations of the Texas Insurance Code and DTPA under Chapters 541 and
542.
As noted, the court granted the parties’ expert motions to exclude expert testimony by
Plaintiff’s experts Hallmark Roofing and Paul Nilles, as well as expert testimony by Defendants’
experts Phelps, Rocco Calaci, and Roger Grimm. As a result, the parties can no longer rely on expert
testimony by these persons to support their claims or defenses. The court also denied motions to
strike or exclude expert testimony by Defendants’ experts Treider and Carolyn Coleman and
Plaintiff’s experts Marshall. Because the parties continue to maintain in their summary judgment
submissions that the opposing party’s expert testimony is unreliable, the court revisited the parties’
expert motions and related submission in conjunction with reviewing their summary judgment
materials. Seeing now how the parties anticipate using their remaining experts to prove up their
claims and defenses, the court has some concerns regarding the opinions of the remaining experts
that were not addressed in its prior opinion that will require a Daubert hearing. For this reason and
because of other issues regarding the parties’ evidence and the manner in which it was presented,
the court determines that genuine disputes of material fact exist that preclude entry of judgment in
favor of Plaintiff on Defendants’ counterclaims for breach of contract, breach of the duty of good
faith and fair dealing, and violations of Chapters 541 and 542 of the Texas Insurance Code and
DTPA. The court, therefore, denies State Automobile Mutual Insurance Company’s Amended
Motion for Summary Judgment (Doc. 193).
IV. Defendants’ Summary Judgment Motion
Defendants move for summary judgment on Plaintiff’s affirmative defenses based on failure
to mitigate, damage occurring outside the policy period, and damage caused by faulty maintenance.
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Plaintiff disagrees and contends that the evidence establishes a lack of diligence on Defendants’ part
in pursuing repairs, for example, related to an ongoing problem with multiple leaks after the initial
April 3, 2014 storm, and an attempt by them to recover for damages caused by their failure to
mitigate. Plaintiff asserts that Defendants “grossly mischaracterize” the summary judgment
evidence, including expert testimony, or oversimplify what constitutes damage by ignoring wear and
tear that occurred outside the policy period and blistering not covered by the Policy. Additionally,
Plaintiff maintains that Defendants’ “fluid claims of damage” clearly demonstrate that there is a
genuine dispute of material fact regarding Defendants’ faulty maintenance of the Property after the
storm because, “if Defendants had conducted regular maintenance, then they would have discovered
the alleged extensive damage to the [Property] before its most recent estimate in 2018.” Pl.’s Resp.
8.
The court concludes, for similar reasons noted above with respect to Plaintiff’s summary
judgment motion, that Defendants’ Amended Motion for Partial Summary Judgment on State Auto’s
Affirmative Defenses (Doc. 186) should be and is hereby denied, as the issues raised by the parties
are better left for resolution at trial after the court conducts a Daubert hearing to determine whether
the remaining experts are qualified to give the opinions for which they have been designated, and
that their opinions are relevant and reliable to the issues at hand. In addition to its concerns
regarding expert testimony and the parties’ other evidence, the court believes that both parties have,
to some extent, mischaracterized the summary judgment evidence.
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V. Objections to Summary Judgment Evidence
The court has only considered evidence that is admissible pursuant to Rule 56 of the Federal
Rules of Civil Procedure and the summary judgment standard herein enunciated. Accordingly, the
objections are overruled as moot.
VI. Conclusion
For the reasons explained, the court concludes that genuine disputes of material fact exist
as to claims and defenses that are the subject of Plaintiff’s and Defendants’ motions such that
summary judgment in favor of either party on these claims and defenses is inappropriate. The court,
therefore, denies State Automobile Mutual Insurance Company’s Amended Motion for Summary
Judgment (Doc. 193); and denies Defendants’ Amended Motion for Partial Summary Judgment on
State Auto’s Affirmative Defenses (Doc. 186).
Further, rather than conducting a pretrial conference and selecting a jury on September 13,
2019, as indicated in a prior order entered by the court, the hearing on September 13, 2019, will be
used to conduct a Daubert hearing to determine whether the parties’ experts, who remain after the
court’s previous ruling on expert motions, are qualified and their opinions are relevant and reliable.
The parties must be prepared to present their respective expert witnesses and establish the
admissibility of the expert testimony expected to be offered during the trial under Rule 702 and
Daubert. By August 30, 2019, the parties shall also file, for the court’s consideration in advance
of the Daubert hearing, copies of the Rule 26 expert reports that were prepared by the experts who
are expected to testify at trial.
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It is so ordered this 22nd day of August, 2019.
“Sam A. Lindsay
United States District Judge
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