Watson

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

MISTY WATSON and OLEN §

WATSON, §

§

Plaintiffs, §

§

v. § Civil Action No. 3:25-CV-2878-X

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STATE FARM LLOYDS, §

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Defendant. §

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant State Farm Lloyds’s (State Farm) motion for

summary judgment. After reviewing the motion, the briefing, and the applicable law,

the Court GRANTS IN PART and DENIES IN PART the motion. The Court

DISMISSES WITH PREJUDICE Plaintiffs Misty and Olen Watson’s (collectively

“the Watsons”) common law claim for breach of duty of good faith and fair dealing

and statutory claims under the Texas Insurance Code section 541.

I. Background

If you give a rat a water pipe, it might eat more than one. This is contract case

about whether the rodent infestation in the Watsons’s home was a single incident

under their policy or if each nibble constitutes a new incident.

During Christmas break of 2024, a rodent infestation in Watson’s home caused

a series of pipe leaks. The Watsons contacted State Farm, and State Farm promptly

denied coverage. Then the Watsons retained contractors to both mitigate and repair

the damage the rodents caused and make renovations to the property while the home

was under construction.

II. Legal Standard

District courts can grant summary judgment only if the movant shows “there

is no genuine dispute as to any material fact and the movant is entitled to judgment

as a matter of law.”1 A dispute “is genuine if the evidence is sufficient for a reasonable

jury to return a verdict for the nonmoving party.”2 If the movant presents a properly

supported motion, “the burden shifts to the nonmoving party to show that summary

judgment is inappropriate.”3 “[M]ere allegations or denials” will not suffice; nor will

“unsubstantiated or conclusory assertions that a fact [dispute] exists.”4 The

nonmovant must present “evidence sufficient to support a jury verdict.”5

III. Analysis

Watson’s complaint contains four claims: (1) breach of contract, (2) breach of

duty of good faith and fair dealing, (3) violations of the Texas Insurance Code section

541, and (4) violation of the Texas Insurance Code section 542. State Farm moves for

summary judgment on each claim. For the reasons explained below, the Court grants

in part the motion, and the remaining claims must go to trial.

1 FED. R. CIV. P. 56(a).

2 Goodson v. City of Corpus Christi, 202 F.3d 730, 735 (5th Cir. 2000) (cleaned up).

3 Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998).

4 Id.

5 Id.

A. Breach of Contract

State Farm asserts two bases to dismiss the Watsons’s breach of contract

claim. Both arguments fail.

First State Farm asserts that the rodent infestation does not qualify as one

“occurrence” under the policy. State Farm does not quote or cite the language of the

contract or any definition of “occurrence” in the policy. While generally “[w]hether

eight separate leaks occurring over a two week period constitute a single occurrence

under the Policy involves interpretation of policy language and applicable law, which

are questions for the Court,”6 the Court cannot perform that task in absence of

arguments based on the text of the policy itself. In this Court, the text is king, and

without arguments on the parties’ contractual definition of “occurrence” or the

context the term is issues, the Court cannot construe the phrase as a matter of law.

Accordingly, this argument fails.

Second, State Farm asserts that the Watsons did not segregate damages as to

covered and non-covered perils under the contract. Texas’s concurrent causation

doctrine instructs that “when covered and excluded perils combine to cause an injury,

the insured must present some evidence affording the jury a reasonable basis on

which to allocate the damage.”7

State Farm argues that the Watson fails to meet their burden because the

concurrent causation doctrine bars relief and because the Watsons do not segregate

6 Doc. 23 at 1.

7 Overstreet v. Allstate Vehicle & Prop. Ins., 34 F.4th 496, 498 (5th Cir. 2022) (cleaned up).

what damages were caused by each of the eight pipe leaks. But this argument relies

on the theory, which the Court rejects at this stage, that each pipe leak is a separate

occurrence. And the Watsons expressly disclaim recovery for all “condition[s]

identified during demolition regardless of cause.”8 So neither the failure to expressly

delineate the damages at this stage, nor the other repairs performed after State Farm

denied coverage warrant dismissal.

Here, on the evidence presented at summary judgment, a “reasonable jury

drawing all inferences in favor of the nonmoving party could arrive at a verdict in

[the Watsons’s] favor.”9 The Court will not permit recovery for remodels done during

the repair, but that issue cannot be resolved before the jury determines liability.

Thus, the Court DENIES the motion as to the Watsons’s breach of contract

claim.

B. Breach of Duty of Good Faith & Fair Dealing

Insurance companies have a duty to deal fairly and in good faith with an

insured in the processing of claims.10 A plaintiff may sue for a breach of this duty if

its insurer denies or delays its claim without any reasonable basis for the denial or

delay.11 But under Texas law, “[e]vidence establishing only a bona fide coverage

dispute does not demonstrate bad faith.”12 This means that “[a]s long as the insurer

8 Doc. 21 at 10.

9 Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1263 (5th Cir. 1991) (cleaned up).

10 Arnold v. Nat’l Cnty. Mut. Fire Ins., 725 S.W.2d 165, 167 (Tex. 1987).

11 Id.

12 Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins., 801 F.3d 512, 526 (5th Cir.

2015) (cleaned up).

has a reasonable basis to deny or delay payment of a claim, even if that basis is

eventually determined by the fact finder to be erroneous, the insurer is not liable for

the tort of bad faith.”13

Here, State Farm has carried its burden that established a bona fide coverage

dispute. First, it is undisputed that State Farm construed the policy to require each

pipe leak to be its own incident. And the Watsons’s response presents no evidence

that would otherwise raise a genuine fact dispute on its common law bad faith claim.

The Court therefore GRANTS State Farm’s Motion with respect to the Watsons’s

claim for duty of good faith and fair dealing claim.

C. Violation of the Texas Insurance Code Section 541

Texas courts have recognized the close relationship between common law bad

faith claims and the statutory bad faith claims found in the Texas Insurance Code

section 541. “Although these claims are individual causes of action which do not

depend on each other for support, Texas courts have clearly ruled that these

extra-contractual tort claims require the same predicate for recovery as bad faith

causes of action in Texas.”14 Stated otherwise, “[b]ecause the statutory and common

law standards are now the same, a finding that there is no common law violation as

a matter of law also eliminates the statutory claims alleged by plaintiffs in this

case.”15

13 Higginbotham v. State Farm Mut. Auto. Ins, 103 F.3d 456, 459 (5th Cir. 1997).

14 Id. at 460; TEX. INS. CODE § 541.001 et seq.

15 Avila v. State Farm Fire & Cas. Co., 147 F. Supp. 2d 570, 579 (W.D. Tex. 1999).

Therefore, the Court’s reasoning with respect to the Watsons’s common law

claim of breach of duty of good faith and fair dealing applies to the Watsons’s

statutory claims as well. Accordingly, the Court GRANTS State Farm’s Motion as

to the Watsons’s section 541 claim.

D. Violation of the Texas Insurance Code Section 542

Finally, State Farm seeks judgment as a matter of law on the Watsons’s claims

under section 542 of the Texas Insurance Code. State Farm only moved to dismiss

this claim because it asserts the breach of contract claim fails. But because the

Watsons’s breach of contract claim survives dismissal, so too does their section 542

claim. Accordingly, the Court DENIES the motion for summary judgment.

IV. Conclusion

For the above reasons, the Court GRANTS IN PART and DENIES IN PART

the motion for summary judgment. The Court DISMISSES WITH PREJUDICE

the Watsons’s common law duty of good faith and fair dealing claim and section 541

of Texas Insurance Code claim. The jury must decide the remaining claims—breach

of contract and section 542 of Texas Insurance Code claim.

IT ISSO ORDERED this 3rd day of September, 2026.

UNITED STATES DISTRICT JUDGE