# Mid-Continent Casualty Co. v. Eland Energy, Inc.

> District Court, N.D. Texas · June 14, 2011 · 795 F. Supp. 2d 493

URL: https://www.frixlaw.com/law-library/cases/2183539

## Case

- **Full name:** MID-CONTINENT CASUALTY COMPANY, Plaintiff-Counterdefendant, v. ELAND ENERGY, INC., Et Al., Defendants-Counterplaintiffs
- **Court:** District Court, N.D. Texas
- **Decided:** June 14, 2011
- **Citations:** 795 F. Supp. 2d 493; 2011 U.S. Dist. LEXIS 63493; 2011 WL 2417158
- **Precedential status:** Published
- **Opinion:** Opinion by Fitzwater
- **Judges:** Sidney A. Fitzwater
- **Cited by:** 14 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2183539

## Opinion text

MEMORANDUM OPINION AND ORDER
SIDNEY A. FITZWATER, Chief Judge.
This insurance litigation involves coverage and extra-contractual causes of action arising from the handling of claims made under commercial general liability and umbrella policies following Hurricanes Katrina and Rita. After the court narrowed the case through rulings on pretrial motions, the parties tried the balance of the lawsuit to a jury, which ruled partially in favor of the insurer and partially in favor of the insureds, and the court entered a judgment in accordance with the verdict. Both sides challenge the verdict and judgment by post-judgment motions that present these principal questions: whether Texas recognizes a claim for breach of duty of good faith and fair dealing in the third-party claims handling context presented here; whether the jury could reasonably have found in favor of the insureds on the grounds of their unfair settlement practices counterclaim that the jury decided in their favor; and whether the jury could reasonably have found against the insureds on their Hurricane Rita breach of contract counterclaim. For the reasons that follow, the court holds that the insureds are not entitled to relief on any counterclaim, and it enters an amended judgment in favor of the insurer.
I
A
To place this litigation and today’s decision in context, the court begins by re
*499
counting some of the pertinent background facts and procedural history, some of which it draws from its pretrial memorandum opinions and orders.
These consolidated cases concern insurance coverage and extra-contractual claims involving commercial general liability and umbrella policies that covered pollution incidents under an Oil
&
Gas Endorsement.
See Mid-Continent Cas. Co. v. Eland Energy, Inc.,
2009 WL 3074618 , at *1 (N.D.Tex. Mar. 30, 2009) (Fitzwater, C.J.)
(“Mid-Continent I”).
Plaintiffcounterdefendant Mid-Continent Casualty Co. (“Mid-Continent”) initiated this litigation by filing a declaratory judgment action against defendants-counterplaintiffs Eland Energy, Inc. and Sundown Energy LP (collectively, “Sundown,” unless the context otherwise requires). Shortly thereafter, Eland and Sundown filed suit asserting contractual and extra-contractual claims against Mid-Continent. After the two cases were consolidated, Mid-Continent was aligned as plaintiff-counter-defendant and Eland and Sundown as defendants-counterplaintiffs. The parties litigated the case at trial, however, as if Eland and Sundown were the plaintiffs and Mid-Continent the defendant.
The dispute between Sundown and Mid-Continent arose in connection with the escape of crude oil from storage tanks at Sundown’s oil and gas facility near Port Sulphur, Louisiana, following Hurricane Katrina, and from the escape of that oil from a containment boom constructed during the Hurricane Katrina cleanup operations, following Hurricane Rita.
Id.
Hurricane Katrina struck the Louisiana coast on August 29, 2005, and Hurricane Rita made landfall on September 24, 2005.
Id.
At all times pertinent to this litigation, Mid-Continent insured Sundown under a commercial general liability policy (“Primary Policy”) and an umbrella policy (“Umbrella Policy”).
Id.
at *2. The Primary Policy had limits of $1 million per occurrence and $2 million in the aggregate, and included a duty to defend.
Id.
An Oil
&
Gas Endorsement provided coverage for a “Pollution Incident.”
Id.
The Umbrella Policy had an aggregate limit of $5 million and included a right, but not a duty, to associate with an underlying insurer and the insured to defend.
Id.
The U.S. Coast Guard (“Coast Guard”) mandated that Sundown clean up the areas surrounding Sundown’s facility that were affected by the escape of crude oil.
Id.
at *1-2. Five lawsuits (the “Underlying Litigation”) — including
Blanchard,
a class action lawsuit — were filed against Sundown by neighboring property owners and commercial fishermen affected by the spillage of oil due to Hurricane Katrina.
Id.
at *2. Sundown tendered the Underlying Litigation to Mid-Continent for defense and indemnification, and Mid-Continent informed Sundown that it would provide a defense to the class action lawsuits subject to a reservation of rights.
Id.
Because of Mid-Continent’s reservation of rights, Sundown asserted that there was a conflict and that it was entitled to independent counsel.
Id.
Mid-Continent eventually agreed that Sundown could be represented by Jones, Walker, Waechter, Poitevent, Carrére & Denegre, L.L.P. (“Jones Walker”) and that Mid-Continent would reimburse Sundown for its attorney’s fees at Mid-Continent’s typical rates for appointed counsel.
Id.
Mid-Continent tendered the Primary Policy and Umbrella Policy limits to Sundown on March 22, 2006 and August 18, 2006, respectively.
Id.
Sundown informed Mid-Continent that it was placing its Hurricane Katrina cleanup claim “in abeyance” in order to use the insurance proceeds to pay for the class action lawsuits, and it declined to negotiate the checks.
Id.
Sundown sought to place its claim “in abey
*500
anee” so that it could pursue reimbursement for government-mandated cleanup costs from a fund established under the Oil Pollution Act of 1990 (“OPA Fund”).
Id.
at *3, *10. Sundown was concerned that, if Mid-Continent paid for Sundown’s cleanup costs, Mid-Continent would have no further duty to defend Sundown in the Underlying Litigation and, through its subrogation rights, would be entitled to any available reimbursement from the OPA Fund.
Id.
at *10. The court in
Mid-Continent I
held that Sundown did not have the right to place its cleanup claim “in abeyance,” and that Mid-Continent exhausted the limits of the Primary Policy when it tendered the $1 million check to Sundown.
Id.
at *11-12.
In
Mid-Continent Casualty Co. v. Eland Energy, Inc.,
No. 3:06-CV-1576-D (N.D.Tex. Oct. 22, 2009) (Fitzwater, C.J.)
(“Mid-Continent II
”), and
Mid-Continent Casualty Co. v. Eland Energy, Inc.,
2010 WL 610713 (N.D.Tex. Feb. 22, 2010) (Fitzwater, C.J.)
(“Mid-Continent IIP'),
the court held that Sundown had incurred $5,469,650.65 in covered cleanup costs by the time Mid-Continent tendered the Umbrella Policy limits, and that Mid-Continent’s $5 million tender fulfilled its obligations under the Umbrella Policy.
Mid-Continent II,
slip op. at 25;
Mid-Continent III,
2010 WL 610713 , at *1.
Sundown submitted a Hurricane Rita cleanup claim on July 12, 2006.
Mid-Continent I,
2009 WL 3074618 , at *30. Mid-Continent acknowledged receipt of the claim and stated that it was starting an investigation.
Id.
Mid-Continent denied the claim by letter dated July 19, 2007. Pretrial Order (“PTO”) ¶ 52. Mid-Continent stated that the Hurricane Rita claim was not covered because Sundown did not provide notice of the claim as soon as practicable, Hurricane Rita did not cause a second “Pollution Incident,” and Sundown did not provide notice of a government mandate for cleanup due to Hurricane Rita.
See
P. JMOL Resp. App. 10-11.
B
In
Mid-Continent I, II,
and
III,
the court granted in part and denied in part the summary judgment motions of both parties. Sundown’s remaining counterclaims were tried to a jury, which returned a verdict partially in favor of Sundown and partially in favor of Mid-Continent.
The court submitted the case to the jury on 13 questions. The first five pertained to Sundown’s Hurricane Rita contractual or extra-contractual counterclaims, the next five related to Sundown’s Hurricane Katrina contractual or extra-contractual counterclaims, and the final three concerned damages. The jury found the following:
• Sundown did not prove its Hurricane Rita duty to indemnify breach of contract counterclaim (Question No. i);
• Sundown did not prove its bad faith investigation counterclaim — that Mid-Continent failed to affirm or deny coverage of Sundown’s Hurricane Rita claim within a reasonable period of time, or that Mid-Continent refused to pay Sundown’s Hurricane Rita claim without conducting a reasonable investigation of the claim (Question No. 2);
1
• Sundown did not prove that Mid-Continent’s misrepresentation of the Primary Policy was a producing cause of damages to Sundown (Question No. 4);
2
*501
• Sundown proved its unfair settlement practices counterclaim as to Hurricane Katrina on five grounds: (1) Mid-Continent misrepresented to Sundown a material fact or policy provision relating to coverage at issue; (2) Mid-Continent failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when Mid-Continent’s liability had become reasonably clear; (3) Mid-Continent failed to provide promptly to Sundown a reasonable explanation of the factual and legal basis in the policy for Mid-Continent’s offer of a compromise settlement of a third-party claim; (4) Mid-Continent failed to affirm or deny coverage of Sundown’s claim within a reasonable time; and (5) Mid-Continent refused to pay Sundown’s claim without conducting a reasonable investigation of the claim (Question No. 6);
• with respect to the foregoing five grounds, Mid-Continent acted knowingly only as to ground (3) — when it failed to provide promptly to Sundown a reasonable explanation of the factual and legal basis in the policy for Mid-Continent’s offer of a compromise settlement of a third-party claim — but Mid-Continent did not act knowingly with respect to grounds (1), (2), (4), or (5) (Question No. 7);
• Sundown proved its breach of duty of good faith and fair dealing counterclaim as to two grounds: (1) Mid-Continent consciously undermined Sundown’s defense in the Underlying Litigation, which caused Sundown injury independent of Sundown’s policy claim, and (2) Mid-Continent failed to conduct a reasonable investigation of Sundown’s Hurricane Katrina claim, which caused Sundown injury independent of Sundown’s policy claim (Question No. 8);
• with respect to both of the foregoing grounds, Mid-Continent acted fraudulently, maliciously, or with gross negligence when it breached its duty of good faith and fair dealing (Question No. 9); and
• Sundown did not prove its Hurricane Katrina duty to defend breach of contract counterclaim as to two grounds: (1) Mid-Continent refused to pay for all of Sundown’s reasonable and necessary defense fees and costs, and (2) Mid-Continent attempted to control and exercise improper influence over the defense through its audits of legal bills (Question No. 10).
The jury found that Sundown was entitled to compensatory damages in the sum of $2 million for the increased cost of the
Blanchard
settlement (Question No. 11). The jury did not award
any
compensatory damages on any other basis, including for the following: Hurricane Rita cleanup costs; attorney’s fees that Sundown incurred cooperating with Mid-Continent’s Hurricane Rita investigation and researching and responding to Mid-Continent’s denial of the claim on grounds of late notice; the increased cost of settling another class action
(Isla);
the unreimbursed defense costs in the Underlying Litigation under Mid-Continent’s contractual duty to defend; or other damages for Mid-Continent’s breach of its duty of good faith and fair dealing.
The jury awarded Sundown $1.75 million in additional damages based on its findings that Mid-Continent had knowingly engaged in unfair settlement practices (Question No. 12). And the jury awarded Sundown $4.7 million in exemplary damages based on its findings that Mid-Continent had breached its duty of good faith and
*502
fair dealing and had done so fraudulently, maliciously, or with gross negligence (Question No. 13).
In sum, the jury found against Sundown on its Hurricane Rita duty to indemnify breach of contract counterclaim, Hurricane Rita bad faith investigation counterclaim, Hurricane Rita bad faith misrepresentation counterclaim, and Hurricane Katrina duty to defend breach of contract counterclaim. The jury found in Sundown’s favor on its Hurricane Katrina unfair settlement practices counterclaim and, in part, on its counterclaim that the violation was knowing. The jury also ruled in Sundown’s favor on its Hurricane Katrina breach of duty of good faith and fair dealing counterclaim, and it found that in breaching this duty, Mid-Continent had acted fraudulently, maliciously, or with gross negligence. The jury awarded Sundown $2 million in compensatory damages, $1.75 million in additional damages for Sundown’s unfair settlement practices counterclaim, and $4.7 million in exemplary damages for Sundown’s breach of duty of good faith and fair dealing counterclaim.
In post-judgment motions, Mid-Continent renews the motion for judgment as a matter of law that it made during trial, moves for a new trial (subject to its renewed motion for judgment as a matter of law), and moves to alter or amend the judgment (subject to its renewed motion for judgment as a matter of law and motion for new trial).
3
Sundown renews the motion for judgment as a matter of law that it made during trial.
4
II
The court turns first to Mid-Continent’s renewed motion for judgment as a matter of law under Fed.R.Civ.P. 50(b).
“A motion for judgment as a matter of law ‘challenges the legal sufficiency of the evidence to support the verdict.’ ”
Jacobs v. Tapscott,
516 F.Supp.2d 639, 643 (N.D.Tex.2007) (Fitzwater, J.) (quoting
Hodges v. Mack Trucks, Inc.,
474 F.3d 188, 195 (5th Cir.2006)),
aff'd,
277 Fed.Appx. 483 (5th Cir.2008).
Judgment as a matter of law is appropriate with respect to an issue if there is no legally sufficient evidentiary basis for a reasonable jury to find for a party on that issue. This occurs when the facts and inferences point so strongly and overwhelmingly in the movant’s favor that reasonable jurors could not reach a contrary verdict. In considering a Rule 50 motion, the court must review all of the evidence in the record, drawing all reasonable inferences in favor of the nonmoving party; the court may not make credibility determinations or weigh the evidence, as those are jury functions. In reviewing the record as a whole, the court must disregard all evidence favorable to the moving party that the jury is not required to believe. That is, the court should give credence to the evidence favoring the nonmovant as well as that evidence supporting the moving party that is uncontradicted and unimpeaehed, at least to the extent that that evidence comes from disinterested witnesses.
Brennan’s Inc. v. Dickie Brennan & Co.,
376 F.3d 356 , 362 (5th Cir.2004) (citations, brackets, and internal quotation marks omitted). “A jury verdict must stand unless there is a lack of substantial evidence, in the light most favorable to the successful party, to support the verdict.”
Am. Home Assurance Co. v. United Space Alli
*503
anee, LLC,
378 F.3d 482, 487 (5th Cir. 2004) (citation omitted).
Ill
Mid-Continent moves for judgment as a matter of law concerning the jury’s findings that Mid-Continent knowingly engaged in unfair settlement practices with respect to Hurricane Katrina and that Mid-Continent breached its duty of good faith and fair dealing and, in doing so, acted fraudulently, maliciously, or with gross negligence. The following facts developed during trial, viewed under the applicable standard,
see supra
§ II, or established under the PTO are pertinent to Mid-Continent’s motion and to the parts of the verdict that enable Sundown to recover from Mid-Continent.
Following Hurricanes Katrina and Rita, Sundown notified Mid-Continent of its claim for coverage and demanded defense and indemnification in the Underlying Litigation, including three class actions filed in the Eastern District of Louisiana. Under a reservation of rights, Mid-Continent undertook Sundown’s defense, appointing two Louisiana attorneys, Tony Clayton, Esquire (“Clayton”) and Paul Preston, Esquire (“Preston”), to defend Sundown in the Underlying Litigation. Sundown maintained that the reservation of rights created a conflict of interest between Sundown and Mid-Continent that entitled Sundown to choose its defense counsel. Mid-Continent eventually allowed Sundown to select its counsel, and Sundown chose Jones Walker. Mid-Continent and Sundown disagreed, however, about Jones Walker’s hourly rates. While this issue was being resolved, Clayton and Preston continued working secretly for Mid-Continent against Sundown’s wishes.
On October 7, 2005 Mid-Continent and Sundown met to discuss how the Underlying Litigation should be handled and the status of Sundown’s cleanup operations. During the meeting, Mary Frances Hermes (“Hermes”) of Sundown took notes, which Sundown introduced at trial. Michael Chernekoff, Esquire (“Chernekoff’), a Jones Walker partner who represented Sundown, testified that Preston and Clayton had expressed strong interest in visiting Port Sulphur to view the affected areas right away. Hermes testified that Carl Rosenblum, Esquire (“Rosenblum”), a Jones Walker partner who represented Sundown,
5
indicated that all decisions should be cleared through him and that Sundown wanted him to be the contact person.
Following the meeting, Rosenblum attempted to set up a time for Preston, Clayton, Rosenblum, and Steve Haltom (“Haltom”), a Mid-Continent Assistant Vice President and the Home Office Claim Supervisor, to visit the affected area, and Rosenblum agreed to accompany them on October 27, 2005. Three days before the visit, on October 24, 2005, Chernekoff and Rosenblum attempted to reach Haltom and Preston to advise them that Sundown had selected Jones Walker as its counsel and that the services of Preston and Clayton were no longer required. Chernekoff cancelled the visit to Port Sulphur, but he later learned that Preston and Clayton had made a visit despite the cancellation. When Chernekoff asked Haltom if he had sent Preston and Clayton to visit the site, Haltom apologized and admitted that he had. Chernekoff testified that at the October 7 meeting, everyone agreed and understood that Rosenblum would be the point person with respect to any visits to the facilities.
Mid-Continent directed Clayton and Preston to visit the areas affected by the oil spill, and when they did, they met with Chris Leopold (“Leopold”). Preston had
*504
learned of Leopold from Scott Yount, Esquire, an attorney who worked with Preston. Leopold owned a Dollar General store and a boat shed near the Sundown facility. Leopold testified that he had attempted to contact Sundown to discuss the cleanup of his property by knocking on the door of Sundown’s temporary trailer. Leopold told the person who answered the door that he wanted to have his property cleaned up. The person did not say anything and shut the door. Tom Hilton (“Hilton”), former operations manager for Sundown, testified that he learned of Leopold’s visit to the Sundown trailer from Mitch Thompson, Sundown’s on-site manager, and that Leopold wanted Sundown to take some action to clean up his property.
Mid-Continent sent Luther Holloway (“Holloway”) to evaluate and settle claims, and Holloway met with Leopold. Due to illness, Holloway was replaced by Dana Futrell (“Futrell”). Haltom hired Futrell as the adjuster to investigate and settle with Leopold and to establish a baseline for settling with other landowners. Leopold was completely dissatisfied with Futrell’s work, and he testified that he believed that Futrell was unqualified, incompetent, and “like a used car salesman trying to be an environmental adjuster.” Tr. 4A:52-53.
Unbeknownst to Sundown, Mid-Continent hired an environmental engineer, Dennis Lambert (“Lambert”), to test the soil on Leopold’s property. Lambert found two so-called “hot spots,” or areas of contamination, and he copied Leopold on the email to Mid-Continent relaying the test results. But Lambert’s analysis contained mistakes, and Mid-Continent asked Paul Muthig (“Muthig”) to review Lambert’s findings. Haltom explained that he understood from Muthig that Lambert had applied the wrong standard and had found “hot spots” in error. Muthig informed Mid-Continent that it was unlikely that the diesel spots on Leopold’s property originated from Sundown’s facility, which contained unrefined crude oil.
See
Tr. 8A:15 (“[Tjhere is no information to show that the minor amount of diesel range organics impacts in 8 percent of the soil samples taken by Lambert Engineers is in any way related to a crude oil release[J”)
Without consulting with or informing Sundown, Mid-Continent made a settlement offer of $54,536.00 to Leopold on June 2, 2006. Sundown learned of this offer on July 21, 2006 and demanded that it be immediately withdrawn. After Mid-Continent withdrew the offer, Leopold joined the
Blanchard
class action as a named class representative. Leopold had been provided the faulty Lambert testing, but he had not been given the corrected Muthig analysis. Leopold testified that Mid-Continent’s dealings with him could have had a ripple effect on the adjoining landowners and their dealings with Mid-Continent and Sundown. According to Sundown, Mid-Continent’s dealings with Leopold reeked havoc for Sundown in its defense of the
Blanchard
class action. The other two class actions were dismissed against Sundown, and Sundown paid nothing in exchange. But Sundown maintains that, had Mid-Continent not engaged in bad faith interference in the investigation and claims handling, Sundown would have settled the
Blanchard
case for no more than $1 million. Instead, Sundown ultimately paid $2 million to settle
Blanchard.
The jury found that $2 million represented the increased cost to Sundown of settling
Blanchard.
Of critical importance to Mid-Continent’s motion for judgment as a matter of law, the jury did not find that Sundown was entitled to compensatory damages for any other alleged injuries.
IV
Mid-Continent moves for judgment as a matter of law dismissing Sundown’s coun
*505
terclaim for breach of duty of good faith and fair dealing.
A
The jury found that Sundown proved its counterclaim for breach of duty of good faith and fair dealing on two grounds: (1) Mid-Continent consciously undermined Sundown’s defense in the Underlying Litigation,
6
which caused Sundown injury independent of its policy claim; and (2) Mid-Continent failed to conduct a reasonable investigation of Sundown’s Hurricane Katrina claim, which caused Sundown injury independent of its policy claim. Mid-Continent posits that Texas law does not provide a common law cause of action, other than under
Stowers
7
in the context of third-party
8
claims handling. It also contends that the evidence is legally insufficient for a reasonable jury to have found against Mid-Continent on this counterclaim. Mid-Continent maintains that the court should not have submitted a common law tort question to the jury because the only non
-Stoivers
liability of an insurer for handling a third-party claim is
statutory
liability under Tex. Ins. Code Ann. § 541.060 (a) (West 2003
&
Supp.2010), not
common law
liability for breaching a duty of good faith and fair dealing.
9
Sundown argued during and after trial that Mid-Continent breached its duty of good faith and fair dealing in its handling of third-party claims, in connection with Sundown’s Hurricane Katrina claim and the Underlying Litigation.
See
Ds. JMOL Resp. 22 (“[D]espite having complied with its payment obligations under the policy, in the course of its handling of the class actions, Mid-Continent committed extreme acts which culminated in Sundown’s having to pay $2 million in settlement on the
Blanchard
case.”). The court therefore addresses Mid-Continent’s motion on this ground as it pertains to a third-party insurance claim.
Mid-Continent contends that, because the court held in
Mid-Continent I
and the jury found that Mid-Continent did not breach the Primary Policy and the Um
*506
brella Policy in any respect, Mid-Continent cannot be held hable under the common law unless it committed an extreme act that caused Sundown injury unrelated to and independent of Sundown’s policy claim. The court instructed the jury that, under Texas law, an insured can recover for breach of the duty of good faith and fair dealing when an insurer commits some act, so extreme, that the act would cause injury independent of the claim. The court first asked the jury to decide whether Sundown had proved this claim on the ground that Mid-Continent had consciously undermined Sundown’s defense in the Underlying Litigation, and whether this conduct had caused Sundown injury independent of its policy claim. Mid-Continent argues that the court based this question on two decisions of the Supreme Court of Texas:
Republic Insurance Co. v. Stoker,
903 S.W.2d 338, 341 (Tex.1995), and
State Farm Mutual Automobile Insurance Co. v. Traver,
980 S.W.2d 625 (Tex.1998).
The Supreme Court of Texas stated in
Stoker
that the general rule that there can be no claim for bad faith when an insurer has promptly denied a claim that is in fact not covered does not exclude “the possibility that in denying the claim, the insurer may commit some act, so extreme, that would cause injury independent of the policy claim.”
Stoker,
903 S.W.2d at 341 (citation omitted). For ease of reference, the court will refer to this statement from
Stoker
as the
“Stoker
language.” And in
Traver
the court held that an insurer’s
Stowers
duty, coupled with rights provided under the insurance contract, generally protect an insured against an insurer’s erroneous refusal to defend a third-party claim against the insured.
Traver,
980 S.W.2d at 629 . But the court also stated that special circumstances were present in
Traver
because “the plaintiffs allegations are not that the insurer merely refused a defense, but that the insurer
consciously undermined
the insured’s defense.”
Id.
(emphasis added).
Mid-Continent contends that there is no recognized cause of action under Texas law that would support submitting this question to the jury or support the jury’s finding in favor of Sundown.
10
Mid-Continent maintains that the
Stoker
language is
dicta;
the
Stoker
language has never been applied by a Texas court; the
Stoker
language has never been applied by a federal court except in one distinguishable case; the
Traver
language is
dicta
and has never been applied by a federal or Texas court; and the
Stoker
language has been applied once by the Fifth Circuit in a distinguishable case.
Sundown responds that the jury question was properly based on
Stoker
and
Traver ,
and that this court recognized the
Stoker
language in
Nunn v. State Farm Mutual Automobile Insurance Co.,
729 F.Supp.2d 801 (N.D.Tex.2010) (Fitzwater, C.J.). Sundown argues that the
Stoker
and
Traver
factors apply precisely to the facts of this case: although Mid-Continent complied with its payment obligations under the policies, Mid-Continent committed extreme acts in the course of handling third-party claims that resulted in Sundown’s liability for $2 million for
*507
the increased cost of settling the
Blanchard
case. Sundown contends that the cases on which Mid-Continent relies— which address an insurer’s discretion to settle claims without the consent of the insured — are inapposite because Mid-Continent failed to conduct an objective investigation of Sundown’s liability, offered Leopold a settlement in order to exhaust policy limits and avoid paying for Sundown’s defense, and secreted all of its activities from Sundown. Sundown also argues that
Northwinds Abatement, Inc. v. Employers Insurance of Wausau,
258 F.3d 345 (5th Cir.2001), applied the
Stoker
language and is binding precedent.
B
In this diversity case that is governed by Texas law, the court must determine whether Texas recognizes a cause of action for breach of duty of good faith and fair dealing in the context of an insurer’s handling a third-party claim.
“
‘As
a general rule there can be no claim for bad faith when an insurer has promptly denied a claim that is in fact not covered.’ ”
Mid-Continent I,
2009 WL 3074618 , at *27 (quoting
Stoker,
903 S.W.2d at 341 ). In other words, if the insurer has not breached the insurance contract, the insurer is generally not liable under the common law. When handling a first-party claim, however, an insurer owes its insured a duty of good faith and fair dealing in the processing of the insured’s claim. “Under Texas law, an insurer owes a duty of good faith in handling its
insured’s own claim
of loss.”
Med. Care Am., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburg,
341 F.3d 415, 425 (5th Cir.2003) (emphasis added and citation omitted);
Vandeventer v. All Am. Life
&
Cas. Co.,
101 S.W.3d 703, 722 (Tex.App.2003, no pet.) (citing
Stoker
and noting that “Texas law has long recognized a common law duty of good faith and fair dealing in the context of processing and payment of claims under
first-party
insurance coverage” (emphasis added)). In the first-party claim context, an insurer “breaches its duty of good faith and fair dealing by denying a claim when the insurer’s liability has become reasonably clear[,]” although “a bona fide coverage dispute does not rise to the level of bad faith.”
Med. Care Am.,
341 F.3d at 425-26 (internal quotation marks and citations omitted).
But when handling a third-party claim, an insurer owes the insured no duty of good faith and fair dealing. “An insured, however, has no claim for bad faith premised on the insurer’s investigation or defense of a claim brought against it
by a third party.” Id.
at 425 (emphasis added and citations omitted);
see also Taylor v. Allstate Ins. Co.,
— S.W.3d -, -, 2011 WL 1233331, at *6 (Tex.App. Mar. 31, 2011, no pet.) (holding that insured’s claims against insurer arose out of its conduct in handling a third-party claim and that insured was fully protected by his contractual and
Stoivers
rights such that it was unnecessary for court to recognize cause of action for tortious interference in that context);
Fed. Ins. Co. v. Infoglide Corp.,
2006 WL 2050694 , at *15 (W.D.Tex. July 18, 2006) (noting that “Texas law on the issue of the viability of a claim for breach of the duty of good faith and fair dealing with respect to third party claims appears to be clear” and that courts have refused to recognize such a duty in handling third-party insurance claims). Rather, “[a]n insurer’s common law duty in this third party context is limited to the
Stowers
duty to protect the insured by accepting a reasonable settlement offer within policy limits.”
Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co.,
236 S.W.3d 765, 776 (Tex.2007) (citation omitted). “This is because ‘an insured is fully protected against his insurer’s refusal to defend or mishandling of a third-party claim by his contrac
*508
tual and
Stowers
rights,’ which give rise to causes of action sounding in contract and negligence.”
Med. Care Am.,
341 F.3d at 425 (quoting
Md. Ins. Co. v. Head Indus. Coatings & Servs., Inc.,
938 S.W.2d 27, 28-29 (Tex.1996)).
11
Texas law does not provide a cause of action for breach of the duty of good faith and fair dealing in the context of an insurer’s handling of a third-party claim. The court therefore holds that Sundown’s only common law remedy in the context of a third-party claim is under
Stowers. See, e.g., Liberty Mut. Ins.,
236 S.W.3d at 776 (holding that insurer’s common law duty to act reasonably when handling insured’s defense is limited to
Stowers
duty).
C
Sundown argues that the jury question was properly based on
Traver ,
and that the
Traver
factors apply precisely to the facts of this case. Sundown suggests that
Traver
provides an exception to the general prohibition against a claim for breach of good faith and fair dealing in the third-party claim context. Mid-Continent responds that the statement in
Traver
on which the court framed Question No. 8 is
dicta
and has never been applied by a state or federal court. It also contends that, in
Traver ,
the insurer purposely attempted to lose the insured’s case in an effort to avoid
Stowers
liability to another insured. Mid-Continent posits that it did the opposite in this case. Sundown does not respond to Mid-Continent’s argument that the “consciously undermine” language of
Traver
is
dicta;
it argues instead that the evidence supports the jury’s finding that Mid-Continent consciously undermined Sundown’s defense.
The court holds that the “consciously undermine” language in
Traver
is
dicta.
In
Traver
the plaintiff (“Traver”) sued his insurer (“State Farm”) alleging malpractice in State Farm’s defense of a personal injury claim, breach of duty of good faith and fair dealing, negligence, breach of duty to defend, breach of the
Stowers
duty, and violations of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”) and the Texas Insurance Code.
Traver,
980 S.W.2d at 626 . Traver was the executor for the estate of the insured, Mary Davidson.
Id.
The trial court granted summary judgment for State Farm on all grounds, and the court of appeals reversed and remanded the malpractice, DTPA, and Insurance Code claims, holding that an insurer is responsible for the malpractice of an attorney it provides an insured.
Id.
at 627 . The court of appeals also held that Traver could not recover on his claim for breach of the duty of good faith and fair dealing because “an insurer owes no duty of good faith to its insured in the context of a third-party liability claim.”
Id.
The Supreme Court of Texas reversed
*509
the judgment of the court of appeals, holding that an insurer is not vicariously liable for the malpractice of an attorney it provides an insured.
Id.
at 629 . Because Traver did not apply for a writ of error
on
his breach of good faith and fair dealing claim, the courts of appeals’ judgment was final in this respect.
Id.
On the issue of breach of duty of good faith and fan1 dealing, the court of appeals held that, “in the context of third-party insurers, Texas law recognizes only one tort duty, which is the duty stated in
Stowers.” Traver v. State Farm Mut. Auto. Ins. Co.,
930 S.W.2d 862, 870 (Tex.App. 1996) (citing
Soriano,
881 S.W.2d at 319 (“A ‘bad faith’ version of the duty to settle, like that imposed by some other jurisdictions, would presumably supplant the negligence standard recognized in
Stowers
.... [T]he
Stoivers
doctrine is the exclusive common-law remedy available to an insured in [the third-party claim] situation.”) (Cornyn, J., concurring)),
rev’d,
980 S.W.2d 625 (Tex.1998). Traver’s claim for breach of duty of good faith and fair dealing was not before the Texas Supreme Court, and it therefore had no basis to reverse the decision of the court of appeals in this respect. The Texas Supreme Court stated that “the court of appeals’ judgment regarding [the duty of good faith and fair dealing] is final.”
Traver,
980 S.W.2d at 629 .
Although the issue was not before it, the Texas Supreme Court noted that the facts of
Traver
were quite different from those in
Head Industrial,
in which the court held that the
Stowers
duty, together with the rights conferred by the insurance contract, were sufficient to protect the insured in the context of a third-party claim.
Id.
(citing
Head Industrial,
938 S.W.2d at 29 ). The
Traver
court surmised that the facts of
Traver
were different because, in
Head Industrial,
the plaintiff alleged that the insurer merely refused to defend him, and in
Traver
the plaintiff alleged that the insurer consciously undermined the insured’s defense.
Id.
Because the claim for breach of duty of good faith and fair dealing was not before the
Traver court,
its discussion of that claim is
dicta.
Likewise, Sundown has not cited, nor has the court found, any federal case citing or quoting
Traver’s
“consciously undermined” language or adopting it as a standard for imposing liability.
Traver
was decided in 1998, and in the ensuing years only one Texas court has mentioned the “consciously undermined” language.
See Southstar Corp. v. St. Paul Surplus Lines Ins. Co.,
42 S.W.3d 187, 192 (Tex.App.2001, no pet.). In
Southstar
the court noted that
Traver
distinguished its facts from those in
Head Industrial,
and the
Souths-tar
court concluded that “an insured who alleges
only
that the insurer wrongfully refused a defense is limited to bringing
Stowers
claims and claims under the insurance contract.”
Id.
Ultimately, the
Southstar
court held that “[b]ecause the act giving rise to liability for negligence is breach of the insurer’s duty to defend under the insurance agreement, [the insureds’] claims for negligence and gross negligence are barred as a matter of law.”
Id.
at 194.
Southstar
did not apply or discuss
Travels
“consciously undermine” language. Accordingly, this court holds that
Travels
language is
dicta
and is not a recognized basis in Texas law for imposing liability.
D
Sundown argues that a cause of action for breach of duty of good faith and fair dealing is available if Mid-Continent committed an extreme act that caused injury independent of the policy claim. It posits that the jury question was properly based on
Stoker ,
and that the
Stoker
factors apply precisely to the facts of this case.
*510
Stoker
does not provide Sundown a remedy in this case because, as the court will explain, (1)
Stoker
addressed a first-party insurance claim, and in that context a claim exists under Texas law for breach of duty of good faith and fair dealing; (2) the
Stoker
language is
dicta;
and (3)
Stoker
has never been applied by a Texas or federal court to find a breach of duty of good faith and fair dealing.
1
First,
Stoker
addressed a claim of breach of good faith and fair dealing in the context of a first-party insurance claim, not a third-party insurance claim. After a multiple-car accident, the Stokers submitted a claim to Republic Insurance Co. (“Republic”) to recover under their uninsured/underinsured vehicle coverage.
Stoker,
903 S.W.2d at 339 . Republic denied the Stokers’ uninsured motorist claim, and they sued Republic for breach of the insurance contract, breach of duty of good faith and fair dealing, and violations of the DTPA and the Texas Insurance Code.
Id.
Because the Stokers sought recovery for
their own loss,
their claim was a first-party claim.
See Lamar Homes,
242 S.W.3d at 17. The
Stoker
court stated that in handling an insured’s first-party claim, “[a]n insurer has a duty to deal fairly and in good faith with its insured in the processing and payment of claims.”
Stoker,
903 S.W.2d at 340 (citing
Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725
S.W.2d 165, 167 (Tex.1987)). And in the first-party context, the
Stoker
court stated that while “[a]s a general rule there can be no claim for bad faith when an insurer has promptly denied a claim that is in fact not covered,” it did not exclude the possibility that “in denying the claim, the insurer may commit some act, so extreme, that would cause injury independent of the policy claim.”
Id.
at 341 (citing
O’Malley v. U.S. Fid. & Guar. Co.,
776 F.2d 494, 500 (5th Cir.1985);
Aranda v. Ins. Co. of N. Am.,
748 S.W.2d 210, 214 (Tex.1988)).
As the court notes
swpra
at § IV(A), the relevant insurance claims in this case are third-party claims; Sundown complains that Mid-Continent’s handling of third-party claims damaged Sundown.
Stoker
says nothing regarding an insurer’s duty of good faith and fair dealing in its handling of third-party claims.
2
Mid-Continent also contends that the
Stoker
language is
dicta
and that it has been referred to as a “theoretical possibility.” The court agrees.
See SnyderGeneral Corp. v. Century Indem. Co.,
907 F.Supp. 991, 1006 (N.D.Tex.1995) (Fitzwater, J.) (“[T]he
[Stoker
] court also said, albeit in
dicta,
that there are exceptions [to the general rule]”),
ajfd in part and vacated in part on other grounds,
113 F.3d 536 (5th Cir.1997);
see also Toledo-Lucas Cnty. Port Auth. v. Axa Marine & Aviation Ins. Ltd.,
220 F.Supp.2d 868 , 874 n. 7 (N.D.Ohio 2002) (noting that the
Stoker
language is dicta),
rev’d on other grounds,
368 F.3d 524 (6th Cir.2004);
Gen. Star Indem. Co. v. Sherry Brooke Revocable Trust,
243 F.Supp.2d 605, 612 (W.D.Tex. 2001) (“[The insureds] hang their extra-contractual claims on a single line of
dictum
in
Stoker,
in which the Texas Supreme Court stated [the
Stoker
language]”);
Potomac Ins. Co. v. Woods,
1996 WL 450687 , at *6 (E.D.Tex. July 22, 1996) (“In dicta the
[Stoker
] court left open the theoretical possibility that in a case in which the insurer has no liability under the policy there could be a bad faith claim; however, the court made clear that only the most extreme acts could subject an insurer to bad faith liability.”);
Laas v. State Farm Mut. Auto. Ins. Co.,
2001 WL 1479228 , at *4 (Tex.App.2001, no pet.) (not designated for publication) (“Indeed, the supreme court in
Stoker ,
mentioned in
dicta
the possibility, that in denying a claim, an insurer might commit some act, so ex
*511
treme, there could be an injury independent of the policy claim.” (citation omitted)).
Courts, including the Texas Supreme Court, have referred to the
Stoker
language as expressing a possibility that the court contemplated but did not decide.
See, e.g., Stoker,
903 S.W.2d at 341 (noting possibility that insurer may commit an extreme act that causes injury independent of policy claim, but that “[tjhese circumstances are not present in this case.”);
Am. Motorists Ins. Co. v. Fodge,
63 S.W.3d 801, 804 (Tex.2001) (noting that the
Stoker
court “did not exclude the possibility” of an extreme act exception and “cited no examples”);
Provident Am. Ins. Co. v. Castaneda,
988 S.W.2d 189, 199 (Tex.1998) (describing the possible exception in
Stoker
as one that the
Stoker
court “contemplated”);
Gates v. State Farm Cnty. Mut. Ins. Co. of Tex.,
53 S.W.3d 826, 831 (Tex. App.2001, no pet.) (“The [insureds] rely on the following language from
Stoker
indicating a bad faith claim might exist ....
Assuming, without deciding,
an insurer in denying a claim may commit an act so extreme to cause an injury independent of the policy claim, we conclude an insured may not recover under this theory unless the insured can establish ‘extreme’ conduct by the insurer during the claims process.” (emphasis added)). “[T]he
Stoker
court did not find that any extreme act had occurred in that instance and
did not offer any insight
into what might be considered an extreme act justifying a bad faith finding.”
Valley Forge Ins. Co. v. Shah,
2009 WL 291080 , at *11 n. 84 (S.D.Tex. Jan. 30, 2009) (emphasis added) (citing
Stoker,
903 S.W.2d at 341 ).
The court therefore holds that
Stoker
language is
dicta
and expresses a mere possibility that bad faith liability could be imposed in regard to a first-party claim in specific circumstances that the Supreme Court of Texas has yet to identify.
3
Mid-Continent also maintains that the
Stoker
language has not been applied by any Texas court. Sundown does not directly respond to this allegation, focusing instead on the Fifth Circuit’s decision in
Northwinds.
Sundown has not cited, and the court has not located, any Texas decision that relies on the
Stoker
language to hold that an insurer can be liable based on a common law claim for breach of duty of good faith and fair dealing. Several Texas courts discuss the language used in
Stoker ,
and some appear to assume that it
could
apply, but none expressly holds that
Stoker
or the
Stoker
language creates a common law claim under the facts of a particular case.
In
Castaneda
the Supreme Court of Texas held that any “extreme” act by the insurer in handling the insured’s claim in that case did not cause any independent injury, “as
contemplated
in
Stoker.” Castaneda,
988 S.W.2d at 199 (emphasis added). The court premised this conclusion on the fact that the only damages awarded by the jury that were not policy benefits were for loss of credit reputation, and this loss stemmed from the denial of benefits.
Id.
In
Deschenes ex rel. Patton v. Farmers Insurance Exchange,
2002 WL 971911 (Tex.App. May 13, 2002, petdenied) (not designated for publication), the insured argued that he presented summary judgment evidence of extreme conduct sufficient to separate his breach of conduct claim from his bad faith claim.
Id.
at *4. The insured’s evidence included an affidavit by his attorney that the insurance agent gave the insured inappropriate information regarding coverage and failed to notify the insurer about a potentially serious claim.
Id.
The court implicitly held that the
Stoker
language might provide an exception but found that the summary
*512
judgment evidence failed to raise a fact issue as to extreme conduct.
Id.
In
Gates
the insured relied on language from
Stoker
“indicating a bad faith claim
might exist
despite the absence of a breach of the insurance policy[.]”
Gates,
53 S.W.3d at 831 (emphasis added). The court assumed
arguendo
that there could be a bad faith claim, but it held that the insured did not present sufficient evidence of an extreme act to create an issue of material fact that would ■ defeat summary judgment.
Id.
As evidence of the insurer’s extreme act, the insureds argued that the insurer breached an agreement entered into under Tex. R. Civ. P. 11 after litigation had begun.
Id.
The court affirmed the trial court’s award of summary judgment for the insurer because the insureds failed to point to any evidence of extreme conduct by the insurer during the claims process.
Id.
In
Betco Scaffolds Co. v. Houston United Casualty Insurance Co.,
29 S.W.3d 341 (Tex.App.2000, no pet.), the court implicitly assumed that the
Stoker
language could possibly provide an exception to the general rule, but it held that the insured’s allegation that the insurer committed spoliation of the claim file was not “so extreme as to cause [the insured] injury independent of its policy or bad faith claims.”
Id.
at 348 . The court therefore affirmed the judgment for the insurer.
Id.
12
The court has found no Texas state court that holds that a recovery is available under the
Stoker
language in the first-party claim context, much less in the context of handling of a third-party claim. Moreover, the Texas Supreme Court has noted that there are no examples of what conduct would result in such recovery, which confirms the absence of controlling authority.
See Fodge,
63 S.W.3d at 804 (noting that, in
Stoker ,
the court did not exclude the possibility that an insurer’s denial of a claim might be in bad faith if its conduct were extreme and produced damages unrelated to and independent of the policy claim but that the Texas Supreme Court “cited no examples”); see
also Shah,
2009 WL 291080 , at *11 n. 84 (“[T]he
Stoker
court did not find that any extreme act had occurred in that instance and did not offer any insight into what might be considered an extreme act justifying a bad faith finding.”). In
Potomac Insurance
the court noted that the
Stoker
court “hinted that wholesale failure to investigate might be the type of act that could expose an insurer to a meritorious bad faith claim.”
Potomac Ins.,
1996 WL 450687 , at *6 (citing
Stoker,
903 S.W.2d at 341 ;
SnyderGeneral,
907 F.Supp. at 1006 ).
4
Mid-Continent also posits that no federal court, other than the Fifth Circuit in Northwinds,
13
has applied the
Stoker
lan
*513
guage.
14
In
Shah
the Southern District of Texas noted that the
Stoker
court “left open the possibility that an insurer could act in bad faith in legitimately denying a claim
if
the insurer committed ‘some act, so
extreme,
that ... cause[d] injury independent of the policy claim.’ ”
Shah,
2009 WL 291080 , at *11 (quoting
Stoker,
903 S.W.2d at 341 ). The insured argued that the insurer’s “conduct has been extreme[;] it has caused independent injuries such as mental anguish, anxiety and concern over financial ruin, lost wages, and the cost of a defense, the cost to assert its contractual right to a defense, health issues and the like.”
Id.
(internal quotation marks and citation omitted). Although the
Shah
court agreed that the insured’s difficulty with the insurer’s claim processing had caused the insured misery and difficulty, it required that the insured “point to actions by [the insurer] that were extreme, rather than to the extreme nature of [the insured’s] alleged damages.”
Id.
In
General Star
the court characterized the insureds’ extra-contractual claims as hanging “on a single line of
dictum
in
Stoker ,
in which the Texas Supreme Court stated that it did not ‘exclude the possibility that in denying the claim, the insurer may commit some act, so extreme, that would cause injury independent of that claim.’ ”
Gen. Star,
243 F.Supp.2d at 612 (quoting
Stoker,
903 S.W.2d at 341 ). The insureds maintained that the
Stoker
language applied directly to their case because the insurer waited too long to investigate and deny their claim.
Id.
at 612-13. The court granted summary judgment for the insurer on the insureds’ extra-contractual claims because the insureds failed to provide evidence of causation or damages.
Id.
at 613. The court declined to recognize that there was a tort such as “bad faith unreasonable delay in denying a claim,” and it did not determine whether the insured presented sufficient evidence on that claim to survive a summary judgment motion.
Id.
In
Woods
the Eastern District of Texas acknowledged that
Stoker
“in dicta ... left open the theoretical possibility” of an exception to the general rule.
Woods,
1996 WL 450687 , at *6. The court held that because a detailed factual investigation was not required to properly deny the insured’s claim where the responsive pleading and requests for admission established a legal defense, the theoretical possibility of a
Stoker
exception for extreme conduct did not apply.
Id.
at *7. The court therefore granted the insurer’s motion for summary judgment as to the insured’s bad faith counterclaim.
Id.
15
In sum, no federal court (including
Northwinds,
as the court will explain below) has held that an insured can recover under the
Stoker
language for breach of
*514
duty of the duty of good faith and fair dealing.
E
Sundown maintains that
Northwinds
provides a cause of action under Texas law, is directly on point, and is controlling. According to Sundown, in
Northwinds
the insurer solicited another party to file a baseless claim against the insured. Sundown argues that the facts of the instant case fall under
Northwinds
because Mid-Continent sought out Leopold and encouraged him to make a baseless claim against Sundown, even though Mid-Continent had no evidence that any oil on Leopold’s property came from Sundown’s facility. For several reasons, the court disagrees with Sundown concerning the precedential value of
Northwinds.
First, the
Northwinds
panel did not hold that an exception to the general rule applied with respect to a claim for breach of duty of good faith and fair dealing. Second, although district courts must follow “a legally indistinguishable decision of the Fifth Circuit ... unless overruled
en banc
or by the United States Supreme Court,”
MCI Telecommunications Corp. v. United Showcase, Inc.,
847 F.Supp. 510, 512 (N.D.Tex.1994) (Fit2water, J.) (citation omitted), in a diversity case, this court is obligated “to follow subsequent state court decisions that are clearly contrary to a previous decision of [the Fifth Circuit].”
Farnham v. Bristow Helicopters, Inc.,
776 F.2d 535, 537 (5th Cir.1985) (citing
Broussard v. S. Pac. Transp. Co.,
665 F.2d 1387, 1389 (5th Cir.1982)). The Fifth Circuit decided
Northwinds
in July 2001. Several Texas cases decided after
Northwinds
indicate that the
Stoker
language is not well-established Texas law. Third,
Northwinds
is factually distinguishable from the present case.
1
Northwinds
did not apply the
Stoker
language in the context of a claim for breach of the duty of good faith and fair dealing. In
Northwinds
the panel discussed the
Stoker
language in a section entitled “STATUTORY CLAIMS,” and it permitted the insured to recover on its
statutory causes of action
under the DTPA and the Insurance Code.
See North-winds,
258 F.3d at 352-53 . The panel noted that the insured could have a statutory remedy even if the insured had no viable breach'of contract claim.
Id.
But the panel explained that “[w]here, as here,
there has been no ... violation of the duty of good faith and fair dealing,
the bar for establishing extra-contractual liability is high: the insurer must ‘commit some act, so extreme, that it would cause injury independent of the policy claim.’ ”
Id.
(quoting
Stoker,
903 S.W.2d at 341 ) (emphasis added). The panel therefore mentioned the
Stoker
language in affirming the insurer’s liability under the Insurance Code and the DTPA (extra-contractual remedies) in the absence of a breach of contract remedy and in light of the insured’s extreme acts. The panel did not allow for or apply an exception to the general rule that there is no cause of action for breach of duty of good faith and fair dealing. This court therefore concludes that
Northwinds
does not hold that the
Stoker
language provides an exception to the general rule that there is no cause of action for breach of duty of good faith and fair dealing in the third-party claims handling context.
2
Moreover, even if
Northwinds
applied the
Stoker
language in the third-party claims handling context, several Texas cases decided after
Northwinds
indicate that the
Stoker
language is not well-established Texas law.
*515
In 2005, the Texas Supreme Court decided
Progressive County Mutual Insurance Co. v. Boyd,
177 S.W.3d 919 (Tex. 2005). The court stated: “ [w]e have
left open the possibility
that an insurer’s denial of a claim it was not obliged to pay might nevertheless be in bad faith if its conduct was extreme and produced damages unrelated to and independent of the policy claim.”
Id.
at 922 (emphasis added) (citing
Stoker,
903 S.W.2d at 341 ). Boyd— which was decided several years after
Northwinds
— does not mention
North-winds,
and it characterizes liability under the
Stoker
language as a mere “possibility.”
Likewise, the Texas Supreme Court decided
Fodge
in November 2001, four months after the Fifth Circuit decided
Northwinds. Fodge
observed that “[in
Stoker
], we did not exclude the possibility that an insurer’s denial of a claim it was not obliged to pay might nevertheless be in bad faith if its conduct were ‘extreme’ and produced damages unrelated to and independent of the policy claim. We cited no examples.”
Fodge,
63 S.W.3d at 804 (quoting
Stoker,
903 S.W.2d at 341 ). Like
Boyd, Fodge
did not mention
Northwinds.
And
Fodge
seemed to emphasize the undeveloped state of the doctrine by highlighting the absence of cited examples in
Stoker
of what would qualify as bad faith conduct.
Three decisions of Texas courts of appeals issued after
Northwinds
indicate that the
Stoker
language is not well-established Texas law, and none mentions
Northwinds: Laas,
decided in November 2001;
Gates ,
decided in August 2001; and
Crocker v. American National General Insurance Co.,
211 S.W.3d 928 (Tex.App. 2007, no pet.), decided in January 2007.
See Laas,
2001 WL 1479228 , at *4 (“Indeed, the supreme court in
Stoker ,
mentioned in dicta the possibility, that in denying a claim, an insurer might commit some act, so extreme, there could be an injury independent of the policy claim.”);
Gates,
53 S.W.3d at 831-32 (noting that
Stoker
indicated that bad faith claim might exist despite absence of breach of insurance contract and “[ajssuming,
without deciding,
an insurer in denying a claim may commit an act so extreme to cause an injury independent of the policy claim”) (emphasis added);
Crocker,
211 S.W.3d at 936 (noting that although “the court in
Stoker
did not exclude ‘the possibility that in denying the claim, the insurer may commit some act, so extreme, that it would cause injury independent of the policy claim,’ ” the insureds did not argue that such exception applied).
16
*516
Based on the decisions of the Supreme Court of Texas that mention the
Stoker
language and the decisions of Texas courts of appeals that have addressed the question, the court holds that there is no cause of action against an insurer for breach of duty of good faith and fair dealing in the context of third-party claims handling under Texas law. The common law remedies available in this context are limited to
Stowers
claims and breach of contract claims.
3
Even if the court assumes
arguendo
that such a cause of action is available under
Northwinds,
the facts of
Northwinds
are materially distinguishable from those of this case.
In
Northwinds
a company (“North-winds”) in the asbestos abatement business obtained workers’ compensation insurance from the Texas Workers’ Compensation Insurance Facility (the “Facility”).
Northwinds,
258 F.3d at 348 . Employers Insurance of Wausau (“Wausau”) was the designated servicing company that issued North-winds’ policy.
Id.
Essentially, the Facility was the insurer and divided reinsurance liability in proportion to the premiums received by each member (e.g., Wausau), and Wausau was the servicer and issued the policy, investigated, reported, and paid claims, and provided legal support under the policy.
Id.
at 348 & n. 2.
Northwinds sued Wausau for mishandling workers’ compensation claims filed by Northwinds employees, specifically alleging that Wausau paid the claims without investigating them, resulting in increased insurance premiums for North-winds and lost business due to customer perception that Northwinds was a safety risk.
Id.
at 348 . Northwinds also sued for defense costs it had incurred in defending a baseless suit brought against it by the Facility at Wausau’s prompting.
Id.
at 349 . The jury found in favor of Northwinds on several claims and awarded damages for,
inter alia,
North-winds’ attorney’s fees incurred in defending the lawsuit brought by the Facility.
Id.
The Fifth Circuit held that Northwinds could not recover under Texas law on its common law claims for negligent claims handling and fraud on the contract.
Id.
at 352 . Texas law does not recognize either cause of action unless the defendant’s conduct “ ‘would give rise to liability independent of the fact that a contract exists between the parties [such that] the plaintiffs claim may
also
sound in tort.’ ”
Id.
(quoting
Sw. Bell Tel. Co. v. DeLanney,
809 S.W.2d 493, 494 (Tex.1991)). North-winds’ common law claims were based on the allegation that Wausau falsely stated that it was fully investigating the workers’ compensation claims, and on the damages Northwinds suffered when it was unable to contest the claims.
Id.
The panel held that Wausau could not be held liable for common law claims because “[n]o liability independent of the contractual duty to handle claims exists as a result of this false statement.”
Id.
In addressing the statutory claims under the DTPA and the Insurance Code, the panel essentially restated the
Stoker
language. It held that “[w]here, as here, there has been no breach of contract or violation of the duty of good faith and fair dealing,
the bar for establishing extra-contractual liability is high:
the insurer must ‘commit some act, so extreme that [it] would cause injury independent of the poli
*517
cy claim.’”
Id.
at 353 (emphasis added) (quoting
Stoker,
903 S.W.2d at 341 ). The panel explained its rationale for upholding the verdict under the
Stoker
standard:
Wausau’s successful efforts to persuade the Facility to sue Northwinds baselessly involved acts that a reasonable jury could find extreme, and they clearly caused Northwinds extra-contractual damages, as the company had to spend over $55,000 defending itself against the lawsuit. Examined under the deferential standard of appellate review, the evidence supports the finding of an extreme extra-contractual act sufficient to satisfy the
Stoker
standard.
Id.
The
Northwinds
panel affirmed the verdict in this respect because Wausau had successfully encouraged the Facility (the insurer) to baselessly sue Northwinds (the insured). This “extreme act” by Wausau was entirely unrelated to Wausau’s handling of the underlying workers’ compensation claims about which Northwinds complained. Northwinds sued Wausau, complaining of Wausau’s handling of four workers’ compensation claims, and,
independently,
of Wausau’s encouragement of the baseless suit by the Facility against Northwinds, which Northwinds spent over $55,000 to defend. It is clear that Wausau’s conduct in prompting the Facility to sue its insured (Northwinds) had nothing to do with Wausau’s claims processing, settlement practices, or anything related to the underlying workers’ compensation claims.
The present case is distinguishable from
Northwinds.
Sundown contends that Mid-Continent encouraged third-party claims against Sundown and made unreasonable offers to third-parties for the sole purpose of terminating defense costs. According to Sundown, Mid-Continent intentionally deceived Sundown, which led it to assert an Act of God defense to the class actions, and kept Sundown in the dark when disseminating erroneous test results, estimating worst-case scenarios, and making exorbitant settlement offers to putative class members. Sundown asserts that Mid-Continent designed its investigation (presumably of Leopold’s property) to prove a manufactured claim rather than to determine the true facts. Sundown maintains that the jury found that Mid-Continent knew exactly what it was doing and that its conduct was wrong, and found that Mid-Continent failed to comply with its duty of good faith and fair dealing when it made the Leopold offer for purposes of exhausting policy limits and terminating defense costs.
Assuming
arguendo
that these are extreme acts under the
Stoker
language,
Northwinds
is distinguishable because Northwinds suffered injury that was entirely independent and separate from Wausau’s handling of Northwinds’ workers’ compensation claims. In
Northwinds
the servicing company (Wausau) persuaded the insurer (the Facility) to baselessly sue the insured (Northwinds). North-winds in turn sued Wausau, not only for its handling of the workers’ compensation claims, but also for prompting the Facility to file a lawsuit against Northwinds that caused it to suffer an injury (defense costs) that was completely unrelated to the workers’ compensation claims. In contrast to
Northwinds,
Sundown does not rely on actions by Mid-Continent or injuries by Sundown that are independent of Sundown’s policy claim. Sundown tendered
Blanchard
to Mid-Continent and requested defense and indemnification on September 23, 2005.
See
PTO 21 ¶ 20. Sundown complains that, in handling third-party claims against Sundown, Mid-Continent acted unreasonably in its investigation and in making offers to third parties (namely, Leopold). In fact, Sundown specifically argues that Mid-Continent acted with the purpose of exhausting Sundown’s
policy
*518
limits.
All of the behavior by Mid-Continent of which Sundown complains, and Sundown’s alleged injuries, flow directly from Mid-Continent’s handling of third-party claims pursuant to its defense and indemnification of Sundown under the insurance policies. And, unlike the plaintiff in
Northmnds,
Sundown does not assert that Mid-Continent encouraged a party to sue Sundown for purposes unrelated to Mid-Continent’s defense and indemnification of Sundown; rather, Sundown alleges that Mid-Continent incited and encouraged third parties to sue Sundown for injuries that were the subject of the insurance policies.
The court therefore holds that, even if Texas law recognizes a cause of action for breach of the duty of good faith and fair dealing in the third-party claims handling context, and even if the court assumes that Mid-Continent committed an extreme act, Mid-Continent is not liable under
Stoker
because there is legally insufficient evidence that Sundown suffered an injury independent of the policy claim.
17
F
For the foregoing reasons, the court holds as a matter of law that Sundown cannot recover from Mid-Continent on its counterclaim for breach of the duty of good faith and fair dealing. The court therefore grants Mid-Continent’s motion for judgment as a matter of law. Because Sundown cannot recover under Texas law for breach of duty of good faith and fair dealing, and because the award of $4.7 million in exemplary damages is predicated entirely upon this counterclaim, it follows that Mid-Continent is entitled to judgment as a matter of law vacating the award of exemplary damages.
V
Mid-Continent moves for judgment as a matter of law dismissing Sundown’s statutory unfair settlement practices counterclaim.
A
The jury found that Mid-Continent engaged in unfair settlement practices in the investigation and handling of Sundown’s Hurricane Katrina claim, in violation of Tex. Ins.Code Ann. § 541.060(a). The verdict is based on five separate grounds that are unlawful acts or omissions under § 541.060(a)(1), (2)(A), (3), (4)(A), and (7). The jury also found that each ground was a producing cause of damages to Sundown.
18
Mid-Continent maintains that it is entitled to judgment as a matter of law because the evidence is legally insufficient for a reasonable jury to find in Sundown’s favor on any ground, or to find that any violation of § 541.060(a) was a producing cause of damages to Sundown.
The court begins by briefly recounting the facts pertinent to Sundown’s unfair settlement practices counterclaim. In doing so, the court views the evidence in the light most favorable to Sundown, draws all reasonable inferences in favor of Sundown, and disregards all evidence favorable to Mid-Continent that the jury was not required to believe. As the court has already explained,
see supra
§ III, following Hurricanes Katrina and Rita, Sundown notified Mid-Continent of its claim for coverage and demanded defense and indemnification in the Underlying Litigation,
*519
including three class actions filed in the Eastern District of Louisiana. Under a reservation of rights, Mid-Continent undertook Sundown’s defense, appointing two Louisiana attorneys, Clayton and Preston, to defend Sundown. Sundown maintained that the reservation of.rights created a conflict of interest between Sundown and Mid-Continent that entitled Sundown to choose its defense counsel. Mid-Continent eventually allowed Sundown to select its counsel, and Sundown chose Jones Walker. Mid-Continent and Sundown disagreed, however, about Jones Walker’s hourly rates. While this issue was being resolved, Clayton and Preston continued working secretly for Mid-Continent against Sundown’s wishes. Mid-Continent directed Clayton and Preston to visit the areas affected by the oil spill, and they met with persons who could become members of a class action. Mid-Continent sent adjusters to evaluate and settle claims, and the adjusters met with Leopold. One adjuster evaluated Leopold’s claim and set a baseline to serve as a model for evaluating other landowners’ claims. Mid-Continent secretly hired Lambert, an environmental engineer, to test the soil on Leopold’s property. Lambert’s analysis contained mistakes, and Mid-Continent arranged for his findings to be reviewed by an expert, Muthig. Muthig explained to Mid-Continent that it was impossible for the diesel spots on Leopold’s property to have come from Sundown’s property. Without consulting or informing Sundown, Mid-Continent made a settlement offer of $54,536.00 to Leopold on June 2, 2006. Sundown learned of this offer on July 21, 2006, and Robin McGuire, Esquire (“McGuire”), Sundown’s General Counsel, demanded that the offer be withdrawn. Mid-Continent withdrew the offer, and Leopold joined the
Blanchard
class action as a named class representative. Leopold had been given the faulty Lambert testing but not the Muthig report. Sundown argues that Mid-Continent’s dealings with Leopold wreaked havoc for Sundown in its defense in
Blanchard,
and that, but for Mid-Continent’s bad faith interference in the investigation and claims handling, Sundown would have settled
Blanchard
for at most $1 million. Sundown ultimately settled
Blanchard
for $2 million.
B
As a preliminary matter, the court holds that Sundown did not adduce evidence that would have enabled a reasonable jury to find a causal link between any action of Mid-Continent and the increased cost of the
Blanchard
settlement. The jury found that Sundown proved its unfair settlement practices counterclaim as to Hurricane Katrina on five grounds: (1) Mid-Continent misrepresented to Sundown a material fact or policy provision relating to coverage at issue; (2) Mid-Continent failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when Mid-Continent’s liability had become reasonably clear; (3) Mid-Continent failed to provide promptly to Sundown a reasonable explanation of the factual and legal basis in the policy for Mid-Continent’s offer of a compromise settlement of a third-party claim; (4) Mid-Continent failed to affirm or deny coverage of Sundown’s claim within a reasonable time; and (5) Mid-Continent refused to pay Sundown’s claim without conducting a reasonable investigation of the claim. The jury also found that each ground was the producing cause of the increased cost of the
Blanchard
settlement.
19
Although the court will discuss
*520
below the absence of evidence of producing cause as to specific grounds, the court concludes at a general level that Sundown failed to adduce legally sufficient evidence from which a reasonable jury could have found that any of Mid-Continent’s actions was the producing cause of the increased cost of the
Blanchard
settlement.
In sum, and as explained more fully below, Sundown generally complains that, because of Mid-Continent’s activities, Sundown was unaware of the complete circumstances surrounding the Leopold offer. Sundown maintains that, but for Mid-Continent’s misconduct, Sundown would have had the opportunity to discuss the offer with Leopold and to persuade him not to join the
Blanchard
class, not to become the
Blanchard
class representative, and not to discuss his offer with his neighbors or other class members. Sundown suggests that, had it been given that opportunity, it would have been able to settle
Blanchard
for less than $2 million. Sundown did not adduce any evidence, however, from which a reasonable jury could have found that, given the opportunity and the information it needed, and without any interference from Mid-Continent, Sundown would have been successful in its attempts to discuss the offer with Leopold or to persuade Leopold not to join the
Blanchard
class, not to become the class representative, or not to discuss his offer with others. In other words, although Sundown argued that it
would have tried
to accomplish these goals, it offered no evidence from which a reasonable jury could have found it more likely than not that Sundown would have succeeded. Moreover, Sundown’s motivation to settle
Blanchard
was not solely based on Mid-Continent’s investigation of the damage to Leopold’s property and the Leopold offer. McGuire testified that one reason Sundown settled
Blanchard
was out of concern about jury sympathy for hurricane victims.
See
Tr. 6A:87.
The court therefore holds that Sundown failed to produce evidence from which a reasonable jury could have found that Mid-Continent’s actions were a producing cause of the
Blanchard
case’s settling for $2 million rather than for a lesser sum.
C
The court now addresses the jury’s finding that Mid-Continent violated the Texas Insurance Code on five grounds.
1
The jury found in ground one that Mid-Continent misrepresented a material fact or policy provision relating to the coverage at issue, and that this was a producing cause of damages to Sundown in the form of the increased cost of the
Blanchard
settlement.
20
Such a misrepresentation is a violation of Tex. Ins.Code Ann. § 541.060(a)(1).
21
The court instructed the jury:
Misrepresenting to a claimant a material fact or policy provision relating to the coverage at issue includes: (1) making an untrue statement of material fact; (2)
*521
failing to state a material fact that is necessary to make other statements not misleading, considering the circumstances under which the statements are made; (3) making any statement in such a manner as to mislead a reasonably prudent person to a false conclusion of a material fact; or (4) making a material misstatement of law.
22
Charge at 13.
Sundown argues in response that the trial record contains ample evidence of untrue statements, misleading omissions, misleading statements, and material misstatements of law made by Mid-Continent. Sundown avers that Mid-Continent made at least four misrepresentations:
23
first, Mid-Continent misstated the law when it failed to acknowledge a conflict of interest between Mid-Continent and Sundown that Mid-Continent created by its reservation of rights letters; second, Mid-Continent made a misrepresentation when it stated that it did not pay more than $200 per hour for Louisiana lawyers; third, Mid-Continent misstated the law when it told Sundown there was no coverage for Hurricane Katrina cleanup costs unless Sundown could produce a written order from the Coast Guard; and, fourth, Mid-Continent misstated the law when it maintained that it had an unavoidable duty to investigate Leopold’s claim.
Mid-Continent posits that there is legally insufficient evidence that it made any misrepresentation of a material fact or policy provision relating to the coverage at issue or that any misrepresentation was a producing cause of the increased cost of the
Blanchard
settlement.
2
After Mid-Continent moved during trial for judgment as a matter of law, the court asked Sundown to state the evidentiary basis for each ground of its unfair settlement practices counterclaim.
See
Tr. 9A:48. Sundown responded that ground one is based on Mid-Continent’s repeated representations to Sundown that no conflict of interest existed that would permit Sundown to select its own counsel at Mid-Continent’s expense, and that it would only accept counsel selected by Sundown under certain conditions, such as with limited hourly rates and review of attorney bills by an independent billing review company.
See
Tr. 9A:50.
The parties stipulated in the PTO that, by letter dated October 24, 2005, Sundown advised Mid-Continent of its position that the reservation of rights letters created a conflict of interest sufficient to allow Sundown to retain counsel of its choosing at Mid-Continent’s expense.
See
PTO 22 ¶ 31. Essentially, Sundown posits that Haltom misrepresented to Sundown that no conflict of interest existed, even though Mid-Continent created a conflict of interest by the reservation of rights letters.
During the testimony of Gregg Allen (“Allen”), an owner of Sundown, Mid-Con
*522
tinent introduced a reservation of rights letter dated October 6, 2005. Mid-Continent stated in the letter that “this
[Blanch
ard] defense is being provided under a Reservation of Rights as to the terms and conditions of the policies issued by [Mid-Continent.]” P. Exh. 49 at 1. Sundown asked Allen about an October 24, 2005 letter from Sundown to Mid-Continent in which Sundown stated that it had reviewed six reservation of rights letters that Mid-Continent had sent, and that Mid-Continent had a conflict of interest. In response, Mid-Continent stated in an October 31, 2005 letter that it did not see such a conflict of interest. Haltom also testified that Mid-Continent never admitted that there was a conflict. Because the court holds that a reasonable jury could not have found that any such misrepresentation was a producing cause of the increased cost of the
Blanchard
settlement,
see infra
§ V(C)(3), the court assumes
arguendo
that Mid-Continent misrepresented to Sundown that there was no conflict of interest.
Sundown also argued at trial that Mid-Continent misrepresented the rates it would agree to pay for Sundown’s counsel. Sundown retained Jones Walker to defend it in the Underlying Litigation, and Sundown and Mid-Continent disagreed regarding how much Mid-Continent would pay these attorneys. Sundown decided that it would pay Jones Walker’s fees even if Mid-Continent would not fully reimburse Sundown. Sundown maintains that Mid-Continent misrepresented that $200 per hour was the most Mid-Continent paid lawyers in Louisiana to defend similar cases. Allen testified that, in his experience, the best litigators charged $300, $400, or more per hour. Sundown eventually accepted Mid-Continent’s position that it would pay $200 per hour for Jones Walker partners. Allen testified that, had he known that Mid-Continent paid Louisiana attorneys more than $200 per hour, he would not have agreed to the $200 hourly rate for Jones Walker partners. Allen also testified that he later learned that Mid-Continent was paying partners $250 per hour. Viewing the evidence in the light most favorable to Sundown, the court holds that a reasonable jury could have found that Mid-Continent misrepresented to Sundown the fees it had paid or would pay for Louisiana attorneys.
Sundown also contends that Mid-Continent misrepresented that there was no coverage for Hurricane Katrina cleanup unless Sundown could produce a written order from the Coast Guard. Sundown avers that although Mid-Continent told Sundown that it needed a mandate for coverage, Mid-Continent informed its reinsurers that there were no coverage disputes. During Sundown’s examination of Gary Ray (“Ray”), Sundown’s retail insurance agent, Sundown introduced a letter from Mid-Continent to Sundown dated September 16, 2005, in which Mid-Continent asked if Sundown had received an order from the Coast Guard, the Environmental Protection Agency, or another agency to commence the cleanup. Mid-Continent also stated, “[w]e have not issued any authorization for voluntary clean up costs.” Jt. Exh. 8.
Ray testified that, by this letter, Mid-Continent made a strong point that if Sundown did not have a mandate from the Coast Guard or Mid-Continent’s approval for voluntary cleanup, Mid-Continent would not cover the cleanup. Ray also testified that, at a meeting with Mid-Continent, Steven Levine, Esquire, an attorney for Mid-Continent, advised Sundown that, if Sundown paid the cleanup costs itself, it could seek reimbursement from the OPA Fund because the pollution event was an Act of God. In that event, Ray testified, Sundown would pay the cleanup costs itself and secure reimbursement
*523
from the OPA Fund, and the balance of the policy limits would be available for Sundown’s use in defending lawsuits. Chernekoff testified that Mid-Continent decided not to allow Sundown to place its cleanup claim “in abeyance” and seek OPA Fund reimbursement. Viewing the evidence in the light most favorable to Sundown, the court holds that a reasonable jury could have found that Mid-Continent misrepresented to Sundown that there was no coverage for Sundown’s cleanup costs absent a Coast Guard mandate by making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact.
Finally, Sundown argues that Mid-Continent misstated the law when it said that it had not only the right, but the
duty,
to investigate Leopold’s claim. Michael Sean Quinn, Esquire (“Quinn”), an expert witness for Sundown, testified that the duty of an insurer only arises under Texas law when a claim is formally presented to the insurer. Quinn also testified that it was prudent for Mid-Continent to investigate Leopold’s claim after he knocked on the door of the Sundown trailer. Sundown posits that because it did not present to Mid-Continent a third-party claim made by Leopold, Mid-Continent had no duty to investigate the claim. Sundown cites a May 15, 2006 letter from Mid-Continent’s attorney, Robert Dees, Esquire (“Dees”),
24
to Rosenblum stating that Mid-Continent had the duty to investigate claims against Sundown. Mid-Continent relies on a May 4, 2006 letter and argues that, in that letter, Sundown tendered the Leopold claim to Mid-Continent. Because the court holds that a reasonable jury could not have found that any such misrepresentation was a producing cause of the increased cost of the
Blanchard
settlement,
see infra
§ V(C)(3), the court assumes
arguendo
that Mid-Continent misstated the law by saying that Mid-Continent had a duty to investigate the Leopold claim.
3
Mid-Continent also argues that there is legally insufficient evidence that any of these alleged misrepresentations was a producing cause of the increased cost of the
Blanchard
settlement.
In the jury charge, the court submitted a compensatory damages question that asked the jury to consider six categories of possible damages. As the court recounts
supra
at § 1(B), the jury awarded no damages for the following: Hurricane Rita cleanup costs; attorney’s fees that Sundown incurred cooperating with Mid-Continent’s Hurricane Rita investigation and researching and responding to Mid-Continent’s denial of the claim on grounds of late notice; the increased cost of the
Isla
settlement; the unreimbursed defense costs in the Underlying Litigation under Mid-Continent’s contractual duty to defend; and other damages for Mid-Continent’s breach of its duty of good faith and fair dealing. The jury awarded compensatory damages only for the increased cost of the
Blanchard
settlement. The dispositive question, therefore, is whether any unfair settlement practice that Mid-Continent committed was a producing cause
of the increased cost of the
Blanchard
settlement.
“In actions such as this involving alleged violations of the DTPA or the [Insurance] Code, the party seeking recovery of damages bears the burden of establishing that the actions complained of were a ‘producing cause’ of the injuries suffered.”
Travelers Indem. Co. v. Page &
Assocs.
Constr. Co.,
2002 WL 1371065 , at *9 (Tex. App. June 25, 2002, pet. denied) (not designated for publication) (citing
Doe v. Boys Clubs of Greater Dall., Inc.,
907 S.W.2d 472, 478 (Tex.1995)). “In doing so, the
*524
plaintiff must show an unbroken causal connection between the alleged misrepresentation and injuries suffered by the complaining party.”
Id.
(citing
Boys Clubs of Greater Doll.,
907 S.W.2d at 481 ).
In
State Farm, Fire and Casualty Co. v. Gros,
818 S.W.2d 908 (Tex.App.1991, no pet.), a jury found that State Farm violated Tex. Ins.Code. Ann. art. 21.21
25
by misrepresenting through an agent to its insureds (the Groses) that their insurance policy covered damage or loss to their home from a landslide.
Id.
at 911 . On appeal, State Farm challenged the factual and legal sufficiency of the evidence that supported the jury finding that the misrepresentation was a producing cause of damages to the Groses.
Id.
at 913 . The Groses testified that, had they known their policy did not cover damage from landslides, they would have tried to obtain other coverage.
Id.
State Farm argued that the misrepresentation was not a producing cause of the Groses’ damages because other insurance coverage was not available in the market.
Id.
The court rejected State Farm’s argument, concluding that it was unnecessary for the Groses to prove that other coverage could have been obtained. The court reasoned that, but for State Farm’s misrepresentation, the Groses might have taken steps to fortify their home against landslide damage.
Id.
at 913-14 .
In
Page & Associates
the insureds argued that the insurer’s conduct resulted in repeated and continuous delays in the reimbursement of the insured’s defense costs.
Page & Assocs.,
2002 WL 1371065 , at *9. The insureds argued that they incurred attorney’s fees in connection with an indemnification agreement with a third party for retained independent counsel and engineering experts.
Id.
The court held that “[tjhere is nothing in the record other than speculation to show that [the third party] would not have retained independent counsel ... if [the insurer] had not questioned its coverage[.]”
Id.
The court of appeals reversed the judgment in favor of the insured and rendered judgment for the insurer on the misrepresentation claim.
Id.
at *11.
This court will uphold the verdict in favor of Sundown on the first ground of its unfair settlement practices claim if it determines under the controlling standard that a reasonable jury could have found that even one misrepresentation was a producing cause of the increased cost of the
Blanchard
settlement. Stated another way, there must be legally sufficient evidence that at least one of the misrepresentations on which Sundown relies was a substantial factor in bringing about the increased cost of the
Blanchard
settlement, and without that misrepresentation, the cost of the
Blanchard
settlement would not have increased. The court will address each misrepresentation in turn.
First, Sundown posits that Mid-Continent misstated the law when it failed to acknowledge a conflict of interest between Mid-Continent and Sundown that Mid-Continent created by its reservation of rights letters. Sundown asserts that Mid-Continent’s refusal to acknowledge a conflict “was part of the entire scheme of Mid-Continent whereby the cost of settling the
Blanchard
case was caused by a chain of Mid-Continent’s actions.” Ds. JMOL Resp. 30. Mid-Continent replies that there is no legally sufficient evidence that, if Haltom had not said that he did not see a conflict between Mid-Continent and Sundown, the
Blanchard
case would have settled for less money. In fact, Mid-Continent points to testimony by McGuire that Sundown settled
Blanchard
because Sundown was worried that the Leopold offer
*525
would be used against Sundown, and about jury sympathy.
The court holds that the evidence was legally insufficient for a reasonable jury to have found that Mid-Continent’s failure to acknowledge a conflict of interest between Sundown and Mid-Continent was a producing cause of the increased cost of the
Blanchard
settlement. Sundown was obligated at trial to establish an unbroken causal connection between the alleged misrepresentation and the injury it suffered. Sundown did not introduce evidence that would have allowed a reasonable jury to find what would have occurred absent Mid-Continent’s misstatement. In other words, the trial record does not contain evidence that would have permitted a reasonable jury to find that, had Mid-Continent acknowledged the existence of a conflict, Sundown would not have suffered damages in the form of the increased cost of the
Blanchard
settlement. Rather, Sundown argues that Mid-Continent’s failure to acknowledge a conflict of interest was part of Mid-Continent’s general behavior and tactics in its dealings with Sundown. But even assuming that Mid-Continent misstated the law when it failed to acknowledge a conflict, of interest between Mid-Continent and Sundown that Mid-Continent created by its reservation of rights letters, that this misrepresentation was part of a scheme, and that Sundown suffered injury, Sundown failed to introduce legally sufficient evidence of a causal link between Mid-Continent’s misstatement and the increased cost of the
Blanchard
settlement.
Second, Sundown argues that Mid-Continent misrepresented that it did not pay more than $200 per hour for Louisiana lawyers. At trial, Sundown argued that Mid-Continent’s misrepresentation as to the rates it would pay “caused damage to Sundown by getting Sundown to agree under false pretenses to Mid-Continent’s defenses.” Tr. 9A:51.
The court holds that there was legally insufficient evidence for a reasonable jury to have found that Mid-Continent’s statement that it did not pay more than $200 per hour for a Louisiana attorney was a producing cause of the increased cost of the
Blanchard
settlement. The trial record contains no evidence that, had Mid-Continent not misrepresented the rates it paid or was willing to pay, Sundown would have been able to settle
Blanchard
for less. Instead, Sundown argues that Mid-Continent’s statement is part of its deceptive behavior in its dealings with Sundown. Even if Mid-Continent’s behavior was wrong and deceitful, the trial evidence was not sufficient to have enabled a reasonable jury to find that, absent the misrepresentation, Sundown would not have suffered the increased cost of the
Blanchard
settlement.
Third, Sundown maintains that Mid-Continent misstated the law when it told Sundown there was no coverage for Hurricane Katrina cleanup costs unless Sundown could produce a written order from the Coast Guard. Sundown argues that Mid-Continent’s misstatement of the law led to Mid-Continent’s advice that Sundown could pursue reimbursement from the OPA Fund and put its Hurricane Katrina cleanup claim “in abeyance.” According to Sundown, Mid-Continent’s statements resulted in Mid-Continent’s desperate attempt to exhaust its policy limits to cut off attorney’s fees, which in turn led to the Leopold offer, which in turn led to the increased cost of the
Blanchard
settlement. Mid-Continent replies that there is no evidence that this misrepresentation was a producing cause of the increased cost of the
Blanchard
settlement.
The court holds that there was legally insufficient evidence for a reasonable jury to have found that Mid-Continent’s mis
*526
representation that Sundown’s claim was not covered without an order from the Coast Guard was a producing cause of the increased cost of the
Blanchard
settlement. The trial record contains no evidence from which a reasonable jury could find that, had Mid-Continent not stated that it required an order from the Coast Guard, Sundown would not have suffered injury in the form of the increased cost of the
Blanchard
settlement. Rather, Sundown argues that Mid-Continent’s statements were part of Mid-Continent’s attempt to cut off its responsibility to pay for Sundown’s attorney’s fees. Even assuming that this was Mid-Continent’s motive for making the misrepresentation, Sundown has not shown how a jury could reasonably have found that the misrepresentation caused the specific injury for which the jury awarded damages: the increased cost of the
Blanchard
settlement.
Fourth, Sundown argues that Mid-Continent misstated the law when it maintained that it had an unavoidable duty to investigate Leopold’s claim. Regarding producing cause, Sundown avers that this misstatement led to Mid-Continent’s clandestine investigation of the Leopold claim, which in turn led to the Leopold offer, which in turn resulted in the increased cost of the
Blanchard
settlement. Mid-Continent replies that there is no evidence that this misrepresentation was a producing cause of the increased cost of the
Blanchard
settlement.
The court holds that there was legally insufficient evidence for a reasonable jury to have found that Mid-Continent’s misstatement that it had an unavoidable duty to investigate Leopold’s claim was a producing cause of the increased cost of the
Blanchard
settlement. The trial record contains no evidence that, had Mid-Continent not represented to Sundown that it had a duty to investigate Leopold’s claim, Sundown would not have suffered injury in the form of the increased cost of the
Blanchard
settlement. Essentially, Sundown is arguing that had Mid-Continent not
acted
on its alleged duty to investigate Leopold’s claim, Sundown would not have suffered injury in the form of the increased cost of the
Blanchard
settlement. But viewed in the light most favorable to the verdict, the trial evidence at most permitted the finding that
Midr-Continent’s investigation,
including its dealings with
Leopold
— not its misstatement to Sundown — was a producing cause of the increased cost of the
Blanchard
settlement. If Mid-Continent had conducted the investigation of the Leopold claim exactly as it did, without making any statement to Sundown about its duty to investigate, Sundown would have suffered the same harm. Therefore, a reasonable jury could only have found that the investigation itself, not any misstatement of law,' was a producing cause. But Sundown did not allege, nor did the jury find, that
the investigation
was a producing cause of the increased cost of the
Blanchard
settlement.
Accordingly, assuming
arguendo
that a reasonable jury could have found that Mid-Continent committed an unfair settlement practice based on one or more of four misrepresentations, a reasonable jury could
not
have found that any of these alleged misrepresentations was a producing cause of the increased cost of the
Blanchard
settlement. Mid-Continent is therefore entitled to judgment as a matter of law as to the first ground of Sundown’s unfair settlement practices claim.
D
1
The jury found in ground two that Mid-Continent failed to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when Mid-Continent’s liability had become reasonably clear, and that this was a producing cause
*527
of the increased cost of the
Blanchard
settlement.
26
Such a failure is a violation of Tex. Ins.Code Ann. § 541.060(a)(2)(A).
27
Mid-Continent contends that there is no legally sufficient basis for the jury’s findings on this ground. It maintains that § 541.060(a)(2) applies in the third-party context only to settlement demands within policy limits. Sundown responds that the jury found that Mid-Continent did the opposite of what the Insurance Code requires: it attempted in bad faith to effectuate an unfair and excessive settlement of a claim for which Sundown’s liability was not clear.
Sundown argued at trial that Mid-Continent failed in bad faith to effectuate a prompt, fair, and equitable settlement of the
Blanchard
case. Sundown avers that Mid-Continent failed to settle a “claim” in the form of a $9.5 million settlement demand that Sundown received in the
Blanchard
case and tendered to Mid-Continent.
28
Sundown argued at trial that Mid-Continent believed that its liability in the
Blanchard
case was reasonably clear because it made an offer to Leopold shortly after Sundown tendered the $9.5 million
Blanchard
settlement offer to Mid-Continent. Sundown maintains that, because Mid-Continent believed that its liability in
Blanchard
was reasonably clear, Mid-Continent should have responded to the $9.5 million settlement demand.
failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear[.]
2
“An insurer faces [liability under § 541.060(a)(2)(A) ] if it does not attempt in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear.”
Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co.,
77 S.W.3d 253, 260 (Tex.2002) (internal quotation marks and citation omitted). In
Rocor
the Supreme Court of Texas stated that “[t]here is nothing to indicate that the Legislature had in mind any standard other than the familiar
Stowers
standard” in promulgating § 541.060(a)(2).
Id.
The court held that
“Stowers
provides an appropriate framework for understanding and applying the statutory standard.”
Id.
at 261. The court also noted that, “in Texas, the common law imposes no duty on an insurer to accept a settlement demand in excess of policy limits or
to make or solicit settlement proposals,”
and it stated that “[w]e see no reason why an insurer’s duty to its insured under [§ 541.060(a)(2)(A) ] should not be similarly circumscribed.”
Id.
at 261-62 (emphasis added).
Rocor
held that, for an insurer’s duty under § 541.060(a)(2)(A) to be activated, the claimant must make a settlement demand within policy limits with terms that an ordinarily prudent insurer would accept.
Id.
at 262.
*528
Under Texas law, an insurer’s liability with respect to a third-party claim is reasonably clear — triggering § 541.060(a)(2)’s duty with respect to settlement — when four elements are satisfied: (1) the policy covers the claim; (2) the insured’s liability is reasonably clear; (3) the claimant has made a proper settlement demand within policy limits; and (4) the demand’s terms are such that an ordinarily prudent insurer would accept it.
Mid-Continent I,
2009 WL 3074618 , at *38 (citing
Rocor,
77 S.W.3d at 262 ).
3
Sundown does not appear to argue on the basis of the
Rocor
factors that Mid-Continent violated § 541.060(a)(2)(A). It does not contend that it tendered to Mid-Continent a claim covered by the Primary Policy and/or the Umbrella Policy for which Sundown’s liability was reasonably clear, and that a claimant made a proper settlement demand within policy limits with terms that an ordinarily prudent insurer would have accepted. Instead, Sundown argues that, under the statute, Mid-Continent had a duty to
attempt to settle
or to
respond
to a settlement offer with a counteroffer. Sundown maintains that Mid-Continent breached its duty to settle when it failed to attempt to settle the
Blanchard
case and when it failed to respond to the $9.5 million settlement offer. Mid-Continent replies that the duty imposed by § 541.060(a)(2)(A) is not triggered unless and until there is a proper settlement demand within policy limits.
Sundown does not cite, and the court has not found, any support for Sundown’s argument to extend Texas law as Sundown requests. According to
Rocor,
§ 541.060(a)(2)(A) does not apply unless and until a claimant presents a settlement demand within policy limits. In other words, as a matter of law, Mid-Continent had no duty to attempt to settle with the
Blanchard
class on behalf of Sundown absent presentment of a claim to Mid-Continent within policy limits. Therefore, Mid-Continent cannot be held liable on this ground of Sundown’s unfair settlement practices claim because, as a matter of law, Mid-Continent had no duty to attempt to settle under § 541.060(a)(2)(A). Mid-Continent is entitled to judgment as a matter of law on the second ground of Sundown’s unfair settlement practices claim.
E
1
The jury found that Sundown proved ground three of its unfair settlement practices claim: that Mid-Continent failed to provide promptly to Sundown a reasonable explanation of the factual and legal basis in the policy for Mid-Continent’s offer of a compromise settlement of Leopold’s claim, and that this was a producing cause of the increased cost of the
Blanchard
settlement.
29
Such a failure is a violation of Tex. Ins.Code Ann. § 541.060(a)(3).
30
*529
Mid-Continent maintains that there is no legally sufficient basis for the jury’s finding on this ground because Mid-Continent provided a reasonable explanation of the basis for the Leopold offer. Mid-Continent also contends that, even if it failed to provide a prompt, reasonable explanation for the Leopold offer, a reasonable jury could not have found that its failure was a producing cause of the increased cost of the
Blanchard
settlement.
2
Tex. Ins.Code Ann. § 541.060(a)(8) prohibits an insurer from “failing to promptly provide to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer’s denial of a claim or offer of a compromise settlement of a elaim[.]” “This court must interpret the statute according to the plain meaning of its words.”
Bear Stearns Cos. Inc. v. Lavalle,
2000 WL 34339773 , at *6 (N.D.Tex. Oct.27, 2003) (Fitzwater, J.) (citing
United States v. Ron Pair Enters.,
489 U.S. 235, 242 , 109 S.Ct. 1026 , 103 L.Ed.2d 290 (1989)). “ “When a statute does not define its terms, we employ the ordinary meaning of the words.’ ”
Id.
(quoting
In re Silicon Graphics Inc. Sec. Litig.,
183 F.3d 970, 983 (9th Cir.1999) (defining words by dictionary definitions)). The court will therefore interpret and apply § 541.060(a)(3) according to its plain meaning.
Under the court’s interpretation, to establish a violation of § 541.060(a)(3), a plaintiff must prove that the insurer’s explanation of the factual and/or legal basis in the policy for an offer of compromise settlement was not provided promptly or was not reasonable. The plaintiff must also prove that the violation was a producing cause of damages to the plaintiff.
See, e.g., Page & Assocs.,
2002 WL 1371065 , at *9. The court has found several cases in which the court faced the question whether the insurer promptly provided the insured a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the denial or offer to settle a claim.. The court has not located any case, however, in which a court
found
that an explanation given to the insured was not reasonable or was not prompt; in other words, Sundown has not cited, and the court has not located, a case in which an insurer was found to have violated § 541.060(a)(3). The court has therefore looked to several cases for guidance in determining what constitutes a reasonable explanation of an offer of a compromise settlement.
In
Russell v. State Farm Lloyds,
2001 WL 1326501 (N.D.Tex. Oct.15, 2001) (Fitzwater, J.), the defendants, an insurance adjuster and insurer (“State Farm”), moved to dismiss,
inter alia,
plaintiffs’ cause of action under Tex. Ins.Code Ann. art. 21.21 § 4(10)(a)(iv) (West 1981 & Pamp. Supp.2001), against the adjuster.
Russell,
2001 WL 1326501 , at *1. Section 4(10)(a)(iv) is the predecessor to § 541.060(a)(3), and it prohibited an insurer from failing “to provide promptly to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer’s denial of a claim or for the offer of a compromise settlement of a claim.” Tex. Ins.Code Ann. art. 21.21 § 4(10)(a)(iv) (repealed and recodified by Acts 2003, 78th Leg., ch. 1274 § 2, eff. Apr. 1, 2005) (current version at Tex. Ins.Code. Ann. § 541.060(a)(3)). State Farm argued that the plaintiffs did not plead sufficient facts to support a cause of action under § 4(10)(a)(iv).
Russell,
2001 WL 1326501 , at *3. The plaintiffs demanded an explanation for the denial of coverage of damage to the foundation of their residence.
Id.
The court noted that the plaintiffs’ complaint was in this respect similar to their complaint that the adjuster disregarded
*530
pertinent evidence in determining what caused the damage and failed to fully and properly investigate the plaintiffs’ claim.
Id.
The court held that both of these assertions, if true, indicated that the adjuster had failed to promptly provide a
reasonable
explanation of the basis in the policy for the denial of the plaintiffs’ claim.
Id.
Thus the court looked to the allegations of the adjuster’s diligence in other respects to see if there was evidence of a reasonable explanation.
In
South Texas Medical Clinics, P.A. v. CNA Financial Corp.,
2008 WL 450012 (S.D.Tex. Feb. 15, 2008), the plaintiff-clinic alleged that the defendant-insurer failed to promptly provide the clinic a reasonable explanation of the basis in the policy for the insurer’s denial of the clinic’s claim.
Id.
at *10. The court held that, to succeed on a claim under § 541.060, a plaintiff must establish that it suffered actual damages.
Id.
at *11. The court noted that “[t]he Insurance Code does not explain what ‘actual damages’ are sufficient to support a private cause of action under Chapter 541.”
Id.
The plaintiff had not identified actual damages that it suffered as a result of the defendants’ alleged failure to provide a timely and reasonable explanation for denying the clinic’s claim.
Id.
The court also held that “[tjhere is a fact issue as to whether the defendants promptly provided a reasonable explanation, ‘in relation to the facts or applicable law,’ for denying [the clinic’s] claim.”
Id.
(quoting § 541.060(a)(3)). The court therefore denied both parties’ motions for summary judgment as to the claim under § 541.060(a)(3).
Id.
at *12.
In
Greil v. Geico,
184 F.Supp.2d 541 (N.D.Tex.2002) (Sanders, J.), the plaintiff alleged that the insurer violated Tex. Ins. Code Ann. art. 21.21 § 4(10)(a)(iv) by refusing to provide a written breakdown of its settlement offer to the plaintiff.
Greil,
184 F.Supp.2d at 546 . Judge Sanders noted that the plaintiff failed to cite any authority that required an insurer to provide such a breakdown.
Id.
at 547 . One week after the plaintiff sent a letter to Geico disputing its valuation of her claim, Geico sent a letter to Greil offering to discuss its offer.
Id.
at 546-47 . Greil did not respond to Geico’s multiple offers to discuss the settlement offer.
Id.
at 547 . Judge Sanders pointed out that the plaintiff cited no authority or evidence that Geico’s actions were insufficient to satisfy the requirements of the statute, and he granted Geico’s motion for summary judgment in this respect.
Id.
In
National American Insurance Co. v. Columbia Packing Co.,
2003 WL 21516586 (N.D.Tex. Apr. 7, 2003) (Kaplan, J.), the insured moved for summary judgment on its extra-contractual claims for violations of Tex. Ins.Code Ann. art. 21.21 § 4(10)(iv).
Nat’l Am. Ins.,
2003 WL 21516586 , at *6. In its letter denying the insured’s claim, the insurer explained that coverage was not available under certain clauses of the policy because there was no physical evidence to show damage to the property at issue, and because stolen materials were taken by authorized representatives or people entrusted with the property.
Id.
at *7. Judge Kaplan held that whether this explanation was reasonable was a fact issue to be decided after the jury determined whether the stolen materials were entrusted to an authorized representative.
Id.
He therefore denied the insured’s motion for summary judgment in this respect.
Id.
In
AIG Aviation, Inc. v. Holt Helicopters, Inc.,
198 S.W.3d 276 (Tex.App.2006, petdenied), the court held that “Reasonableness, is an objective standard focusing on whether a reasonable insurer under the circumstances would have acted in a similar manner.”
Id.
at 285 (citing
Aranda v. Ins. Co. of N. Am.,
748 S.W.2d 210 , 213
*531
(Tex.1988) (holding that determining whether insurer had reasonable basis for denying or delaying payment of claim “requires an objective determination of whether a reasonable insurer under similar circumstances would have delayed or denied the claimant’s benefits”)). The relevant inquiry, therefore, is an objective one: whether a reasonable insurer would have acted similarly under the same or similar circumstances.
In sum, these cases provide this guidance: the trier of fact can look to the insurer’s diligence in other respects to determine whether the insurer gave a reasonable explanation,
see Russell,
2001 WL 1326501 , at *3; to succeed under § 541.060(a)(3), the plaintiff must prove that it suffered actual damages,
see South Texas Medical Clinics,
2008 WL 450012 , at *11; to satisfy § 541.060(a)(3), an insurer is not required to provide a breakdown of specific details in the offer to the insured,
see Greil,
184 F.Supp.2d at 547 ; the court must first resolve whether there is a basis in the policy for the insurer’s denial of a claim before determining whether the corresponding explanation for the denial is reasonable,
see National American Insurance,
2003 WL 21516586 , at *7; and the relevant inquiry is an objective one— whether a reasonable insurer would have acted similarly under the same or similar circumstances,
see AIG Aviation,
198 S.W.3d at 285 .
3
Mid-Continent maintains that on July 10, 2006 it provided Sundown notice and a reasonable explanation of the Leopold offer. The letter stated: “based on the findings of no contamination to the property of Mr. Leopold other than some oil residue on some of the debris, we have extended an offer of $54,536.00 to Mr. Leopold.” P. JMOL App. 332; Ds. Exh. 266. Mid-Continent argues that this statement is itself a reasonable explanation of the Leopold offer.
Mid-Continent attached an estimate, prepared by Futrell (the “Futrell Estimate”), that broke down the settlement offer. The Futrell Estimate started with the proposal prepared by Greco Construction of $98,560 and subtracted the costs of grubbing the entire site ($20,200) and one-fourth of the debris load ($23,824.00), for a total estimate of $54,536.00. Haltom testified that, when he saw the results of the testing for oil, he was not convinced that there was any need for grubbing. Haltom subtracted from the proposal the charges for grubbing and for one of the loads of debris haul-off. By email, Haltom explained to Chernekoff that the Futrell Estimate was based on a proposal of Greco Construction, and Haltom sent the Greco Construction proposal to Sundown on July 26, 2006. Greco Construction estimated that the cost of the work would be $98,-560 — $800 for disconnecting power lines, $6,000 for pressure washing, $20,200 for grubbing, $12,000 for demo, and $59,560 for debris removal.
In a letter dated August 8, 2006, Mid-Continent, through Dees, explained to Sundown that it made the offer after investigating the Leopold claim. The letter stated that Mid-Continent retained Futrell to investigate and adjust the claim, and part of the investigation included bore samplings performed by Lambert Engineers. Mid-Continent explained that the offer was based on the estimate for cleanup provided by Futrell Adjusting and Lambert Engineers.
Mid-Continent also argues that the report by Muthig (the “Muthig Report”) was not the only basis for the Leopold offer because Mid-Continent received it after it made the offer to Leopold. The Muthig Report is dated June 11, 2006, and Mid-Continent argues that the report con
*532
firmed the validity of the Leopold offer because it indicated slight oil staining eight to ten feet above ground level. At trial, Mid-Continent introduced a video of Leopold’s property taken by Holloway, the independent adjuster hired by Mid-Continent. Mid-Continent contends that the video corroborates the Muthig Report’s finding of crude oil on the Dollar General store ceiling. Haltom testified that a picture supplied by Muthig confirmed to Hal-tom that there was oil on the property, and that the Muthig Report did not change his opinion about the Leopold offer.
Sundown posits that the trial evidence enabled a reasonable jury to find that Mid-Continent failed to provide promptly to Sundown a reasonable explanation of the factual and legal basis in the policy in relation to the facts or applicable law for the Leopold offer. Sundown relies on the following evidence. First, McGuire testified that in his conversation with Haltom on July 21, 2006 (11 days after Mid-Continent sent the letter to Sundown informing it of the Leopold offer), Haltom offered no valid explanation for the Leopold offer. According to McGuire, Chernekoff telephoned him on July 21, 2006 to tell him that Chernekoff had received a letter from Haltom stating that Mid-Continent had made an offer to Leopold. McGuire stated that he called Haltom right away and asked why Mid-Continent had extended an offer to Leopold if no Sundown oil had been found on the land, and Haltom answered that he did not know. McGuire testified that Haltom said that McGuire was getting upset during the call and that they should talk later, and McGuire agreed to terminate the call. McGuire referenced the July 10, 2006 letter to Chernekoff that stated that Mid-Continent had offered Leopold $54,536.00 because Mid-Continent had found no oil on the property other than oil residue on debris. After the telephone call with McGuire, Haltom withdrew the offer to Leopold by emailing Leopold’s attorney, Peter Wanek, Esquire (“Wanek”). McGuire testified that Haltom told McGuire that the Leopold offer had already been rejected.
Sundown also maintains that it introduced evidence that Mid-Continent lied about documents it had in its possession and that Sundown had requested. In an email exchange on July 25 and 26, 2006 between Haltom and Chernekoff, Haltom advised Chernekoff that Lambert had not made reports of his work. Chernekoff asked Haltom for copies of draft reports by Lambert and copies of work plans or proposals from Lambert, proposals or documents Futrell Adjusting received from Lambert, proposals of Greco Construction, and any other records Futrell Adjusting had gathered or prepared. Haltom replied that Lambert reported that he had not prepared any reports, including draft reports and work plans, and that he (Hal-tom) would forward to Chernekoff the Greco Construction proposal. Haltom also represented that Futrell had no other documents concerning the Leopold property. Chernekoff in turn requested a document referenced in Futrell’s letter attached to Haltom’s July 10, 2006 letter as a “scope of testing.” Haltom replied that he had no other documents and that Lambert and Futrell had told him they had no other documents that they had not previously sent to Haltom.
Chernekoff testified that he followed up with Haltom regarding documents he was sent, that he requested more information on Lambert’s testing, and that he did not receive what he had requested. Chernekoff stated that there were holes in the documents provided to him, e.g., the date of the Futrell letter was missing; that Sundown learned during the litigation of this lawsuit that there was an individual named Muthig whom Mid-Continent had hired to review Lambert’s work; that Chernekoff was not
*533
provided the Muthig Report or told that Muthig was reviewing Lambert’s work; and that, in Chernekoff s opinion, the Muthig Report was included in the request to Haltom for all documents associated with the Leopold investigation.
Sundown also points to an August 9, 2006 letter from Dees on behalf of Mid-Continent to Rosenblum for Sundown, which stated:
You will recall that Mid-Continent first learned of Mr. Leopold’s name from you in a meeting in Dallas on October 6, 2005. At the conclusion of that meeting, all in attendance agreed that Mid-Continent should contact Mr. Leopold and investigate his claim as Mid-Continent has the right and duty to do under its policy of insurance with Eland. Mid-Continent and its representatives proceeded to contact Mr. Leopold and investigate the claim. During the investigation, Mr. Leopold obtained Peter J. Wanek of the law firm of McCranie, Sistrunk, Anzelmo, Hardy, Maxwell & McDaniel, P.C. in Metairie. Mid-Continent retained Futrell Adjusting to investigate and adjust the claim. Part of Mid-Continent’s investigation included bore samplings obtained by Lambert Engineers on March 17, the results of which have been provided to Mr. Chern[e]koff by Steve Haltom. Mid-Continent obtained an estimate for clean-up of disputed damage to Mr. Leopold’s property.
An offer was made to Mr. Leopold on June 2 by Steve Haltom, based upon the estimate for clean-up provided by Lambert Engineers and Futrell Adjusting. The offer of $54,536 was made by e-mail to Mr. Peter Wanek.
Ds. JMOL Resp. App. 236. Sundown maintains that Mid-Continent made many misstatements in this letter: Sundown did not provide Leopold’s name at the October 7, 2005 meeting; neither Sundown nor Jones Walker agreed that Mid-Continent would contact Leopold and investigate his claim; Leopold hired Wanek at Mid-Continent’s urging as a predicate to his offer; neither Lambert nor Futrell Adjusting provided an estimate for cleanup; rather, Futrell obtained an estimate from a friend of Leopold (presumably, Greco of Greco Construction); and the letter failed to mention the discrepancy between the results of the Lambert testing and the Muthig analysis.
Sundown argues that Mid-Continent never offered a reasonable explanation for the Leopold offer because the real explanation was unreasonable: Mid-Continent made the Leopold offer to exhaust its policy limits and extinguish its duty to defend Sundown in the Underlying Litigation. Sundown maintains that the explanation Mid-Continent offered was dishonest, and that Mid-Continent withheld the Muthig analysis from Sundown, which would have assisted Sundown in defending the Underlying Litigation.
As to producing cause, Mid-Continent maintains that Sundown only presented evidence that proves, if anything, that the
existence
of the Leopold offer, rather than the
explanation
Mid-Continent provided Sundown of the Leopold offer, was a producing cause of the increased cost of the
Blanchard
settlement. Mid-Continent posits that Sundown introduced no evidence that, but for Mid-Continent’s faulty explanation of the Leopold offer, Sundown would have avoided part or all of the increased cost of the
Blanchard
settlement. Haltom testified that Wanek (Leopold’s attorney) responded to the withdrawal of the offer by threatening to file suit. Sundown asserts that because Mid-Continent did not give a prompt and complete explanation of the basis of the Leopold offer, Sundown could not rectify the harm done
*534
by the Leopold offer before it negatively impacted the
Blanchard
case.
4
The court must decide whether, viewing the evidence in the light most favorable to Sundown, a reasonable jury could have found that Mid-Continent failed to provide a reasonable explanation
31
of the basis in the policy, in relation to the facts or applicable law, for the Leopold offer, and that such failure was a producing cause of the increased cost of the
Blanchard
settlement.
The court first determines whether a reasonable jury could have found from the evidence that a reasonable insurer would not in these circumstances have provided a similar explanation to Sundown. Section 541.060(a)(3) requires insurers keep insureds informed about important developments with their claim. The statute does not obligate an insurer to provide an insured every piece of information or every written document the insurer has regarding the offer or the investigation. Rather, the statute requires the insurer to provide a
reasonable explanation
of the factual or legal basis in the policy, in relation to the facts or applicable law.
Sundown’s reasons for contending that Mid-Continent’s explanation was not reasonable are addressed in detail above. In sum, Sundown maintains that, because of a series of misleading statements and omissions regarding the Leopold offer, Sundown was unaware of the complete circumstances surrounding the offer. Sundown introduced evidence that Haltom gave McGuire no explanation for the Leopold offer and lied to him about the status of the Leopold offer during their July 21, 2006 telephone conversation; Mid-Continent was not forthcoming when Sundown asked for all documents related to the Leopold offer in Mid-Continent’s possession (particularly the Muthig Report); and Dees’s August 9, 2006 letter contained several misrepresentations and omissions about circumstances surrounding the Leopold offer. Sundown does not directly address Mid-Continent’s averment that the July 10, 2006 letter to Sundown was a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the Leopold offer.
The court concludes that a reasonable jury could only have found that the July 10, 2006 letter was a reasonable explanation
of the basis in the policy,
in relation to the facts or applicable law, for Mid-Continent’s offer to Leopold. In that letter, Mid-Continent stated that, “based on the findings of no contamination to the property of Mr. Leopold other than some oil residue on some of the debris, we have extended an offer of $54,536.00 to Mr. Leopold.” P. JMOL App. 332. Attached to this letter, Mid-Continent submitted the Futrell Estimate, which provided a list of the damages and the remedial work that Leopold’s property required. A reasonable jury could not have found from the trial evidence that a reasonable insurer would in these circumstances have provided a different explanation for the Leopold offer. If Sundown proved anything at trial, it established that a reasonable insurer
would not have made the offer,
but this is a different question from the one the jury
*535
answered, and it is not pertinent to the claim under consideration.
And although Sundown argues that Mid-Continent should have provided the Muthig Report in response to Chernekoff s request for all documents related to the Leopold offer, the statute does not require tha

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2183539. Public record. Not legal advice.