Insurance Law: For Insurers and Their Insureds

Skelton & Woody’s insurer clients call upon us for extra-contractual litigation and appeals, coverage litigation under a broad spectrum of policy forms, as well as defense of their insureds. We have defended insurers in well over a thousand bad faith lawsuits since the duty of good faith and fair dealing was created by the Texas Supreme Court in 1987. These cases have run the gamut from wind/hail and hurricane litigation to foundation and mold damage cases, to bad faith suits arising from property damage, theft, fire and UM/UIM claims. We also provide coverage opinions, file declaratory judgment actions, act as settlement counsel, and and handle coverage litigation in state and federal courts throughout Texas. We have extensive insurance defense experience in a wide variety of fields, including auto and trucking losses, employment law claims, directors and officers liability, and professional liability. We handle select subrogation cases on an hourly basis. Please see the Skelton & Woody results for a summary of recent trials, appellate results and other decisions in insurance cases.

Litigation

Our trial practice encompasses the broadest spectrum of extra-contractual and commercial cases, from the most complex antitrust and class action matters to more routine bad faith disputes. In recent years, this work has been fairly evenly divided between CGL coverage disputes between large commercial entities, and homeowners’ suits involving wind, hurricane and foundation loss claims filed under the Texas Insurance Code and Deceptive Trade Practices Act. While our first goal is to defeat such claims on motions to dismiss or for summary judgment, we are prepared to conduct cost-effective trials in the cases that need to be tried.

Our jury trial experience ranges from a $106 million bad faith coverage case tried in San Antonio (complete “take nothing” judgment entered after a three-week trial), to arson/bad faith suits, to a recent flood of extra-contractual cases involving coverage for foundation and wind damage to a variety of structures. We have had particular success in getting extra-contractual claims dismissed on summary judgment and having so-called experts disqualified under the Daubert/Robinson line of decisions.

Trial Victory in January 2023

Hamp Skelton and Patrick Mehaffy, working with exceptional local counsel Armando De Diego, successfully defended State Farm in a week-long jury trial in late January 2023. The suit arose from a tornado that damaged the plaintiffs’ home, leading to a payment the plaintiffs claimed was inadequate, and a lawsuit alleging bad faith. The case was tried in federal court in the Eastern District of Texas. The court submitted jury questions on breach of the policy, breach of the duty of good faith, deceptive trade practices and punitive damages. The plaintiffs asked for “$25 million to $250 million” in punitive damages in the closing argument. The jury returned a verdict that State Farm did not breach the policy, commit bad faith or a deceptive act. The Court issued a judgment for our client.

Death Penalty Sanctions Upheld on Appeal in 2022

Alysia Wightman and Hamp Skelton were successful in obtaining a dismissal with prejudice of all of the plaintiffs’ claims in a bad faith suit arising from a house fire in which arson was suspected. The Williamson County district court granted “death penalty” sanctions dismissing the case for discovery abuse and the plaintiffs appealed. In February 2022, the Austin Court of Appeals upheld the judgment for Skelton & Woody’s client, finding that the trial court’s order met the requirements for the severe sanction of complete dismissal. The opinion in Michael V. Wright, et. al. v.State Farm Lloyds, 2021 WL 1695448 (Tex. App. — Austin, Feb. 25, 2022), may be viewed here.

Summary Judgment for St. Paul in July 2017​

On July 12, 2017, the federal district court for the Western District of Texas, Midland-Odessa Division, granted summary judgment for St. Paul in St. Paul Fire and Marine Insurance Company v. Black Star Energy Services, LLC, a collection suit involving a dispute over retrospectively adjusted premiums.

Victory in Texas Supreme Court in May 2017

Skelton & Woody PLLC was hired by Liberty Mutual to appeal an adverse decision in trial court in a multi-million dollar subrogation matter arising out of a fire caused by a welder’s spark that destroyed an apartment complex. The welder’s policy had been canceled by a premium finance company, but its notice of cancellation was defective. After Skelton & Woody PLLC prevailed in the Austin Court of Appeals, obtaining a reversal, the premium finance company hired Vinson & Elkins to pursue a petition for review in the Texas Supreme Court. The Court granted the petition and Hamp Skelton argued the case to the full court in December 2016. On May 12, 2017, the Texas Supreme Court issued its opinion, rejecting the premium finance company’s “substantial compliance” argument and affirming the good results obtained in the court of appeals. The opinion, Bankdirect Capital Finance, LLC v. Plasma Fab, LLC., –SW3d–, 2017 WL 1068024 (Tex. 2017) may be viewed here.

Summary Judgment for Insurer and Two Individuals in January 2015

Hamp Skelton and Eddie Kaye obtained a summary judgment for State Farm, an insurance agent and a claims adjuster in Bastrop County district court in a bad faith and coverage case involving water leaking from a swimming pool that allegedly caused foundation damage to a house. The plaintiffs challenged application of the policy’s exclusion for “water beneath the surface of the ground,” and urged the use of parol evidence to vary the terms of the insurance policy. The district judge granted summary judgment and on February 19, 2015, denied plaintiffs’ motion for new trial.

Victory on Appeal for State Farm in May 2014

Hamp Skelton argued for State Farm in the Court of Appeals on May 13 and on May 19, the Court affirmed the judgment entered for State Farm in a trial on agreed facts before Judge Stephen Yelonosky. The plaintiff sought to avoid the flood exclusion in the standard Texas homeowners’ policy, claiming that negligence by a third party road contractor had “directed” the flood waters toward his property. The Amarillo Court of Appeals (to which the Texas Supreme Court had reassigned the appeal from the Austin court), disagreed that the contractor’s acts took the facts out of the exclusion’s language and rejected the plaintiff’s ambiguity argument. A copy of the opinion is available at this link: Matthew George, Appellant v. State Farm Lloyds, Appellee

Victory for State Farm in October 2012

Hamp Skelton and Eddie Kaye won a summary judgment for the insurer on a novel question concerning the application of the Texas Prompt Payment of Claims Act to an uninsured/underinsured motorist claim, defeating a claim for attorneys fees as a penalty under circumstances where State Farm tendered its policy limits but got sued anyway by a plaintiff contending she had yet made an underinsured motorist claim. The decision turned on the question of when a claim is considered “presented” in light of the underlying auto case against the underinsured at-fault driver not yet having been adjudicated. The case was decided by Travis County Judge David Phillips.

Victory in Trial on Agreed Facts for State Farm in July 2012

The firm recently won a bench trial on agreed facts in a challenge to the flood exclusion by a homeowner. The plaintiff offered a novel theory that water diversion by a construction company combined with flood water overflow, depriving the water of its original character as flood water. Hamp Skelton and Eddie Kaye tried the case to state district judge Stephen Yelenosky in July 2012, winning a ruling that the attempt to avoid the water damage exclusion for flood and overflow of a body of water was unavailing. Judge Stephen Yelenosky’s letter ruling with the basis for his opinion is attached here.

Summary Judgment for State Farm

The firm prevailed on a summary judgment motion in state district court in Travis County on March 10, 2009 in Cause No. D-1-GN-08-000897; Angelia Davidson v. State Farm Lloyds and Buddy Henderson; in the 261st Judicial District Court, Travis County, Texas. The lawsuit alleged breach of contract and bad faith in connection with a fire loss claims.

Summary Judgment for Continental Casualty

The firm won summary judgment for Continental Casualty Co., a Hartford Company, in February 2009 in a coverage case involving accidental death benefits. The decision turned on contractual limitations, statutory limitations and coverage issues. Here is a link to this order: Mildred Dick Opinion

Summary Judgment for Travelers

The firm won a summary judgment in Travelers favor in state court in Austin on February 21, 2007 in Olga Palacios v. AIC-Sunbelt Group, Inc. and Travelers Lloyds of Texas Insurance Company. The case involved a frequent litigant who sued Travelers and Plaintiff’s insurance agent for allegedly failing to bind new coverage after the cancellation of her policy. Plaintiff also alleged that her signature had been forged on a policy cancellation request. She sued for a variety of contractual and extra-contractual theories, including fraud, and asserted a large mental anguish claim. Travelers prevailed on limitations grounds as to all but one claim asserted, enforcing a contractual limitations period that was shorter than the one provided for by statute, and prevailed on a “no evidence” summary judgment on the only claim not barred by limitations, fraud.

Victory in Texas Supreme Court

On February 9, 2007, The Texas Supreme Court issued its opinion in State Farm Life Insurance Company v. Martinez, 216 S.W.3d 799 (Tex. 2007), reversing the Tenth Court of Appeals’ opinion that unfairly penalized State Farm for not choosing and apportioning among three competing claimants to the same $500,000 life insurance proceeds. The unanimous opinion vindicated our client’s decision to file an interpleader action, paying the policy proceeds into the registry of the court, in the face of conflicting claims by the deceased’s daughter, former wife (whose divorce decree made her “irrevocable beneficiary”) and widow whom the deceased had attempted to designate as sole beneficiary. The opinion clarified how the Texas prompt payment statute (the former Tex. Ins. Code Art. 21.55) applies when insurers who face rival claims for the same benefits interplead the funds.
State Farm Life Insurance Company v. Martinez, 2007

Victory on Appeal

In Estate of Hunt v. St. Paul Fire and Marine Ins. Co, 2006 WL 1004870 (Tex. App.–San Antonio), Hunt’s estate sought $5 million in actual damages plus various extra-contractual measures of damage in connection with coverage for a fatal collision between two commercial trucks. St. Paul won summary judgment on all theories and the San Antonio Court of Appeals affirmed in an opinion containing language clarifying the appropriateness of summary disposition when a plaintiff seeks to continue the hearing.

Victory on Appeal

In Jennings v. State Farm Lloyds, 2006 WL 66408 (Tex. App.–Austin), the Austin Court of Appeals affirmed a case that clarified the scope of coverage afforded under homeowners’ policies. The policyholders, who had been sued by the buyers of their house for failures to disclose defects, sought what amounted to “seller’s errors and omissions” coverage under their homeowner’s policy. The Jennings opinion clarified the difference between property damage covered by homeowner’s insurance and “economic damages” flowing from failures to disclose or failure to live up to promises to the buyers.

Victory on Appeal

In State Farm Lloyds v. Blacklock , (2005 WL 2155635 Tex. App.– Waco, September 7, 2005) the Waco Court of Appeals agreed with State Farm’s Daubert/Robinson challenges to all three of Plaintiffs’ expert witnesses, reversed the trial court’s judgment and rendered judgment for State Farm. This was an important win for State Farm in that these three experts had appeared in scores of cases against the company. Skelton & Woody PLLC won a similar “reverse and render” against the same plaintiff’s lawyer in State Farm Lloyds v. Mireles, 63 S.W.3d 491 (Tex. App.–San Antonio 2001), also prevailing on a Daubert/Robinson argument to the effect the trial court abused its discretion in permitting an engineering expert’s testimony. Rehearing was overruled November 29, 2005.

Summary Judgment for St. Paul

The Estate of Geneva Hunt sued St. Paul and broker, Marsh, Inc., claiming $5 million in underinsured motorist (UIM) coverage in connection with a fatal accident between two 18-wheeler trucks. Hunt’s employer, Reynolds Trucking, had purchased a $5 million liability policy from St. Paul, but had only bought the $55,000 statutory minimum UIM coverage. Hunt’s estate sued for failure to procure proper coverage and a host of extra-contractual theories. The case was heard in Hondo, Texas by an excellent judge who “rides the circuit,” sitting in several counties west of San Antonio. Hamp Skelton successfully argued for summary judgment, which was entered at the hearing on April 21, 2005.

Corporate and Institutional Litigation for Insurers

• Defense of one of the nation’s largest carriers in class litigation brought in El Paso by chiropractors against workers’ compensation insurers. Plaintiffs sued under RICO, the antitrust laws, as well as a variety of state common law and statutory theories.
• Defense of life insurance companies in suits involving multiple claimants for the same benefits.
• Defense of a large insurer in massive “destruction of business” litigation brought in Barbour County, Alabama alleging bad faith in the handling of hundreds of fraud claims against insured.
• Declaratory Judgment suit brought on behalf of over 100 insurers organized by the AIA challenging state regulatory rulings concerning assigned risk pool allocations.
• Defense of three insurer groups in related antitrust and conspiracy litigation brought by Milberg Weiss and others in fifteen states.

B. Appeals for Insurers

Skelton & Woody PLLC has had a major role in shaping coverage and bad faith law in the Texas courts of appeal and Texas Supreme Court. We handle appeals not only of the cases we try, but are frequently called upon to take over a file at the post-trial level. Recent reported decisions include:

State Farm Life Insurance Company v. Martinez, 216 S.W.3d 799 (Tex. 2007), reversing the Tenth Court of Appeals’ opinion that unfairly penalized State Farm for not choosing and apportioning among three competing claimants to the same $500,000 life insurance proceeds.

Phillips Petroleum Co. v. St. Paul Fire & Marine Ins. Co., 113 S.W.3d 37 (Tex. App.–Houston [1st Dist.] 2003, pet. denied) (upholding summary judgment in favor of St. Paul and validating its interpretation of its CGL “fronting” policy.)

Closner v. State Farm Lloyds, 64 S.W.3d 5 (Tex. App.–San Antonio 2001, no pet.) (affirming jury verdict and judgment for insurer based on “first manifestation of loss” prior to the policy period sued upon)

State Farm Lloyds v. Mireles, 63 S.W.3d 491 (Tex. App.–San Antonio 2001, no pet.) (reverse and render decision in insurer’s favor based on Daubert/Robinson challenge to plaintiffs’ sole causation expert)

Martin Marietta v. St. Paul Fire and Marine Ins. Co., 2002 WL 261437 (5th Cir. 2002) (upholding summary judgment for insurer on novel question under CGL policy concerning forseeability of damage to downstream water rights owners by insured’s decision to divert creek water: not an “occurrence.”)

Sharp v. State Farm, 115 F.3d 1258, 1260 (5th Cir. 1997) (establishing no coverage for foundation damage and affirming dismissal of all extra-contractual claims)

Performance Improvement Corp. v. State Farm Lloyds, 974 S.W.2nd 135 (Tex. App.–San Antonio 1998, pet. denied) (establishing that professional services exclusion in commercial general liability policies is unambiguous and excludes coverage for business-related activity)

Oram v. State Farm Lloyds, 977 S.W.2d 163 (Tex. App.–Austin, 1998, no writ) (establishing that an erroneous coverage position that was nonetheless “reasonable” compels summary dismissal of extra contractual claims)

C. Regulatory Work

We represent insurance entities in all phases of regulatory matters before the Texas Department of Insurance. For example, in the fall of 2003, Allstate retained us to challenge a drastic roll-back of homeowners insurance rates ordered by the Commission of Insurance after a legislative decree. We handled the administrative hearings, challenging the legitimacy and constitutionality of the rate roll-back, until Allstate reached an agreement on rates with the Department.

Our clients call upon us to respond to investigation and audits, for representation in administrative litigation, rule-making proceedings and rate-making applications, and to resolve regulatory problems of any nature. We also assist insurers in becoming licensed to conduct business in Texas. Frequently, we counsel insurers on underwriting and rating issues on a variety of policies, including the more complex retrospectively rated and large deductible workers’ compensation policies.

We also handle appeals of administrative agency decisions and the litigation that can follow. For a separate discussion of our regulatory work for health insurers, please see our Health Law section.

D. Regulatory Appeals

Butler Weldments v. Liberty Mutual Ins. Co., et al., 35 S.W.3d 654 (Tex. App.–Austin 1999)

On October 7, 1999, the Austin Court of Appeals affirmed a judgment we obtained in favor of a large group of insurers organized by the AIA. The dispute began in rulemaking proceedings at the TDI over allocation of a $200 million surplus accumulated in a Texas assigned risk pool. Dissatisfied with the Commissioner of Insurance’s ruling, a group of policyholders filed class litigation, alleging that a defendant class of insurers conspired to skew the rule-making process. We obtained dismissal by challenging Plaintiffs’ pleadings. The Plaintiffs appealed and Hamp Skelton argued for the insurers. The opinion affirming the dismissal can be found at 35 S.W.3d 654 (Tex. App.–Austin 1999).

E. Clients

Our regular clients include The St. Paul Companies, The Travelers, United States Fidelity and Guaranty, State Farm, Homewise, Crum & Forster, and Texas Mutual Insurance Company. We also represent insurance brokers. In addition to litigation, appeals and regulatory work, we counsel insurers on the duty to defend, and a wide variety of coverage concerns.

For Agents and Brokers

Skelton & Woody PLLC represents agents and brokers on regulatory matters, litigation and appeals.