Yesterday’s article, State Farm Wins Alabama Worn Out Roof Damage Case: Lesson About Hail Damage Cases, Expert Testimony, and Investigation Standards, deserves a follow-up about a recent Texas federal court ruling regarding Texas hail damage to roof cases. 1 This Texas case highlights important, unique lessons about proving hail damage claims, particularly when dealing with concurrent causation issues under Texas law.
The Background Story
State Farm insured Dora Thompson’s Cypress, Texas, home since it was built in 2007, serving as the property’s only insurer. The coverage dispute began when Thompson noticed water leaking into her home in February 2022. Although her contractor, Shingle Hut, had previously repaired the roof in June 2021 without noting any hail damage or recommending any roof replacement, their February 2022 inspection revealed significant hail damage.
Shingle Hut provided substantial documentation supporting Thompson’s claim, including a detailed nine-page estimate, 86 photographs showing hail damage, and weather reports confirming 1-inch hail struck the property on September 28, 2021. Thompson promptly submitted this evidence to State Farm on February 16, 2022.
State Farm responded quickly but did so without sending a Good Neighbor State Farm claims adjuster. Instead, State Farm sent a Seek Now inspector, Manuel Rucker, to evaluate the property. Despite the extensive documentation from Shingle Hut, Seek Now determined on State Farm’s behalf that the damage fell below Thompson’s deductible. After disputing the Seek Now findings, a State Farm claims representative inspected the property and concluded there was no hail damage.
The Appraisal Process and Denial
When the parties couldn’t agree on the damage amount, they entered the appraisal process. The appointed appraisers selected an umpire and proceeded to appraisal. Thompson’s appraiser and the umpire signed an award setting the replacement cost value at $57,983.61 for the hail damage. State Farm rejected the appraisal award, maintaining that the damage wasn’t covered under the policy terms and arguing that the appraisers had exceeded their authority.
One lesson for policyholders and public adjusters in Texas is that my reading of the State Farm Lloyds v. Johnson case allows insurers to contest causation after an appraisal. In smaller cases, many insurers want the matter resolved, and the causation is not contested in subsequent litigation. However, appraisal can be a big and sometimes expensive waste of time if causation is going to be contested. From this view, an appraisal can also give the insurer two bites at the apple to win the causation in the appraisal and, if unsuccessful, in the subsequent litigation. I warned about this in Texas Appraisal Allows Determination of Causation and Upholds Zero Award.
Another lesson is State Farm specific, and the issue was raised in Why Has State Farm Stopped Paying Appraisal Awards?:
State Farm has a new claims process involving appraisal. The problem for many policyholders is that it is often resulting in payment for amounts less than the appraisal panel decided—sometimes, nothing is paid.
How does it work? State Farm has a new appraisal section that reviews appraisal awards from weather events. It consists of four units with approximately eight adjusters per unit and one manager for each unit. One unit oversees appraisals in Florida. One unit oversees appraisals in Texas. The other two units oversee appraisals from the rest of the 48 states.
For policyholders, public adjusters and everyone involved with State Farm claims, I would suggest that State Farm appraisals in many jurisdictions are currently a prelude to litigation and a waste of time.
Court’s Analysis
The court ultimately agreed with State Farm’s position, finding that Thompson failed to adequately segregate covered hail damage from non-covered wear and tear. The court emphasized two critical factors in granting summary judgment to State Farm. First, Thompson’s own expert acknowledged difficulty pinpointing when the damage occurred and admitted it could have resulted from multiple events over time. Second, the evidence presented didn’t adequately segregate covered hail damage from non-covered wear and tear damage as required under Texas law.
This is where Texas differs from every other state in the Union. The practical effect of Texas’s unique and muddled concurrent loss rule is that the policyholder has to prove that the loss comes within the policy period and then show that it is not excluded if there are multiple causes of loss. This standard is not the case in other states that require that the insurance company has the burden of proving the loss is excluded and determining the amount of the loss excluded under the policy if there are covered and uncovered causes of loss. The Texas law is somewhat liberal in that it allows the policyholder to segregate the covered versus excluded damages on a percentage basis based on expert opinion.
I suggest that anybody adjusting Texas property claims read The Unique Texas Method of Treating Exclusions Regarding Multiple Causes of Loss, where I warned
The practical effect in Texas hail damage cases is that the expert for the policyholder normally has to be able to segregate the amount of damage from the covered hail damage versus the amount of damage that is excluded.
The other practical impact of this rule is for the insurance company to retain its usual cast of engineers to find all kinds of prior hail events occurring at the property. Those cast of engineers then opine that it is impossible to separate that damage from those prior events from the recent hail event. In other states, the same cast of insurance company engineers mysteriously explain how they can tell that the damage is older so they can prove the excluded loss. But, the Texas insurance defense bar has their usual cast of engineers thinking straight on how this plays out in Texas.
Implications for Future Claims
This Thompson case demonstrates the importance of properly documenting and segregating damages in Texas property insurance claims. While appraisal awards can establish damage amounts, they don’t resolve coverage disputes. Texas policyholders, unlike everybody else in the country, must still prove that their losses resulted from covered perils rather than from excluded causes like wear and tear. It should be noted that the rest of the country treats wear and tear as a depreciable item of damaged property, and Texas insurers now claim that this is an alternative and excluded cause of loss, which is true if it is the only cause of loss.
The case is currently on appeal, suggesting this may not be the final word on these important coverage issues. Texas’ concurrent causation law is unique from the rest of the country and leads to appeals on a routine basis. The law is truly in a state of confusion. I could write a law review article about why it is wrong and how it needs to be reconciled with how the other jurisdictions have treated this issue, leading to less disagreement and litigation. Until the Texas Supreme Court is finally allowed to rule on the matter (and the Texas insurers seem to be looking for the perfect case to base case law in their favor), Texas policyholders and their representatives should focus on gathering clear evidence that links specific damage to covered events and distinguish those it from non-covered causes and then segregate the dollar amount of those damages.
The Thompson court noted the confused state of the law, stating:
Texas’s concurrent causation doctrine instructs that ‘[w]hen covered and excluded perils combine to cause an injury, the insured must present some evidence affording the jury a reasonable basis on which to allocate the damage.’ Lyons v. Millers Cas. Ins. Co. of Tex., 866 S.W.2d 597, 601 (Tex. 1993). Stated a different way, the insured must ‘segregate covered losses from non-covered losses.’…
In recent years, the Fifth Circuit has recognized that considerable confusion exists over how district courts should apply Texas’s concurrent causation doctrine. See Overstreet v. Allstate Vehicle & Prop. Ins. Co., 34 F.4th 496, 499 (5th Cir. 2022) (observing “that determinative questions about the concurrent causation doctrine remain unresolved”); see also Frymire Home Servs., Inc. v. Ohio Sec. Ins. Co., 12 F.4th 467, 472 (5th Cir. 2021) (‘Other courts’ application of Lyons confirms our sense that [certain] aspects of concurrent cause doctrine are unsettled.’). In Overstreet and Frymire, the Fifth Circuit certified questions to the Texas Supreme Court concerning the contours of the doctrine, but both cases settled before the Texas Supreme Court could offer its insight. Although questions remain unanswered about the scope of the concurrent causation doctrine, the Fifth Circuit recently held that the doctrine does not preclude recovery where the insured presents evidence demonstrating that all of the claimed damage resulted from a covered cause.
Texas insurance defense attorney Steve Badger will certainly read this blog a little more closely than the one in yesterday’s post about Alabama law.
Thought For The Day
“Creating a culture of integrity and accountability not only improves effectiveness, it also generates a respectful, enjoyable and life-giving setting in which to work”
—Tom Hanson
1 Thompson v. State Farm Lloyds, No. 4:23-cv-02322 (S.D. Tex. Oct. 22, 2024).
