Preview
Filed 13 April 24 P4:39
Chris Daniel - District Clerk
Harris County
ED101J017449698
By: Carol Williams
§ IN THE DISTRICT COURT OF
§
V. § HARRIS COUNTY, TEXAS
§
FIREMAN’S FUND INSURANCE §
COMPANY § 190 JUDICIAL DISTRICT
FIREMAN’S FUND’S SECOND SUPPLEMENT TO ITS
AMENDED PLEA TO THE COURT’S JURISDICTION AND
TRADITIONAL AND NO-EVIDENCE MOTION FOR SUMMARY JUDGMENT
Fireman’s Fund Insurance Company (“FFIC”) files this Second Supplement to its
Amended Plea to the Court’s Jurisdiction and Traditional and No-Evidence Motion for Summary
Judgment (“Second Supplement”).
BASIS FOR SECOND SUPPLEMENT
The purpose of this Second Supplement is to establish that Plaintiffs’ bad faith/extra-
contractual claims fail as a matter of law because in order to enforce the 2008-2009 insurance
policy that Plaintiffs sue under (the “Policy”), Plaintiffs must first explicitly or implicitly rewrite
the Policy they seek to recover under. In other words, the plain language of the Policy that
Triyar Companies, LLC (“Triyar LLC”) submitted a claim under is far different than the Policy
which Plaintiffs hope to rephrase through various legal theories (e.g. reformation, waiver,
More specifically, Plaintiffs Triyar Companies, Inc. (“Triyar Inc.”), SJM Realty, Ltd.
(“SJM”), and GPM Houston Properties, Ltd. (“GPM”) are strangers to the 2008 Policy that they
FFIC incorporates herein its previously filed Amended MSJ and first supplement thereto, including all Exhibits,
such that the Amended MSJ and its two supplements constitute one integrated Motion.
, Plaintiff’s Seventh Amended Petition, “Plaintiffs seek relief under law and equity to reform the Policy to
provide the intended coverage for San Jacinto and Greenspoint Mall.” Please see FFIC’s Amended MSJ for further
discussion on why Plaintiffs cannot, as a matter of law, reform the Policy.
seek to enforce. Although Triyar LLC is a Named Insured, Policy coverage is expressly made
subject to the Named Insured having an ownership or leasehold interest in the two Malls an
interest that Triyar LLC indisputably lacks:
rs real property, it covers:
1. Real property which you or which or rent from
The Policy defines “you” to mean only the Named Insured, Triyar LLC:
Throughout this Coverage Section the words and your refer to the
It is undisputed that Named Insured Triyar LLC never owned or leased the Malls, as reflected in
the deposition testimony of Bob Yari, Plainti
Member of Triyar LLC (before it dissolved):
Q.: In 2008, did Triyar Companies, LLC own any of the
the Declarations?
A.: No. Not to my knowledge.
Q.: Well, in fact, to your knowledge, Triyar Companies, LLC
A.: That’s my understanding.
Therefore, in order for any Plaintiff to recover for loss to the Malls that Named Insured Triyar
LLC never owned, the Policy must in some way be judicially rewritten to provide coverage for
real property that non-insureds SJM and GPM did own. But even if Policy provisions are now
judicially altered through reformation, waiver, or some other legal theory, the Plaintiffs cannot
recover damages for retroactive bad faith as a matter of law. This is the point of this Second
Supplement.
Exhibit D, Deposition of Bob Yari, p. 128: 5–8; Policy declarations identifying only Triyar LLC (and Tally
Plaza) as the sole Named Insured. Amended MSJ, exhibit A. GPM and SJM are not mentioned once in the Policy.
Second Klepchick Aff., ¶ 12 (Amended MSJ, exhibit E).
Policy, bates p. 69 (emphasis added) (Amended MSJ exhibit A) (italics added).
Policy, bates p. 68 (emphasis added) (Amended MSJ exhibit A) (italics added).
, Amended MSJ, exhibit G, Deposition of Plaintiffs’ other corporate representative, Dennis Brown, pp.
196:16–21; 319: 8–11 (testifying that Triyar LLC did not own or lease Greenspoint or San Jacinto Malls, nor did
Triyar LLC suffer a property loss).
THIRD PARTY BENEFICIARIES ARE BARRED
FROM RECOVERING BAD FAITH OR EXTRA-CONTRACTUAL DAMAGES
Plaintiffs allege the same bad faith and extra-contractual claims that are routinely pleaded
common law bad faith, (2) claims under Chapter 541
of the Texas Insurance Code, and (3) Prompt Payment Act claims under T
In its Amended MSJ, FFIC cites controlling Texas authority for the proposition that,
since SJM and GPM are not mentioned anywhere within the Policy’s four corners, they cannot
be intended third party beneficiaries. But even if SJM and GPM somehow were considered
third party beneficiaries to the Policy, third party beneficiaries do not share the special insured-
insurer relationship and cannot recover bad faith or extra-contractual damages as a matter of
ABSENT A TIME MACHINE, JUDICIAL POLICY CHANGES
DO NOT CREATE RETROACTIVE BAD FAITH
FFIC strongly disputes Plaintiffs’ contention that the Policy should be judicially
modified; however, even if the Policy is judicially altered to provide coverage, FFIC cannot be
held liable for bad faith or extra-contractual damages for having failed to previously adjust a
later-reformed Policy. “The fact that the insured may be entitled to obtain a reformation of the
policy does not impose an obligation upon the insurer to conform to such ‘reformed’ policy
before a court has made such reformation.” The clear reason behind this legal axiom is that
See South Texas Water Authority v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007) (“[T]he intent to confer a direct
benefit upon a third party must be clearly and fully spelled out or enforcement by the third party must be denied.”).
, Amended MSJ, Section C, pp. 12–23.
Amended MSJ, p. 23. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 149–50 (Tex. 1994) (intended
third party beneficiaries do not have standing to pursue extra-contractual remedies); Atlantic Lloyds Ins. Co. v.
Butler, 137 S.W.3d 199, 223 (Tex.App.—Houston [1st Dist.] 2004, pet. denied) (noting that insurer owed no extra-
contractual duty of good faith and fair dealing to third parties).
2 Couch on Insurance § 26.3 (3d ed. 1995 & Dec. 2001 Update); see also Fincher ex rel Fincher v. Prudential
Prop & Cas. Ins. Co., 374 Fed. Appx. 833, 844 (10th Cir. 2010) (holding that an insurer has no legal obligation to
pay benefits in accordance with a reformed actually reformed); R&B Auto Center, Inc. v.
Farmers Group, Inc., 140 Cal. App. 4th 327, 447 (2006) (noting that an insurer may not be held liable for bad faith
for failing to have the foresight to know that the policy would be reformed).
retroactive bad faith would create a terribly inequitable result. The insurance carrier would be
placed in the untenable position of having to guess how a court might or might not rewrite a
policy, and handle its claim adjustment accordingly. There are several reasons why such a rule
, FFIC never intended nor agreed to cover any entity not listed as a Named
, an insurer is obligated to adjust the policy as written. , a presumption
exists in Texas against reformation. The Supreme Court has re
policy in favor of preserving the freedom of contract” and has warned that courts “should not by
judicial fiat insert nonexistent language . . . into parties’ agreed-to contracts.”
reformation requires the highest standard of proof. Thus, predicting judicial reformation would
be highly speculative. , during the claim adjustment period, Triyar LLC submitted two
sworn proofs of loss stating that it owned the two Malls—which (if true) qualified the Named
Insured for property coverage. Thus, there would be no basis for FFIC to speculate regarding
Policy reformation. (FFIC did not learn that the proofs of loss were false until July 2012. By
misrepresenting Triyar LLC’s mall ownership, Triyar LLC triggered the Policy provision which
voids coverage in the event of fraud, concealment or misrepresentat
Klepchick’s Third Aff., ¶ 10 (attached hereto as exhibit N).
See, e.g. Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010) (“First,
we look at the language of the policy because we presume parties intend what the words of their contract say.”).
Estes v. Republic Nat’l Bank of Dallas, 462 S.W.3d 273, 275 (Tex. 1970) (“the law presumes a written
agreement correctly embodies the parties’ intentions,and isan accurate expression of the agreement the parties
reached in prior oral negotiations.”).
Excess Underwriters at Lloyds’ London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 51 (Tex.
2008)(quoting Fortis Benefits v. Cantu, 234 S.W.3d 642, 649 n. 41 (Tex. 2007)).
St. Paul Lloyd’s Ins. Co. v. Fong Chun Huang 808 S.W.2d 524, 527 (Tex. App.—Houston [14th Dist.] 1991, writ
denied) (“. . . reformation is unavailable unless the party claiming mistake presents ‘clear, exact, and satisfactory
evidence.’”).
See Amended MSJ exhibit B, McWatt Aff., ¶ 10.
2 Couch on Insurance § 26.3 (3d ed. 1995 & Dec. 2001) (noting that the fact a plaintiff argues that they may be
entitled to obtain reformation of the policy does not impose any obligation on the insurer to conform until the court
makes such reformation).
deny Triyar LLC’s claim. Sixth, from 2008 to 2012, Plaintiffs did
not assert or seek judicial reformation. Instead, Plaintiffs pretended that Triyar LLC co-owned
the Malls with the other Plaintiffs and therefore qualified for coverage. Again, there was no
reason for FFIC to even consider reformation during the claim adjustment period. Seventh
now, Plaintiffs fail to specify a purported definitive agreement that they say would have been in
the Policy but for the parties’ alleged mutual mistake.
d into any agreement w
was different than the Policy itself. And even Triyar LLC’s own broker, John Penn, testified
that no side agreement was ever entered into to vary the express Policy terms as issued:
Q.: Did you have any understanding of whether your agency
was authorized by Fireman’s Fund to alter the terms of any
Fireman’s Fund insurance policy?
A.: We never did so. We didn’t and didn’t. We didn’t have
Q.: Didn’t have the authority and never did it?
Q.: Did you ever – did you or your agency ever enter into a
side agreement with the Skinner agency or Triyar to read
this provision [that the named insured must own or lease
real property to trigger coverage] out of the policy or to
alter the policy so that this
A.: Not to my knowledge. 22
Q.: Altering the policy is not something you or your agency are
23
McWatt’s Third Affidavit, attached hereto as exhibit O.
Plaintiffs’ Second Amended Petition, p. 2, “Plaintiffs have owned and operated the malls . . . during the time
the Properties were insured.”
Plaintiffs’ Seventh Amended Petition, pp. 9–10.
Klepchick’s Third Aff., ¶ 22 (attached hereto as exhibit N).
Exhibit P, Deposition of John Penn, pp. 239: 3–11.
Id. at 298–99.
Q.: I want to know if you personally entered into a side
agreement with the Skinner agency or with Triyar to alter
these words that we found on Exhibit 98, the words that
say, “Throughout this coverage section the words ‘you’ and
‘your’ refer to the named insured shown on the
declarations.”
A.: I did not.
To now assert that (i) FFIC should not have relied on the explicit Policy language,
(ii) should not have relied on Triyar LLC’s proofs of loss as being truthful, (iii)FFIC
should not have relied on Plaintiffs’ representations to this Court as being truthful, and (iv) FFIC
should be punished for same and its failure to predict the terms of a subsequent judgment or
reformation—which wasn’t even asserted by Triyar LLC during the claim adjustment period—
would pose an undue hardship on FFIC and all insurance carriers with respect to the adjustment
of claims.
FFIC’S DISPUTE OVER PLAINTIFFS’ POLICY REWRITE
IS AT A MINIMUM BONA FIDE
Bad faith is not easily established under Texas law. The “Supreme Court has repeatedly
instructed than an insurer will not be faced with a tort suit for challenging a claim of coverage if
there was any reasonable basis for its denial of that coverage.” In order to sustain a bad faith
claim, the insured must prove (1) the absence of any reasonable basis for denying or delaying
payment of the benefits of the policy, and (2) that the carrier knew or should have known there
was no reasonable basis for denying or delaying payment of the claim. The insured must prove
that there were before the insurer which, if believed, would justify denial of the claim.
Id. at p. 318:1–4.
Id. at p. 390:6–13.
Emmert v. Progressive County Mut. Ins. Co., 882 S.W.2d 32, 36 (Tex.App.—Tyler 1994, writ denied) (citing
Lyons v. The Millers Cas. Ins. Co. of Texas, 866 S.W.2d 597, 601 (Tex. 1993).
Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex. 1988); accord Transp. Ins. Co. v. Moriel
879 S.W.2d 10, 18 (Tex. 1994).
State Farm Lloyds Inc. v. Polasek, 847 S.W.2d 279, 284 (Tex. App.—San Antonio 1992, writ denied).
Importantly, the absence of a reasonable basis must be judged by the facts the insurer had at the
time it assessed the claim
Moreover, a dispute over the terms of coverage cannot, as a matter of law, be
the basis of a bad faith claim. Nor can bad faith be established if the insurer was incorrect
about the proper construction of the policy or the factual basis for its denial of the claim. As
one Texas court observed, “If the undisputed facts demonstrate the insurer possessed evidence
contract claim might not be valid, the bad faith action is not
as a matter of law . . . .” Numerous Texas courts have dismissed bad faith claims via
summary judgment where the insurer denied a questionable claim.
Further, a breach of an insurance contract does not automatically give rise to liability
under Section 541 of the Texas Insurance Code. Rather, causes of action under Section 541
require the same predicate for recovery as a common law bad faith cause of action and are
subject to the same defenses.
Here, the undisputed facts demonstrate that FFIC possessed evidence reasonably showing
that Plaintiffs’ contract claim was invalid. The policy as written requires the Named Insured to
have an ownership or leasehold interest in any property listed by the Policy, yet the Named
Insured acknowledges that it never had an ownership or leasehold interest in the two Malls. As a
Viles v. Security Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990).
See Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189, 194 (Tex. 1998) (noting that evidence showing only a
bona fide coverage dispute does not demonstrate that there was a reasonable basis for denying a claim.).
Lyons v. Millers Casualty Ins. Co., 866 S.W.2d 597, 601 (Tex. 1993) (“As long as the insurer has a reasonable
basis to deny or delay payment of the claim, even if that basis is eventually determined by the fact finder to be
erroneous, the insurer is not liable for the tort of bad faith.”).
Lockett v. Prudential Ins. Co. of America, 870 F. Supp. 735, 740–41 (W.D. Tex. 1994) (emphasis added).
See, e.g. United States Fire Ins. Co. v. Williams, 955 S.W.2d 267, 268 (Tex. 1997) (per curiam) (citing National
Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376–77 (Tex. 1994) (holding that an insurer was entitled to
summary judgment if summary judgment evidence established there was a good faithdispute regarding the
applicability of a workers compensation statute)).
See Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 49 (Tex. 1997) (noting new standard adopted in bad faith
actions unifies common law and statutory standards); Higginbotham v. State Farm Mut. Auto Ins. Co., 103 F.3d 456,
460 (5th Cir. 1997) (holding Texas courts have ruled that Insurance Code claims require the same predicate for
recovery as bad faith causes of action).
matter of law, it was reasonable for FFIC to rely on the language of the Policy to adjust and deny
the claim. Indeed, the Texas Supreme Court has repeatedly held that a court must look to the
actual language of the insurance policy in order to establish its meaning. Texas courts
presume that the parties intend what the words of their contract say. Since the clear
of the Policy provided FFIC with a basis on which to reject the claim,
surance Code claims as a matter of law.
In sum, FFIC is under no obligation to recognize GPM and SJM as Named Insureds
unless the Court judicially alters the Policy. As such, FFIC was reasonable in its determination
that Plaintiffs failed to trigger coverage. And, in the event the Policy is modified in such a way
that any of the Plaintiffs attain coverage, the undisputed facts clearly demonstrate a
dispute regarding Plaintiffs’ claim for coverage based on the Policy as written and warrant
dismissal as a matter of law of Plaintiffs’ common law bad faith and extra-contractual claims
Respectfully submitted,
ARDERE YNNE EWELL
/s/ Robert M. Hoffman
State Bar No. 09788200
rhoffman@gardere.com
Thanksgiving Tower, Suite 3000
1601 Elm Street
Dallas, TX 75201
(214) 999-3000
(214) 999-4667 – Facsimile
See, e.g. Nat’l Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (“Most importantly, we must
give the policy’s words their plain meaning, without inserting additional provisions into the contract.”).
Offshore Recruiting Services, Inc. v. New Hampshire Ins. Co., 2011 WL 6938531 (Tex. App.—Houston [1st
Dist.] Dec. 29, 011) (NO. 01-10-00946-CV).
ISDOM L.L.P.
State Bar No. 13057620
martin@mdjwlaw.com
State Bar No. 00785356
disiere@mdjwlaw.com
State Bar No. 24046606
pela@mdjwlaw.com
808 Travis Street, 20th Floor
(713) 222-0101 – Facsimile
ATTORNEYS FOR DEFENDANT
FIREMAN’S FUND INSURANCE COMPANY
CERTIFICATE OF SERVICE
This is to certify that a true and correct copy of the foregoing document was
013. Notice of this filing will be sent to all parties via
operation of the Court’s electronic filing system. For those parties whose counsel is not
registered with the Court’s electronic filing system, service will be made by either facsimile,
hand delivery, or via certified mail, return receipt requested.
Mr. James L. Cornell
ARDUE
Mr. Gene F. Creely, II
REELY AW IRM
701 Richmond Avenue, Suite 250
/s/ Molly Pela
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Filed 13 April 24 P4:39 Chris Daniel - District Clerk Harris County ED101J017449698 By: Carol Williams § IN THE DISTRICT COURT OF § V. § HARRIS COUNTY, TEXAS § FIREMAN’S FUND INSURANCE § COMPANY § 190 JUDICIAL DISTRICT FIREMAN’S FUND’S SECOND SUPPLEMENT TO ITS AMENDED PLEA TO THE COURT’S JURISDICTION AND TRADITIONAL AND NO-EVIDENCE MOTION FOR SUMMARY JUDGMENT Fireman’s Fund Insurance Company (“FFIC”) files this Second Supplement to its Amended Plea to the Court’s Jurisdiction and Traditional and No-Evidence Motion for Summary Judgment (“Second Supplement”). BASIS FOR SECOND SUPPLEMENT The purpose of this Second Supplement is to establish that Plaintiffs’ bad faith/extra- contractual claims fail as a matter of law because in order to enforce the 2008-2009 insurance policy that Plaintiffs sue under (the “Policy”), Plaintiffs must first explicitly or implicitly rewrite the Policy they seek to recover under. In other words, the plain language of the Policy that Triyar Companies, LLC (“Triyar LLC”) submitted a claim under is far different than the Policy which Plaintiffs hope to rephrase through various legal theories (e.g. reformation, waiver, More specifically, Plaintiffs Triyar Companies, Inc. (“Triyar Inc.”), SJM Realty, Ltd. (“SJM”), and GPM Houston Properties, Ltd. (“GPM”) are strangers to the 2008 Policy that they FFIC incorporates herein its previously filed Amended MSJ and first supplement thereto, including all Exhibits, such that the Amended MSJ and its two supplements constitute one integrated Motion. , Plaintiff’s Seventh Amended Petition, “Plaintiffs seek relief under law and equity to reform the Policy to provide the intended coverage for San Jacinto and Greenspoint Mall.” Please see FFIC’s Amended MSJ for further discussion on why Plaintiffs cannot, as a matter of law, reform the Policy. seek to enforce. Although Triyar LLC is a Named Insured, Policy coverage is expressly made subject to the Named Insured having an ownership or leasehold interest in the two Malls an interest that Triyar LLC indisputably lacks: rs real property, it covers: 1. Real property which you or which or rent from The Policy defines “you” to mean only the Named Insured, Triyar LLC: Throughout this Coverage Section the words and your refer to the It is undisputed that Named Insured Triyar LLC never owned or leased the Malls, as reflected in the deposition testimony of Bob Yari, Plainti Member of Triyar LLC (before it dissolved): Q.: In 2008, did Triyar Companies, LLC own any of the the Declarations? A.: No. Not to my knowledge. Q.: Well, in fact, to your knowledge, Triyar Companies, LLC A.: That’s my understanding. Therefore, in order for any Plaintiff to recover for loss to the Malls that Named Insured Triyar LLC never owned, the Policy must in some way be judicially rewritten to provide coverage for real property that non-insureds SJM and GPM did own. But even if Policy provisions are now judicially altered through reformation, waiver, or some other legal theory, the Plaintiffs cannot recover damages for retroactive bad faith as a matter of law. This is the point of this Second Supplement. Exhibit D, Deposition of Bob Yari, p. 128: 5–8; Policy declarations identifying only Triyar LLC (and Tally Plaza) as the sole Named Insured. Amended MSJ, exhibit A. GPM and SJM are not mentioned once in the Policy. Second Klepchick Aff., ¶ 12 (Amended MSJ, exhibit E). Policy, bates p. 69 (emphasis added) (Amended MSJ exhibit A) (italics added). Policy, bates p. 68 (emphasis added) (Amended MSJ exhibit A) (italics added). , Amended MSJ, exhibit G, Deposition of Plaintiffs’ other corporate representative, Dennis Brown, pp. 196:16–21; 319: 8–11 (testifying that Triyar LLC did not own or lease Greenspoint or San Jacinto Malls, nor did Triyar LLC suffer a property loss). THIRD PARTY BENEFICIARIES ARE BARRED FROM RECOVERING BAD FAITH OR EXTRA-CONTRACTUAL DAMAGES Plaintiffs allege the same bad faith and extra-contractual claims that are routinely pleaded common law bad faith, (2) claims under Chapter 541 of the Texas Insurance Code, and (3) Prompt Payment Act claims under T In its Amended MSJ, FFIC cites controlling Texas authority for the proposition that, since SJM and GPM are not mentioned anywhere within the Policy’s four corners, they cannot be intended third party beneficiaries. But even if SJM and GPM somehow were considered third party beneficiaries to the Policy, third party beneficiaries do not share the special insured- insurer relationship and cannot recover bad faith or extra-contractual damages as a matter of ABSENT A TIME MACHINE, JUDICIAL POLICY CHANGES DO NOT CREATE RETROACTIVE BAD FAITH FFIC strongly disputes Plaintiffs’ contention that the Policy should be judicially modified; however, even if the Policy is judicially altered to provide coverage, FFIC cannot be held liable for bad faith or extra-contractual damages for having failed to previously adjust a later-reformed Policy. “The fact that the insured may be entitled to obtain a reformation of the policy does not impose an obligation upon the insurer to conform to such ‘reformed’ policy before a court has made such reformation.” The clear reason behind this legal axiom is that See South Texas Water Authority v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007) (“[T]he intent to confer a direct benefit upon a third party must be clearly and fully spelled out or enforcement by the third party must be denied.”). , Amended MSJ, Section C, pp. 12–23. Amended MSJ, p. 23. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 149–50 (Tex. 1994) (intended third party beneficiaries do not have standing to pursue extra-contractual remedies); Atlantic Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 223 (Tex.App.—Houston [1st Dist.] 2004, pet. denied) (noting that insurer owed no extra- contractual duty of good faith and fair dealing to third parties). 2 Couch on Insurance § 26.3 (3d ed. 1995 & Dec. 2001 Update); see also Fincher ex rel Fincher v. Prudential Prop & Cas. Ins. Co., 374 Fed. Appx. 833, 844 (10th Cir. 2010) (holding that an insurer has no legal obligation to pay benefits in accordance with a reformed actually reformed); R&B Auto Center, Inc. v. Farmers Group, Inc., 140 Cal. App. 4th 327, 447 (2006) (noting that an insurer may not be held liable for bad faith for failing to have the foresight to know that the policy would be reformed). retroactive bad faith would create a terribly inequitable result. The insurance carrier would be placed in the untenable position of having to guess how a court might or might not rewrite a policy, and handle its claim adjustment accordingly. There are several reasons why such a rule , FFIC never intended nor agreed to cover any entity not listed as a Named , an insurer is obligated to adjust the policy as written. , a presumption exists in Texas against reformation. The Supreme Court has re policy in favor of preserving the freedom of contract” and has warned that courts “should not by judicial fiat insert nonexistent language . . . into parties’ agreed-to contracts.” reformation requires the highest standard of proof. Thus, predicting judicial reformation would be highly speculative. , during the claim adjustment period, Triyar LLC submitted two sworn proofs of loss stating that it owned the two Malls—which (if true) qualified the Named Insured for property coverage. Thus, there would be no basis for FFIC to speculate regarding Policy reformation. (FFIC did not learn that the proofs of loss were false until July 2012. By misrepresenting Triyar LLC’s mall ownership, Triyar LLC triggered the Policy provision which voids coverage in the event of fraud, concealment or misrepresentat Klepchick’s Third Aff., ¶ 10 (attached hereto as exhibit N). See, e.g. Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010) (“First, we look at the language of the policy because we presume parties intend what the words of their contract say.”). Estes v. Republic Nat’l Bank of Dallas, 462 S.W.3d 273, 275 (Tex. 1970) (“the law presumes a written agreement correctly embodies the parties’ intentions,and isan accurate expression of the agreement the parties reached in prior oral negotiations.”). Excess Underwriters at Lloyds’ London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 51 (Tex. 2008)(quoting Fortis Benefits v. Cantu, 234 S.W.3d 642, 649 n. 41 (Tex. 2007)). St. Paul Lloyd’s Ins. Co. v. Fong Chun Huang 808 S.W.2d 524, 527 (Tex. App.—Houston [14th Dist.] 1991, writ denied) (“. . . reformation is unavailable unless the party claiming mistake presents ‘clear, exact, and satisfactory evidence.’”). See Amended MSJ exhibit B, McWatt Aff., ¶ 10. 2 Couch on Insurance § 26.3 (3d ed. 1995 & Dec. 2001) (noting that the fact a plaintiff argues that they may be entitled to obtain reformation of the policy does not impose any obligation on the insurer to conform until the court makes such reformation). deny Triyar LLC’s claim. Sixth, from 2008 to 2012, Plaintiffs did not assert or seek judicial reformation. Instead, Plaintiffs pretended that Triyar LLC co-owned the Malls with the other Plaintiffs and therefore qualified for coverage. Again, there was no reason for FFIC to even consider reformation during the claim adjustment period. Seventh now, Plaintiffs fail to specify a purported definitive agreement that they say would have been in the Policy but for the parties’ alleged mutual mistake. d into any agreement w was different than the Policy itself. And even Triyar LLC’s own broker, John Penn, testified that no side agreement was ever entered into to vary the express Policy terms as issued: Q.: Did you have any understanding of whether your agency was authorized by Fireman’s Fund to alter the terms of any Fireman’s Fund insurance policy? A.: We never did so. We didn’t and didn’t. We didn’t have Q.: Didn’t have the authority and never did it? Q.: Did you ever – did you or your agency ever enter into a side agreement with the Skinner agency or Triyar to read this provision [that the named insured must own or lease real property to trigger coverage] out of the policy or to alter the policy so that this A.: Not to my knowledge. 22 Q.: Altering the policy is not something you or your agency are 23 McWatt’s Third Affidavit, attached hereto as exhibit O. Plaintiffs’ Second Amended Petition, p. 2, “Plaintiffs have owned and operated the malls . . . during the time the Properties were insured.” Plaintiffs’ Seventh Amended Petition, pp. 9–10. Klepchick’s Third Aff., ¶ 22 (attached hereto as exhibit N). Exhibit P, Deposition of John Penn, pp. 239: 3–11. Id. at 298–99. Q.: I want to know if you personally entered into a side agreement with the Skinner agency or with Triyar to alter these words that we found on Exhibit 98, the words that say, “Throughout this coverage section the words ‘you’ and ‘your’ refer to the named insured shown on the declarations.” A.: I did not. To now assert that (i) FFIC should not have relied on the explicit Policy language, (ii) should not have relied on Triyar LLC’s proofs of loss as being truthful, (iii)FFIC should not have relied on Plaintiffs’ representations to this Court as being truthful, and (iv) FFIC should be punished for same and its failure to predict the terms of a subsequent judgment or reformation—which wasn’t even asserted by Triyar LLC during the claim adjustment period— would pose an undue hardship on FFIC and all insurance carriers with respect to the adjustment of claims. FFIC’S DISPUTE OVER PLAINTIFFS’ POLICY REWRITE IS AT A MINIMUM BONA FIDE Bad faith is not easily established under Texas law. The “Supreme Court has repeatedly instructed than an insurer will not be faced with a tort suit for challenging a claim of coverage if there was any reasonable basis for its denial of that coverage.” In order to sustain a bad faith claim, the insured must prove (1) the absence of any reasonable basis for denying or delaying payment of the benefits of the policy, and (2) that the carrier knew or should have known there was no reasonable basis for denying or delaying payment of the claim. The insured must prove that there were before the insurer which, if believed, would justify denial of the claim. Id. at p. 318:1–4. Id. at p. 390:6–13. Emmert v. Progressive County Mut. Ins. Co., 882 S.W.2d 32, 36 (Tex.App.—Tyler 1994, writ denied) (citing Lyons v. The Millers Cas. Ins. Co. of Texas, 866 S.W.2d 597, 601 (Tex. 1993). Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex. 1988); accord Transp. Ins. Co. v. Moriel 879 S.W.2d 10, 18 (Tex. 1994). State Farm Lloyds Inc. v. Polasek, 847 S.W.2d 279, 284 (Tex. App.—San Antonio 1992, writ denied). Importantly, the absence of a reasonable basis must be judged by the facts the insurer had at the time it assessed the claim Moreover, a dispute over the terms of coverage cannot, as a matter of law, be the basis of a bad faith claim. Nor can bad faith be established if the insurer was incorrect about the proper construction of the policy or the factual basis for its denial of the claim. As one Texas court observed, “If the undisputed facts demonstrate the insurer possessed evidence contract claim might not be valid, the bad faith action is not as a matter of law . . . .” Numerous Texas courts have dismissed bad faith claims via summary judgment where the insurer denied a questionable claim. Further, a breach of an insurance contract does not automatically give rise to liability under Section 541 of the Texas Insurance Code. Rather, causes of action under Section 541 require the same predicate for recovery as a common law bad faith cause of action and are subject to the same defenses. Here, the undisputed facts demonstrate that FFIC possessed evidence reasonably showing that Plaintiffs’ contract claim was invalid. The policy as written requires the Named Insured to have an ownership or leasehold interest in any property listed by the Policy, yet the Named Insured acknowledges that it never had an ownership or leasehold interest in the two Malls. As a Viles v. Security Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990). See Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189, 194 (Tex. 1998) (noting that evidence showing only a bona fide coverage dispute does not demonstrate that there was a reasonable basis for denying a claim.). Lyons v. Millers Casualty Ins. Co., 866 S.W.2d 597, 601 (Tex. 1993) (“As long as the insurer has a reasonable basis to deny or delay payment of the claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith.”). Lockett v. Prudential Ins. Co. of America, 870 F. Supp. 735, 740–41 (W.D. Tex. 1994) (emphasis added). See, e.g. United States Fire Ins. Co. v. Williams, 955 S.W.2d 267, 268 (Tex. 1997) (per curiam) (citing National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376–77 (Tex. 1994) (holding that an insurer was entitled to summary judgment if summary judgment evidence established there was a good faithdispute regarding the applicability of a workers compensation statute)). See Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 49 (Tex. 1997) (noting new standard adopted in bad faith actions unifies common law and statutory standards); Higginbotham v. State Farm Mut. Auto Ins. Co., 103 F.3d 456, 460 (5th Cir. 1997) (holding Texas courts have ruled that Insurance Code claims require the same predicate for recovery as bad faith causes of action). matter of law, it was reasonable for FFIC to rely on the language of the Policy to adjust and deny the claim. Indeed, the Texas Supreme Court has repeatedly held that a court must look to the actual language of the insurance policy in order to establish its meaning. Texas courts presume that the parties intend what the words of their contract say. Since the clear of the Policy provided FFIC with a basis on which to reject the claim, surance Code claims as a matter of law. In sum, FFIC is under no obligation to recognize GPM and SJM as Named Insureds unless the Court judicially alters the Policy. As such, FFIC was reasonable in its determination that Plaintiffs failed to trigger coverage. And, in the event the Policy is modified in such a way that any of the Plaintiffs attain coverage, the undisputed facts clearly demonstrate a dispute regarding Plaintiffs’ claim for coverage based on the Policy as written and warrant dismissal as a matter of law of Plaintiffs’ common law bad faith and extra-contractual claims Respectfully submitted, ARDERE YNNE EWELL /s/ Robert M. Hoffman State Bar No. 09788200 rhoffman@gardere.com Thanksgiving Tower, Suite 3000 1601 Elm Street Dallas, TX 75201 (214) 999-3000 (214) 999-4667 – Facsimile See, e.g. Nat’l Union Fire Ins. Co. v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008) (“Most importantly, we must give the policy’s words their plain meaning, without inserting additional provisions into the contract.”). Offshore Recruiting Services, Inc. v. New Hampshire Ins. Co., 2011 WL 6938531 (Tex. App.—Houston [1st Dist.] Dec. 29, 011) (NO. 01-10-00946-CV). ISDOM L.L.P. State Bar No. 13057620 martin@mdjwlaw.com State Bar No. 00785356 disiere@mdjwlaw.com State Bar No. 24046606 pela@mdjwlaw.com 808 Travis Street, 20th Floor (713) 222-0101 – Facsimile ATTORNEYS FOR DEFENDANT FIREMAN’S FUND INSURANCE COMPANY CERTIFICATE OF SERVICE This is to certify that a true and correct copy of the foregoing document was 013. Notice of this filing will be sent to all parties via operation of the Court’s electronic filing system. For those parties whose counsel is not registered with the Court’s electronic filing system, service will be made by either facsimile, hand delivery, or via certified mail, return receipt requested. Mr. James L. Cornell ARDUE Mr. Gene F. Creely, II REELY AW IRM 701 Richmond Avenue, Suite 250 /s/ Molly Pela