A Texas court has ruled that an insured's claims against its excess insurance carriers for damage caused by Hurricane Harvey should be dismissed where the insured's primary insurance policy had not yet been exhausted.
The Case
After Hurricane Harvey hit the Texas coast in August 2017, Royal Hospitality Corp., the operator of 54 Church's Chicken Restaurants in Texas (collectively, the "Properties"), filed claims with its primary insurer and excess insurance carriers, requesting payment for its damages. According to Royal Hospitality, those damages included the cost of repairs to the Properties and business interruption and business personal property losses incurred as a result of the hurricane.
An adjuster hired to inspect the Properties informed Royal Hospitality that no payment would be made under the primary insurance policy because the covered damages fell below the deductible. Royal Hospitality disputed that decision and filed suit against its primary insurer and its excess carriers for breach of contract, violations of the Texas prompt payment law, and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act for unfair settlement practices and misrepresentations.
The excess carriers moved for judgment on the pleadings, or in the alternative for summary judgment, arguing that all the causes of action failed because they owed no duty to pay, adjust, or settle Royal Hospitality's claim until the limits of the primary policy had been exhausted.
The Court's Decision
The court recommended that the excess carriers' motion be granted.
In its decision, the court explained that Royal Hospitality admitted that it had yet to receive payment from any insurance carrier for the property damages it suffered from Hurricane Harvey. In the court's view, this admission was "critical" because the insurance policies did not place any obligations on the excess carriers until the limits of the primary policy had been fully paid.
The court was not persuaded by Royal Hospitality's contention that it had to sue the excess carriers at this time because the policy language required Royal Hospitality to file suit against them within a specified time period and that if it did not assert its breach of contract claim now, any such claim would be time-barred. According to the court, because the primary policy had yet to be exhausted, no breach of contract cause of action had accrued against the excess carriers.
In summary, the court ruled that the excess carriers' contractual duty to pay Royal Hospitality for any damages sustained as a result of Hurricane Harvey had yet to be triggered because the primary policy had yet to be exhausted and, accordingly, Royal Hospitality's breach of contract claim had to be dismissed.
The court reached the same result with respect to Royal Hospitality's extra-contractual claims, finding "no merit" to the argument that it should be permitted to continue to pursue those claims against the excess carriers.
The court concluded that Royal Hospitality could not pursue its extra-contractual claims "for the same reasons its breach of contract claim fail[ed] – the primary policy ha[d] not been exhausted."
The case is Royal Hospitality Corp. v. Underwriters at Lloyd's, No. 3:18-CV-000102 (S.D. Tex. Aug. 20, 2019). Attorneys involved include: For Royal Hospitality Corp., Plaintiff: Andrew P Taylor, LEAD ATTORNEY, Daly & Black, P.C., Houston, TX; Richard D Daly, LEAD ATTORNEY, Daly Black PC, Houston, TX; John Scott Black, Daly & Black, Houston, TX. For Liberty Surplus Insurance Corporation, Defendant: Jennifer E Michel, LEAD ATTORNEY, Lewis Brisbois Bisgaard & Smith LLP, Lafayette, LA; Sarah Russell Smith, LEAD ATTORNEY, Lewis Brisbois Bisgaard Smith LLP, Houston, TX. For Hallmark Specialty Insurance Company, Defendant: David A Clark, LEAD ATTORNEY, Kristen Welsh McDanald, Akerman LLP, Houston, TX. For Homeland Insurance Company of New York, Defendant: Brett A Wallingford, LEAD ATTORNEY, Zelle LLP, Dallas, TX. For Beazley Underwriting, LTD, Defendant: Jennifer E Michel, LEAD ATTORNEY, Lewis Brisbois Bisgaard & Smith LLP, Lafayette, LA; Sarah Russell Smith, Lewis Brisbois Bisgaard Smith LLP, Houston, TX. For Axis Corporate Capital UK Limited, Defendant: Jerrod L Rinehart, LEAD ATTORNEY, Brackett Ellis, Forth Worth, TX; Carter L Ferguson, Brackett Ellis PC, Fort Worth, TX.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].