Fuentes is claiming underinsured motorist (UIM) benefits, while USAA is seeking coverage related to the accident. The parties dispute whether Santos qualified as a "family member" under the insurance policy. Fuentes also asserted a bad faith claim against USAA for how the company handled the claim. The court has to decide whether Santos resided with the named insured at the time of the accident, and whether the Santos Estate is entitled to UIM benefits under the policy that USAA issued.

The USAA policy stated in part, "[w]e will pay compensatory damages which a covered person is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of BI [bodily injury] sustained by a covered person and caused by an auto accident." "Covered person" is defined, in part, as: "You or any family member," and "family member" for purposes of the policy, is "a person related to you by blood, marriage, or adoption who resides primarily in your household."

Before the accident, Fuentes removed Santos as a listed driver on his policy, so Santos purchased his own insurance policy with Garrison. The Garrison and USAA policies listed different addresses.

When investigating the claim, USAA identified the different addresses as a coverage issue, whether Santos resided primarily in the Fuentes house at the time of the accident. USAA issued a Reservation of RIghts to Fuentes, informing him that it had identified coverage issues. USAA indicated that it did not have sufficient information to confirm that Santos was covered by Fuentes' policy, so it requested documents to indicate Santos' residency at the time of the accident. Fuentes submitted several documents indicating that Santos lived at his residence. Testimony reflected that there was never a time that Santos moved to another residence or moved any personal belongings to another residence. Opposing testimony revealed that Santos lived with English after he got into an argument with his parents during the summer of 2015, and he stayed in that home with her until his death.

In the denial of the claim USAA relied largely on the evidence that, prior to the accident, Fuentes removed Santos from his auto policy, and that Santos bought a car and used English's address to obtain his own auto policy. USAA claims that Santos did not qualify as a "family member" because he did not reside with Fuentes at the time of the accident, while Fuentes argues that Santos lived continually in his house.

Because the facts were disputed, the court dismissed both motions for summary judgment on both of the UIM and breach of contract claims.  The court then considered the claim of statutory bad faith, and found that Fuentes failed to present clear and convincing evidence that USAA acted in bad faith when it denied the claim for UIM benefits.

The court said "[w]here an insurer sees red flags that cause concern of insurance fraud and prompt an investigation, the insurer has a reasonable basis for investigation, and is therefore not liable for claims of bad faith", and granted USAA's motion for summary judgment on the bad faith claim.

Editor's Note: Although the plaintiff believed that his step-son still lived with him and would return home after the dispute was resolved, the court found that the red flags that USAA encountered in its investigation, namely the conflicting addresses on the two insurance policies, were enough for the company to avoid a judgment of bad faith.