April 18, 2021
A recent Texas Lawyer story by Greg Land, “Texas Justices Toss Class Action Ruling Against Insurer and $3.5M Fee Award,” reports that the Texas Supreme Court has ruled an insurer that stopped issuing “all risk” homeowners policies because it was paying out too much in mold claims did not violate the contracts of some 400,000 policyholders, and does not have to pay more than $3 million in attorney fees and nearly $487,000 in costs a jury awarded to the plaintiffs lawyers.
Ruling in a class action that’s been percolating through the courts for nearly 20 years, the justices sent the fee award back to a Jefferson County judge with instructions to consider what is “equitable and just” to Farmers Insurance, given that the named plaintiff and class “have not prevailed in any regard and have obtained no favorable results.” The April 9 ruling written by Justice Jimmy Blacklock overturns a 2019 ruling by the Thirteenth Court of Appeals that upheld the fee award and also said the plaintiffs in separate, though related litigation should have been allowed to intervene in order to seek their own fees.
Farmers is represented by a team of Norton Rose Fulbright lawyers including Houston-based partners Layne Kruse, Carlos Rainer, Katherine Mackillop and Scott Incerto. Lawyers for plaintiff Sandra Geter and the class are John Werner of Reud Morgan & Quinn and DeWayne Layfield of the Law Office of L. DeWayne Layfield, both in Beaumont.
As detailed in the order and other filings, the case began in 2000 when Farmers and other insurers sought permission from the Texas Department of Insurance to stop writing the all-risk policies and instead offer a less comprehensive “named peril” policy. A Farmers executive told the TDI the move was necessary because of “dramatic increases that we have experienced for water, mold and foundation claims, and the resultant underwriting losses.”
The decision was approved, and in 2002 Farmers sent all holders of the policies a notice that they would not be renewed but that the named peril policy would still be offered. In 2002, policyholder Geter filed a class action seeking declaratory judgment that Farmers’ non-renewal violated the clause of her policy stating: “We may not refuse to renew this policy because of claims for losses resulting from natural causes.”
She also argued that the non-renewal notice was void because it “was based on a prohibited reason for non-renewal.” The trial court granted Geter summary judgment, ruling that Farmers breached the contract by not renewing the policies. Also in 2002, another class action was filed in Travis County claiming that Farmers “wrongfully raised premiums despite offering less coverage when it replaced the HO-B policy” with the slimmed-down coverage. Claims mirroring Geter’s were later added to that suit as well. In 2016 the Travis County suit settled with Farmers agreeing to compensate policyholders in “a package valued at over $100 million.” But the non-renewal claims were carved out of that litigation, and the Geter case continued with both sides filing for summary judgment.
The trial court granted summary judgment to the plaintiffs, ruling that Farmers breached its agreement by not renewing the policies and that each member should be allowed to renew their HO-B policy at a premium set by the trial court. While that decision was on appeal, in 2016 the trial judge held a jury trial on attorney fees that ended with a jury awarding the plaintiffs lawyers $3,046,247 in fees and $486,790 in expenses. The plaintiffs in the Travis County action filed to intervene for their attorney fees, arguing that their case benefitted the Geter class members.
The trial judge denied the motion, and both they and Farmers appealed. The court of appeals affirmed the trial court’s holding that Farmers had breached its policyholders’ contracts and the fee award, but reversed the rulings denying the Travis County plaintiff’s motions to intervene and ordering Farmers to issue HO-B policies at a determined premium.
Blacklock’s opinion said the key to the case was the interpretation of the policies’ bar to renewal “for losses resulting from natural causes.” “The dispute comes down to what paragraph 6(a) of the policy means by ‘claims for losses,’” Blacklock wrote. “If the language refers to ‘claims’ and ‘losses’ of the individual policyholder, then Farmers is correct that the policy does not preclude an insurer from terminating the policy’s use statewide because of systemic losses that make continued use of the policy financially untenable,” he said. “If ‘claims’ and ‘losses’ also refers to statewide or systemic ‘claims’ and ‘losses,’ then Geter is correct that the policy prohibited Farmers from deciding to non-renew.”
The justices find it “highly implausible” that Farmers or the TDI would agree to language that would “undermine TDI’s regulatory authority to react to changing circumstances in the insurance industry and would bind Farmers to suffer statewide underwriting losses in perpetuity.”
“Because the individual plaintiff and class members were not entitled to a renewal of their HO-B policies, all the plaintiffs’ claims fail, and summary judgment for Farmers was proper,” the opinion said. It follows, Blacklock wrote, that neither Geter nor the would-be intervenors are entitled to any award of fees.