Texas Supreme Court Opinion Likely to be Misused by Insurers

On October 31, 2014, without hearing oral argument, the Supreme Court of Texas issued what might seem, on the surface, to be a blow to policyholders seeking discovery from insurance companies in lawsuits alleging wrongful denial and underpayment of claims. We fully expect insurance companies and their lawyers, who routinely resist even the most basic discovery, to wrongfully use this ruling as a shield. But close scrutiny of the Court's decision reveals that the Court's decision is specific to the case before it and should not be construed as a blanket limitation on the nature of discovery permissible in first party insurance claims.

The plaintiff in the case underlying this mandamus proceeding, Mary Erving, was a National Lloyds policyholder whose home was damaged in two storms that swept through Cedar Hill, Texas, in 2011 and 2012. In response to insurance claims following both storms, National Lloyds sent adjusters to Erving's property and paid her claims. Concerned that National Lloyds had undervalued her claims, Erving subsequently sued the carrier, alleging contract and tort causes of action. In the course of discovery, Erving "requested production of all claim files from the previous six years involving three individual adjusters. She also requested all claim files from the past year for properties in Dallas and Tarrant Counties involving Team One Adjusting, LLC, and Ideal Adjusting, Inc., the two adjusting firms that handled Erving's claims. Erving sought via interrogatory the names, addresses, phone numbers, policy numbers, and claim numbers associated with the requested claim files." The trial court ordered production of the files for claims handled by Team One and Ideal, but limited the order to claims related to properties located in Cedar Hill and to the storms that damaged Erving's home.

The court of appeals denied National Lloyds mandamus relief. But the Supreme Court sided with the insurance company, holding that the discovery order was beyond the scope of permissible discovery because without more of an indication of how the information sought would be probative of National Lloyds' treatment of Erving's claim, the information was not reasonably calculated to lead to the discovery of admissible evidence.

Importantly, the Supreme Court explicitly declined to hold that third-party insurance claims can never be relevant in coverage litigation . Rather, the Court simply held that, on Erving's allegations, the requisite link between the information requested and Erving's claims did not exist.

Although we anticipate that insurance companies and their lawyers will attempt to misconstrue the Supreme Court's decision as a generic limitation on discovery in first party cases, the attorneys at Daly & Black P.C. will continue to vigorously pursue discovery information to the full extent allowed by the Texas Rules of Civil Procedure based on the facts of each individual case.

To read the Texas Supreme Court's opinion click here.