                                                                    FILED
                                                                    17-0400
                                                                    12/19/2017 3:34 PM
                                                                    tex-21387540
                                                                    SUPREME COURT OF TEXAS
                                                                    BLAKE A. HAWTHORNE, CLERK


                             No.17-0400

  In The Supreme Court of Texas
                    STATE FARM LLOYDS,
                               Petitioner/Cross-Respondent
                            v.
                       DENNIS WEBB,
                               Respondent/Cross-Petitioner

                         On Petition for Review from the
                    Ninth Court of Appeals—Beaumont, Texas
                           Cause No. 09-15-00408-CV




          STATE FARM LLOYDS’
              RESPONSE TO
          PETITION FOR REVIEW
J. Hampton Skelton                      Melissa A. Lorber
Eva C. Ramos                            ENOCH KEVER PLLC
Edward F. Kaye                          5918 W. Courtyard Drive, Suite 500
SKELTON & WOODY                         Austin, Texas 78750
248 Addie Roy Road, Suite B-302         512.615.1200 / 512.615.1198 fax
Austin, Texas 78746
512.651.7000 / 512.651.7001 fax

                   ATTORNEYS FOR STATE FARM LLOYDS
                IDENTITY OF PARTIES AND COUNSEL

Petitioner/Cross-Respondent:   Appellate & Trial Counsel:
State Farm Lloyds              J. Hampton Skelton
                               Eva C. Ramos
                               Edward F. Kaye
                               SKELTON & WOODY
                               248 Addie Roy Road, Suite B-302
                               Austin, Texas 78746

                               Appellate Counsel:
                               Melissa A. Lorber
                               ENOCH KEVER PLLC
                               5918 West Courtyard Drive, Suite 500
                               Austin, Texas 78730

                               Trial Counsel:
                               David J. Fisher
                               ORGAIN, BELL & TUCKER, LLP
                               560 South 4th Street
                               Silsbee, Texas 77656

Respondent/Cross-Petitioner:   Trial & Appellate Counsel:
Dennis Webb                    Gregory F. Cox
                               MOSTYN LAW FIRM
                               6280 Delaware Street
                               Beaumont, Texas 77706




                                    i
                                         TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL ............................................................ i

INDEX OF AUTHORITIES.................................................................................... iii

STATEMENT OF THE CASE ................................................................................ iv

SUMMARY OF THE ARGUMENT ........................................................................1
ARGUMENT .............................................................................................................2
         I.       The court of appeals correctly applied the standard for legal-
                  sufficiency review and correctly held that there is no evidence
                  to support Dennis Webb’s Insurance Code claims. ..............................2

         II.      The record refutes Webb’s claim that this case is “very much
                  like” State Farm Lloyds v. Nicolau. ......................................................8
         III.     The court of appeals correctly applied this Court’s decisions in
                  Viles v. Security National Insurance Co. and USAA Texas
                  Lloyds Co. v. Menchaca and Webb’s criticisms are unclear and
                  unpersuasive. .......................................................................................11

PRAYER ..................................................................................................................13

CERTIFICATE OF COMPLIANCE .......................................................................14

CERTIFICATE OF SERVICE ................................................................................14




                                                            ii
                                   INDEX OF AUTHORITIES

CASES
City of Keller v. Wilson,
   168 S.W.3d 802 (Tex. 2005) ............................................................................ 1-3

Lyons v. Millers Cas. Ins. Co. of Tex.,
   866 S.W.2d 597 (Tex. 1993) ................................................................................ 4

State Farm Lloyds v. Nicolau,
   951 S.W.2d 444 (Tex. 1997) ...................................................................... 1, 8-11

Transp. Ins. Co. v. Moriel,
   879 S.W.2d 10 (Tex. 1994)........................................................................... 3-4, 6

Travelers Pers. Sec. Ins. Co. v. McClelland,
   189 S.W.3d 846 (Tex. App.—Houston [1st Dist.] 2006, no pet.) ........................ 9
USAA Tex. Lloyds Co. v. Menchaca,
  No. 14-0721, 2017 WL 1311752 (Tex. Apr. 7, 2017).............................. 1, 11-13
Viles v. Sec. Nat’l Ins. Co.,
   788 S.W.2d 566 (Tex. 1990) ......................................................................1, 3, 11




                                                      iii
                             STATEMENT OF THE CASE

    Nature of the Case       Dennis Webb sued State Farm Lloyds for breach of
    and Parties:             contract and violation of the Texas Insurance Code,
                             claiming that a plumbing leak caused foundation
                             movement and cracked kitchen tiles, and that State Farm
                             failed to adequately pay his homeowners insurance
                             claim.

    Trial Court:             Honorable Kent Walston in the 58th Judicial District
                             Court of Jefferson County, Texas; Cause No. A–194,46.

    Trial Court’s            After a jury trial, judgment was rendered for Webb on
    Disposition:             both the contract and Insurance Code claims. 1

    Court of Appeals:        Ninth Court of Appeals in Beaumont; Chief Justice
                             McKeithen, joined by Justices Kreger and Horton; State
                             Farm Lloyds v. Webb, No. 09-15-00408-CV, 2017 WL
                             1739763 (Tex. App.—Beaumont May 4, 2017, pet. filed)
                             (mem. op.).

    Court of Appeals’        The court of appeals affirmed the judgment on the breach
    Disposition:             of contract claim, reversed and rendered judgment for
                             State Farm on the Insurance Code claims, and remanded
                             the attorney fees claim to the trial court. 2




1
   The jury charge (CR 686-709) and final judgment (CR 798-802) are attached to State Farm’s
Petition as Appendix A & B.
2
   The court of appeals’ opinion on rehearing and judgment are attached to State Farm’s Petition
as Appendix C & D.


                                              iv
                          SUMMARY OF THE ARGUMENT
        Dennis Webb’s petition ostensibly focuses on the standard of review applied

by the court of appeals, but quickly descends into an attempt to pound the square

peg represented by the facts of this case into the round hole of State Farm Lloyds v.

Nicolau, 951 S.W.2d 444 (Tex. 1997).3 In making a strained comparison between

the two cases, Webb’s petition employs misleadingly selective quotations and

misrepresents the record. Webb’s ultimate goal—to resurrect liability for a

“knowing” violation of the Texas Insurance Code—fails because it relies entirely

on piling unwarranted inference upon unwarranted inference. Webb also takes

failed shots at the court of appeals for relying on three of this Court’s other cases,4

all of which support the court’s reversal of the jury’s award of extra-contractual

damages. The court of appeals correctly applied the standards for legal-sufficiency

review in reviewing all the evidence, concluding that there is no evidence that

State Farm had “no reasonable basis” for its claim decision, and thus holding that

the record could not support extra-contractual liability. Webb’s petition presents no

error and no issue that warrants this Court’s review.




3
    Webb’s Petition at 9 (claiming “Nicolau was a case very much like this one”).
4
  City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005); Viles v. Sec. Nat’l Ins. Co., 788 S.W.2d
566 (Tex. 1990); USAA Tex. Lloyds Co. v. Menchaca, No. 14-0721, 2017 WL 1311752 (Tex.
Apr. 7, 2017).


                                                1
                                   ARGUMENT

I.    The court of appeals correctly applied the standard for legal-sufficiency
      review and correctly held that there is no evidence to support Dennis
      Webb’s Insurance Code claims.
      Webb does not dispute that the court of appeals correctly stated the legal-

sufficiency standard of review in its opinion, but Webb argues that the court

improperly deviated from that standard. Webb, 2017 WL 1739763, at *8-10. He

claims “the court of appeals discussed only evidence that would tend to show

English’s report was objectively prepared and that State Farm was reasonable in

relying on it, and summarily disregarded the evidence that the jury heard.” Webb’s

Petition at 7. The face of the court’s opinion demonstrates otherwise. The opinion

includes a detailed recitation of all of the evidence, including testimony Webb

relies on in his petition for review. Webb, 2017 WL 1739763, at *2-6. That the

court did not restate all the evidence for a second time in addressing the sufficiency

of the evidence is no indication of error.

      More critically, Webb ignores this Court’s articulation of the appellate

court’s task in City of Keller v. Wilson:

      The final test for legal sufficiency must always be whether the
      evidence at trial would enable reasonable and fair-minded people to
      reach the verdict under review. Whether a reviewing court begins by
      considering all the evidence or only the evidence supporting the
      verdict, legal-sufficiency review in the proper light must credit
      favorable evidence if reasonable jurors could, and disregard contrary
      evidence unless reasonable jurors could not.



                                             2
168 S.W.3d 802, 827 (Tex. 2005). That is precisely what the court of appeals did.

Though Webb offered innuendo and accusation that State Farm’s claim

investigation was outcome oriented and its reliance on Brandon English’s expert

report was pretextual, the court reviewed the trial record and concluded that Webb

had offered no evidence supporting the bad faith verdict.

      Webb’s argument that the court of appeals should have only discussed

evidence that supported Webb’s position, while ignoring the evidence supporting

State Farm’s position, is nonsensical in the review of an insurance bad faith

claim—which requires evidence that an insurer’s liability on a claim was

“reasonably clear” and provides that evidence establishing a “bona fide dispute”

cannot support a finding of bad faith. As this Court has explained:

      Evidence that merely shows a bona fide dispute about the insurer’s
      liability on the contract does not rise to the level of bad faith. Nor is
      bad faith established if the evidence shows the insurer was merely
      incorrect about the factual basis for its denial of the claim, or about
      the proper construction of the policy. A simple disagreement among
      experts about whether the cause of the loss is one covered by the
      policy will not support a judgment for bad faith. To the contrary, an
      insured claiming bad faith must prove that the insurer had no
      reasonable basis for denying or delaying payment of the claim, and
      that it knew or should have known that fact.

Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 17-18 (Tex. 1994) (internal citations

omitted). This standard necessarily requires evaluation of all the evidence:

“Whether there is a reasonable basis for denial, however, must be judged by the

facts before the insurer at the time the claim was denied.” Viles v. Sec. Nat’l Ins.

                                         3
Co., 788 S.W.2d 566, 567 (Tex. 1990). The court of appeals correctly reviewed all

the evidence available to State Farm and held that “[b]ecause the evidence merely

shows a bona fide dispute about State Farm’s liability on the contract, it does not

support a judgment for bad faith.” Webb, 2017 WL 1739763, at *9 (citing Moriel,

879 S.W.2d at 17-18). There is no error and no legal question that warrants this

Court’s attention.

      The court of appeals weighed the evidence under the proper legal standard.

Id. at *8-9. To support his bad faith claim, Webb was required to present evidence

demonstrating more than a “disagreement among experts concerning whether the

cause of the loss is covered by the policy”—he was required to show that, despite

State Farm’s engineering expert opining that Webb’s cracked kitchen tiles were not

caused by a covered peril, State Farm nonetheless “had no reasonable basis to

delay or deny payment of the claim.” See id. at *8 (quoting Lyons v. Millers Cas.

Ins. Co. of Tex., 866 S.W.2d 597, 600 (Tex. 1993)). And the court of appeals

correctly concluded that “Webb offered no evidence showing that the [expert’s]

report … was not objectively prepared or that State Farm’s reliance on the report

was not reasonable” and, thus, failed to meet that burden. Id. at *9.

      The record establishes that English’s investigation was thorough and that he

based his conclusion on objective data, including elevation surveys by three

engineers over a several-year period: (1) a survey after Hurricane Ike in 2009;


                                          4
(2) English’s survey done a few weeks after the leak was discovered and repaired

in 2012; and (3) the survey by Webb’s litigation expert, Peter Rabner, in 2014.

5 RR 183-86. All three surveys indicated no appreciable movement in the

foundation. 5 RR 182-86. Had the leak caused foundation movement, there would

have been evidence of heave on the post-leak elevation surveys—a noticeable

change from the pre-leak survey. 5 RR 89-90, 119-20, 130, 133, 182-86. Even

Rabner admitted that there should have been a pattern of greater distress closest to

the source of the water intrusion. 3 RR 230-31. But that pattern was not present at

Webb’s house. 5 RR 130, 132-33.

        English explained why he disagreed with Rabner’s improbable opinion that

the foundation had rapidly heaved up, then quickly moved back down, all

undetected by the elevation studies. English explained:

        •      had that occurred, there would have been diagonal cracks in the door,
               affected soffit or trim, or cracked brick (5 RR 160-64);

        •      the grout surrounding the purportedly recently cracked tiles had no
               cracks and the cracks skipped tiles in places (5 RR 134-35, 137-40);

        •      this was consistent with Webb’s own testimony that—after the last
               hurricane, and long before the leak—he had replaced a few, but not
               all, of the cracked tiles because he lacked enough matching tiles to
               replace every one that had cracked (3 RR 22).

In short, English’s opinions were well grounded in data and objectively known

facts 5 and could reasonably have been relied on by State Farm during its claim

5
    Webb’s expert, Rabner, testified that he did not doubt English’s data was accurate. 3 RR 228.


                                                5
investigation. The fact that Webb’s engineer (hired by the Mostyn firm during

litigation, almost two years after the leak) had a different trial opinion than English

is unsurprising and no indication of bad faith. See Moriel, 879 S.W.2d at 17-18 (“A

simple disagreement among experts about whether the cause of the loss is one

covered by the policy will not support a judgment for bad faith.”).

      Webb argues that “an insurer cannot insulate itself from bad faith liability by

investigating a claim in a manner calculated to construct a pretextual basis for

denial.” Webb’s Petition at 9. But while this statement of law is correct, Webb’s

petition fails to point to any evidence that English’s investigation was “outcome-

oriented” or that his conclusions were biased. To the contrary, English refuted this

accusation with unimpeached testimony:

      Q. Now, … has State Farm ever told you, in connection with this case
         or any other case, before you went and did your investigation –
         have they ever told you what result they would like to see?
      A. No, sir.
      Q. Have you ever had that happen?
      A. No, sir.
      Q. Did it happen in this case?
      A. No, sir.
      Q. What would … you do if an insurance company said something
         like that to you?
      A. I wouldn’t work for ‘em again.
      Q. Would you work for ‘em on that particular assignment?
      A. No, not – including that. I would never work for ‘em.
      Q. And why is that?


                                          6
      A. I’ve worked too hard at this; and, in 17 years, I’m not gonna throw
         it away ‘cause they want me to. It’s not worth it.

      ***
      Q. Are you aware of your company ever doing anything of that nature,
         going out to investigate a claim with a predetermined result?
      A. No, sir.

5 RR 108-10. This unchallenged testimony is evidence. The unsupported innuendo

in Webb’s petition is not.

      Additionally, Webb suggests that English’s opinions must have been biased

because “State Farm has a very short list of carefully vetted engineers that it uses

for foundation claims, and the firms on the list derive a substantial portion of their

income from State Farm.” Webb’s Petition at 3 (citing 4 RR 20-21; 5 RR 236).

Even if it were true that State Farm uses only a “short list” of engineers and

provides a “substantial portion” of their income, Webb has demonstrated no causal

link to establish that any of the engineers—and particularly English—offer biased

or otherwise unprofessional opinions. And additionally Webb’s accusation is not

supported by the record. State Farm claims supervisor Ernest Perez instead

testified there was a list of 8 to 10 engineering firms for claims personnel to use on

a rotational basis. 4 RR 31-32. English testified that State Farm provided about

20% of the work of HSA’s Houston office, but HSA was part of a larger national

firm. 5 RR 101, 235-36. English further testified that he lives in Kansas City and




                                          7
no longer does much State Farm work. 5 RR 101, 236. This evidence does not

support Webb’s claim of bias.

         Webb also takes issue with the fact that State Farm’s engineer did not

provide Webb with a definitive cause of the damages to his home—an argument

that misperceives English’s role. English was not hired to determine why tiles had

cracked: his sole assignment was to determine if there was a covered loss, which in

this case meant determining if the plumbing leak had caused the foundation to

heave, which is the only circumstance under which the insurance policy would

provide coverage for foundation damage. 5 RR 227.6

         The court of appeals correctly concluded that the evidence merely shows a

bona fide dispute about State Farm’s liability on the insurance policy and did not

establish that State Farm had no reasonable basis for denying payment of Webb’s

claim.

II.      The record refutes Webb’s claim that this case is “very much like” State
         Farm Lloyds v. Nicolau.
         Webb’s efforts to compare this case to Nicolau are unavailing. Nicolau

turned on evidence that State Farm’s claims supervisor had hired an engineer with

awareness that this engineer held a “general opinion” that a localized leak beneath

a house would not cause foundation movement. This Court wrote:

6
   As the court of appeals recognized, “[a]ccording to English, the focus of his investigation was
to determine whether the foundation moved as a result of the leak and not to determine what
caused the tiles to crack.” Webb, 2017 WL 1739763, at *4.


                                                8
       David Teasdale, a Haag engineer since his graduation from college in
       1985, provided evidence that a substantial amount of Haag’s work is
       done for insurance companies; Teasdale estimated that eighty to
       ninety percent of his work consisted of investigations for insurance
       companies. He also testified that he was aware that an insurance
       company would be required to pay if a policyholder’s home were
       damaged by a leak.

       Furthermore, the evidence supports a logical inference that State Farm
       obtained the reports from Haag Engineering because of Haag’s
       general view that plumbing leaks are unlikely to cause foundation
       damage. State Farm’s claim superintendent, Ralph Cooper, testified
       that he was aware of Haag’s view when he requested the first report.

951 S.W.2d at 448. Even so, the Court held that “[s]tanding alone, this [type of]

evidence would not always be evidence of bad faith. All experts presumably have

certain general views and expertise, and an insurer’s mere awareness of such views

is not necessarily an indication of bad faith.” Id. at 449.7 But there was additional

evidence that tipped the scales in favor of upholding a bad faith finding in Nicolau,

including: (1) Nicolaus’ repair contractor testified that he had reviewed nearly 100

Haag reports, but found only two times Haag had found plumbing leaks to have

been the cause of foundation damage; and (2) even State Farm’s own experts

testified they disagreed with some of Haag’s conclusions and that one conclusion

about moisture content of a soil sample “was unreasonable.” Id. at 450.



7
   The import of the Nicolau decision is that “in order to show bad faith, the evidence must show
behavior more egregious than merely hiring a firm whose reports generally feature an outcome
favored by its recipient.” See Travelers Pers. Sec. Ins. Co. v. McClelland, 189 S.W.3d 846, 853-
54 (Tex. App.—Houston [1st Dist.] 2006, no pet.).


                                               9
      While the evidence in Nicolau was held to be sufficient to support a finding

of bad faith, there is no comparable evidence here. Webb implies that because

English worked at Haag many years ago, he must be biased. But Webb cannot

point to any evidence of a “general view” held by English that would favor

insurers, much less affect the causation opinion he gave in this case. English

directly refuted the accusation, testifying that plumbing leaks can cause foundation

movement: “[T]he premise is that if water introduces into that clay and the clay

swells, it can swell enough to move a foundation. It’s always that. That’s the

potential.” 5 RR 124. English testified that he was open to the possibility that a

plumbing leak can cause a foundation to move. 5 RR 124, 215. He further made

clear that he would not work on any assignment from an insurance company if that

company dictated what the engineering conclusions should be. 5 RR 108-10.

      The premise that since State Farm was found in Nicolau to have committed

bad faith on a claim in Corpus Christi in 1990 and, purportedly “changed nothing”

since, so it must have acted in bad faith on Webb’s 2012 claim, suffers from fatal

factual, logical, and legal flaws. Putting aside the fact that the Nicolau line of

questioning should have never been permitted, there is no evidence supporting

Webb’s contention that State Farm “changed nothing” since Nicolau. It is an

outright misrepresentation of the record for Webb to contend that State Farm claim




                                        10
supervisor, Perez, admitted that State Farm “changed nothing.” Perez instead

testified that it was so long ago that he did not know:

       Q. After the Supreme Court came down and said whatever problems
          happened in that Nicolau case happened, did those of you working
          at State Farm with these foundation claims and these plumbing
          leak claims and these same engineers – did y’all go and change
          your policies, practices, and procedures?
       A. I don’t recall if we did or not, sir. That was so many years ago, I
          don’t know that we changed any of our handling procedures
          because of that case.

4 RR 30. Nicolau does not aid Webb and, in fact, demonstrates Webb’s failure to

meet his evidentiary burden in this case.

III.   The court of appeals correctly applied this Court’s decisions in Viles v.
       Security National Insurance Co. and USAA Texas Lloyds Co. v.
       Menchaca and Webb’s criticisms are unclear and unpersuasive.
       Apparently trying to create some legal issue that could warrant this Court’s

review, Webb criticizes the court of appeals’ discussion of this Court’s decisions in

Viles and Menchaca. But neither argument is comprehensible or persuasive.

       In Viles, this Court explained: “Whether there is a reasonable basis for

denial, however, must be judged by the facts before the insurer at the time the

claim was denied.” 788 S.W.2d at 567. The court of appeals appropriately cited

Viles for the same standard: “In determining whether the insurer had a reasonable

basis to deny a claim, we review the facts available to the insurer at the time of the

denial.” Webb, 2017 WL 1739763, at *8. Webb curiously argues that “Viles does



                                            11
not say that an insurer can ignore information obtained after it denies a claim, or

that its duty of good faith ends upon denial of the claim, and that is not the law.”

Webb’s Petition at 16. But nothing in the court of appeals’ opinion implies that an

insurer can or should ignore information it learns after denial of a claim. And

nothing in the record indicates that State Farm did.

      Similarly, the court of appeals cited Menchaca for its holding that “the

insurer’s statutory violation does not permit the insured to recover any actual

damages beyond … policy benefits unless the violation causes an injury that is

independent from the loss of the benefits.” Webb, 2017 WL 1739763, at *9

(quoting No. 14-0721, 2017 WL 1311752, at *12 (Tex. Apr. 7, 2017)). The court

then explained that its review of the record “show[ed] that Webb only sought to

obtain the benefits of the policy he had with State Farm, and Webb presented no

evidence showing that State Farm’s alleged statutory violations caused an injury

that was independent from the loss of benefits under the policy.” Id. Webb seems

to acknowledge that the court of appeals did not misconstrue Menchaca. But his

petition criticizes the court for mentioning it at all: “The opinion appears to say

that Webb was not entitled to recover damages that he did not seek and the jury did

not award, but if that is all the court intended, the whole discussion would be

meaningless to any issue on appeal.” Webb’s Petition at 17. While it is unclear




                                         12
what Webb’s complaint is, the court of appeals’ correct discussion of Menchaca

does not warrant this Court’s review.

                                    PRAYER
      State Farm respectfully requests this Court deny the relief requested by

Webb, and, as stated in State Farm’s Petition for Review, reverse the court of

appeals’ judgment and render a take-nothing judgment in favor of State Farm.

                                        Respectfully submitted,

                                        By:      /s/ J. Hampton Skelton
                                              J. Hampton Skelton
                                                State Bar No. 18457700
                                                hskelton@skeltonwoody.com
                                              Eva C. Ramos
                                                State Bar No. 20143100
                                                eramos@skeltonwoody.com
                                              Edward F. Kaye
                                                State Bar No. 24012942
                                                ekaye@skeltonwoody.com
                                              SKELTON & WOODY
                                              248 Addie Roy Road, Suite B-302
                                              Austin, Texas 78746
                                              512.651.7000 / 512.651.7001 fax
                                              Melissa A. Lorber
                                               State Bar No. 24032969
                                                mlorber@enochkever.com
                                              ENOCH KEVER PLLC
                                              5918 W. Courtyard Drive, Suite 500
                                              Austin, Texas 78730
                                              512.615.1200 / 512.615.1198 fax
                                        ATTORNEYS FOR PETITIONER/
                                        CROSS-RESPONDENT STATE FARM LLOYDS




                                         13
                     CERTIFICATE OF COMPLIANCE
       Petitioner/Cross-Respondent State Farm Lloyds certifies that this Response
to Petition for Review (when excluding the caption, table of contents, index of
authorities, statement of the case, signature, certificate of compliance, and
certificate of service) contains 3,214 words.

                                         /s/ J. Hampton Skelton
                                         J. Hampton Skelton



                        CERTIFICATE OF SERVICE
      I certify that on December 19, 2017, this Response to Petition for Review
was served on the following counsel of record via electronic filing service:
      Gregory F. Cox
      Mostyn Law Firm
      6280 Delaware Street
      Beaumont, Texas 77706

                                         /s/ J. Hampton Skelton
                                         J. Hampton Skelton




                                       14
