The Zelle Lonestar Lowdown
In Iyengar v. Liberty Insurance Corporation, No. SA-21-CV-1091-FB, 2024 WL 5505300 (W.D. Tex. Dec. 13, 2024), District Judge Biery denied Plaintiffs’ Motion for Clarification regarding Magistrate Judge Bemporad’s interpretation of a Cosmetic Loss or Damage Exclusion, ultimately confirming there was no further need to clarify.
The Court’s Report and Recommendation at issue, 2023 WL 8505692 (W.D. Tex. Oct. 24, 2023), considered the application of a cosmetic damage exclusion in a claim involving dents to metal roofing, wherein Plaintiff argued that the cosmetic damage exclusion did not apply because there was damage to the protective zinc coating of the metal roofing material. Specifically, Plaintiff claimed that the damage to the protective zinc coating satisfied policy language requiring damage to the metal roofing materials. Id.
But the Court disagreed, finding that to avoid of application of the cosmetic damage exclusion, “there must be penetration through all of the metal materials—not just the protective zinc coating—in order for the exception to the cosmetic exclusion to apply.” Id. at *4 (emphasis in original). The Court further rejected Plaintiffs’ expert’s contention that the damage was functional in nature as such expert testified only that “the dents prevent the metal roofing materials from keeping the element off the roof—not out of the home.” Id. at *5 (emphasis in original). Finally, the Court rejected predictions of future damage related to ensuing rust and corrosion, holding that “[c]onjecture regarding what might happen at some unknown point in the future is not evidence that the metal materials are presently unable to perform their intended function of keeping out the elements. . . . [wherein] the problem posed by the loss in zinc coating is that the steel substrate would be exposed to the elements, subject to increased rust and corrosion. . . . [which] the Policy expressly excludes . . . .” Id.
Despite the foregoing, the Court ultimately denied Liberty’s Motion for Summary Judgment on its claim for breach of contract, finding that Plaintiffs’ evidence was sufficient to raise a genuine factual dispute as to whether the hail damage caused a leak in the roof—another basis to avoid application of the cosmetic damage exclusion. Id. But the Court granted summary judgment on Plaintiffs’ claim for treble damage under the Texas Insurance Code, holding that Liberty did not knowingly violate the Texas Insurance Code. Id. at *8.
As noted above, District Judge Biery accepted, approved, and adopted Magistrate Judge Bemporad’s factual findings and legal conclusions, and further declined to reconsider the same in the Court’s December 13, 2024 Order.
The Lowdown: This case demonstrates the typical battle over novel policy language, particularly cosmetic damage exclusions. Often this involves an insured straining policy language to meet an exception to the exclusion (such as reduced function, reduced lifespan, damage visible unaided from the ground, etc.). However, following Iyengar, an insured would be remiss to rely on arguments involving only the zinc coating of the allegedly damaged metal roof covering, or predictions of future damage (particularly where such alleged future damage is also excluded under the policy). On the other hand, insurers must conduct reasonable investigations whenever necessary to support a claim determination that the roof covering remains functional.
