A new ruling by the Supreme Court of Texas, depending on which side you’re talking about, was either as scrumptious as freshly-baked, from-scratch sourdough after running an ultramarathon or as disappointing as eating mold-ridden, highly-processed sourdough after running the same mileage.
In a 19-page ruling issued Friday, Texas’ highest civil court handed a multifaceted win to Farmers Insurance and several other affiliated parties when, among other decisions, the court rendered a take-nothing judgment for a group of homeowner plaintiffs that alleged Farmers Insurance breached its contract for non-renewal of an insurance policy they all held.
Friday’s opinion marks the near-end of a 19-year legal battle for Farmers Insurance and its lawyers at Norton Rose Fulbright — featuring two appeals on class certification issues, a mandamus proceeding, a jury trial and now an appeal before the Texas Supreme Court.
The NRF lawyers declined to comment on the ruling. The homeowners’ lawyers did not immediately respond to a request for comment.
The case dates back to the early-2000s, when Texas homeowner insurers began seeing an influx of claims related to mold damage. At the time, Farmers Insurance, like many other insurers, offered what’s called an HO-B policy, which is a broad “all-risk” policy.
Because of the statewide underwriting losses Farmers was experiencing due to the uptick in mold, water and foundation claims, Farmers decided to stop offering HO-B policies in 2001 and replaced them with HO-A policies. This move was approved by the Texas Department of Insurance, and TDI required all insurers in Texas to cease offering HO-B plans by the end of 2002.
After receiving her notice of non-renewal of the HO-B plan, homeowner Sandra Geter and a class of similarly-situated people sued Farmers in 2002 in Jefferson County. The same year, a separate class action was filed in Travis County.
After “a series of appeals and many years of litigation,” the Travis County trial court approved a settlement agreement in 2016 for the class action case, the opinion says. In summary judgment phase, the Jefferson County trial court granted Geter’s argument that Farmers breached its insurance contract by not renewing its policies. In 2016, the Jefferson County court held a jury trial over attorneys’ fees, which Geter and the other class members won.
A couple of class members from the Travis County case and their lawyer, Joseph C. Blanks, filed two separate interventions in the attorneys’ fee matter, arguing that their work in their case purportedly benefited the Geter class. Both interventions were struck down.
In 2019, the Thirteenth Court of Appeals affirmed the breach of contract ruling against Farmers from the Jefferson County court and affirmed the $3 million in fees that the court awarded to the Geter class’ attorneys.
Friday’s ruling in the Texas Supreme Court reverses the breach of contract ruling and renders that the Geter class take nothing on their claims; reverses the attorneys’ fees and remands to trial court for further proceedings on attorneys’ fees; reverses an intermediate appellate court ruling that revived the Travis County class members’ intervention; and affirms a separate trial court order that struck Blanks’ intervention.
In terms of the main claim (the breach of contract), the SCOTX appeal boiled down to the interpretation of paragraph 6(a) in the insurance policy: “We may not refuse to renew this policy because of claims for losses resulting from natural causes.”
The court pointed out that if “claims and losses” meant statewide or systemic claims and losses, Geter would prevail in her argument that the policy prohibited from Farmers from deciding not to renew. If “claims and losses” referred to those of the individual policyholder, Farmers could refuse to renew.
The court sided with Farmers’ interpretation.
“Perhaps the clearest indication that paragraph 6(b) has to do with the policyholder’s claims and losses — not statewide claims and losses — is the phrasing of the disputed sentence itself,” Justice Jimmy Blacklock wrote. “‘We may not refuse to renew this policy because of claims for losses resulting from natural causes.’ On its face, the sentence deals with ‘this policy’ and whether it specifically — not all policies statewide — can be non-renewed… We find no reason to doubt that those words in this sentence refer to ‘losses’ and ‘claims’ under ‘this policy,’ the policy subject to the no-refusal-to-renew guarantee.”
Justice Blacklock took the analysis a step further, explaining in the opinion why Geter’s interpretation was flawed.
“While courts will enforce contracts according to their plain meaning, we also cannot be blind to the commercial realities of the context in which the parties were operating,” Blacklock wrote. “We find it highly implausible that the disputed provision, at the time of its approval by the TDI, would have been viewed by TDI, Farmers or the general public as a perpetual prohibition on any statewide amendment to the HI-B form. Such a reading of the policy 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.
“Apart from her proffered reading of the contractual text — a reading that is grammatically valid but not compelled by the text — Geter offers no reason to believe the policy language requires such unusual results.”
There was also a debate over the interpretation of “natural causes.” Geter argued mold losses were from natural causes. Farmers argued mold losses are largely from leaking pipes, thus not natural causes, but the court didn’t address it because “the policy only constrains Farmers’ authority to non-renew a policyholders’ policy for claims made under that particular policy.”
Justices Eva Guzman and Jeffrey Boyd did not participate in the SCOTX decision.
The Norton Rose Fulbright team representing Farmers included Layne Kruse, Carlos Rainer, Katherine Mackillop and Scott Incerto. Kruse and Rainer tried the case and have been on the litigation since it commenced in 2002. Mackillop argued the appeal to the Texas Supreme Court. Incerto worked on the appeal as well.
Geter’s legal team included John Werner of Reaud, Morgan & Quinn and L. DeWayne Layfield of Law Office of L. DeWayne Layfield.