TX Appeals Court Says Farmers Acted in Bad Faith but Slashes Award

The Third Court of Appeals in Austin, Texas found that Farmers Insurance Group had both acted in bad faith and violated the state’s deceptive trade practices law in the landmark case that originally saddled the company with a $32 million judgment. The appeals court, however, determined that Farmers had not acted knowingly or fraudulently and threw out the punitive and mental anguish elements of the original award—originally made in May 2001 to Melinda Ballard against Farmers—and slashed it to approximately $4 million. The appeals court also ordered the lower court to reconsider and recalculate the nearly $9 million in attorneys’ fees that were originally awarded.

Policyholders of America (POA), a group spearheaded by Ballard, said the three member panel, made up of Chief Justice Aboussie, Justices Patterson and Puryear, found that Farmers committed bad faith which led to nearly $7 million in damage to a home in Dripping Springs, Texas. The POA asserted that with the ruling the Appellate Court excused these violations by giving the insurance industry a free pass to commit bad faith and not be penalized.

According to the Alliance of American Insurers, however, the court’s decision may bring some sanity to the feeding frenzy among plaintiff attorneys, many of who have founded entire practices on mold-related claims

“While the Ballard case is more about bad faith than mold, the original inflated award has been the trigger for the mold hysteria that has swept Texas and the nation,” said Joe Woods, assistant vice president of the Alliance’s Southwest Region, based in Austin. “The appellate court’s ruling injects a note of reality into the debate over mold-related claims.”

“With the elimination of the punitive and mental anguish damages, enterprising plaintiffs attorneys will discover that mold isn’t as golden as they once thought,” added Kirk Hansen, Alliance director of claims. “Attorneys looking to cash in on mold might have second thoughts.”

However, Nancy Gerding, director of POA, a homeowners’ advocacy group with a membership of nearly 400,000 American families, said in a statement, “This is a sad day for the Texas homeowner. We are certain that this decision will only serve to propel more instances of bad faith and fraud committed by insurance companies. Instead of putting a stop to insurance code violations, these justices gave the industry a free pass. The Texas homeowner is in for a rough ride.”

According to Texas Insurance Department data, during 2000 and the first half of 2001 water loss claims increased six-fold and the cost of the average mold claim was $18,000, nearly five times the cost of an average homeowner’s claim and almost six times the cost of an average non-mold-related water damage claim. Texas now has the highest premiums for homeowners insurance in the nation.

Topics Texas Agribusiness Homeowners