Texas Supreme Court Prohibits Discovery of Other Insured’s Claim Files

In a case involving allegations of underpaid insurance claims, the Texas Supreme Court has recently held that a “trial court abuse[s] its discretion in ordering the defendant insurer to produce evidence related to insurance claims other than the plaintiff’s.” In re National Lloyds Insurance Company, No. 13-0761, 2014 WL 5785871 (Tex. 2014).

In the case of In re National Lloyds Insurance Company, the plaintiff-insured alleged that the defendant-insurer undervalued her storm-related homeowners insurance property damage claims.  Seeking proof to support her claims, the plaintiff-insured sought “production of all claim files from the previous six years involving three individual adjusters” and “all claim files from the past year for properties in Dallas and Tarrant Counties involving Team One Adjusting, LLC and Ideal Adjusting, Inc.” As the Texas Supreme Court explained, “[e]ssentially, then, [plaintiff-insured] has proposed to compare [defendant-insurer’s] evaluation of the damage to her home with [defendant-insurer’s] evaluation of the damage to other homes to support her contention that her claims were undervalued.” 

Although the trial court limited production to claim files involving the two adjusters that handled plaintiff’s claims, the city in which plaintiff’s claims arose, and the specific storms which caused damage to plaintiff’s property, the Texas Supreme Court concluded, “the information sought does not appear reasonably calculated to lead to the discovery of evidence that has a tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable,” explaining, “we fail to see how [defendant-insurer’s] overpayment, underpayment, or proper payment of the claims of unrelated third parties is probative of its conduct with respect to [plaintiff-insured’s] undervaluation claims at issue in this case.” Indeed, the Court elaborated, noting: “This is especially so given the many variables associated with a particular claim, such as when the claim was filed, the condition of the property at the time of filing (including the presence of any preexisting damage), and the type and extent of damage inflicted by the covered event.” 

Accordingly, the Court held: “Scouring claim files in hopes of finding similarly situated claimants whose claims were evaluated differently from [plaintiff-insured’s] is at best an ‘impermissible fishing expedition.’” While the Texas Supreme Court included a footnote indicating that it did “not hold that evidence of third-party insurance claims can never be relevant in coverage litigation,” it noted “there is at best a remote possibility that such claims could lead to the discovery of admissible evidence.”

What does this mean for insurance companies?  When litigating in Texas, insurers should object to any discovery requests seeking evidence related to claims and claim files other than the plaintiff-insured’s claim or claim files at issue in the litigation. Under In re National Lloyds Insurance Company, it will now be difficult for plaintiffs to argue that claim files for similarly situated insureds are discoverable under any set of facts.