The Fifth Circuit Rejects a plaintiff’s attempts to use Menchaca to keep extra-contractual claims alive

A recent ruling from the Fifth Circuit should serve as a warning to enterprising attorneys seeking to recover on extra-contractual claims under the Texas Insurance Code. In Moore v. Allstate Texas Lloyd’s, plaintiff Glen Moore sued Allstate, his homeowners’ insurer, for alleged damage to his home arising from a storm. No. 17-10904, 2018 WL 3492818 (5th Cir. July 19, 2018).  After two inspections by an Allstate adjuster and a third inspection by a third-party engineer, Allstate refused to pay Moore because it did not find any covered damage to his home.

After retaining his own engineer whose estimate differed from Allstate’s, Moore filed a lawsuit in Texas state court for breach of contract, breach of the common-law duty of good faith and fair dealing, violations of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices Act, and violations of the DTPA’s so-called tie-in statute that would allow for recovery of additional statutory damages.

Allstate removed the action to federal court, where the judge ordered the parties to amend their pleadings. When Moore filed an amended complaint that contained boilerplate accusations against Allstate, the court granted Allstate’s motion to dismiss Moore’s claims.

The Fifth Circuit agreed with the trial court that the vague statements in Moore’s petition did not plead a breach of contract cause of action with sufficient specificity. (The pleadings stated that “[Allstate] has breached its contractual obligations under the subject insurance policy by failing to pay [Moore] benefits relating to the cost to properly repair [Moore’s property,] as well as for related losses. As a result of this breach, [Moore] has suffered actual and consequential damages.”)

Interestingly, Moore argued that his extra-contractual claims were wrongfully dismissed not only because he pled sufficient facts for his breach of contract and extra-contractual claims, but also because the trial court misinterpreted the independent-injury rule. According to Moore, the Texas Supreme Court’s recent decision in Menchaca established that if a plaintiff suffers an injury independent from breach of contract, he can recover even if the policy does not provide benefits. Moore went a step further and argued that since the independent-injury rule does not reflect a pleading requirement, his extra-contractual claims should not be dismissed.

The Fifth Circuit rejected Moore’s argument.  which omitted the key part of the Menchaca holding: the independent injury rule does not apply if the extra-contractual claims flow or stem from the denial of policy benefits. In those cases, recovery is precluded as a general rule unless the insured is entitled to policy benefits. Because Moore’s statutory bad-faith claims were predicated on the loss being covered, and because he failed to state a cognizable breach of contract claim, the general rule applied to preclude recovery for any extra-contractual violations.