Insurer Sanctioned For Removing Law Firm`s Bad Faith Action

HOUSTON — A federal judge on Dec. 2 ordered sanctions against an insurer for improperly removing a bad faith action filed in Texas state court (Hicks, Thomas & Lillienstern, LLP v. Valley Forge Insurance Co., et al., No. H-02-3458, S.D. Texas, Houston Div.).

(Order granting remand, sanctions available. Document #51-030227-007R.)

U.S. Judge Kenneth M. Hoyt of the Southern District of Texas, Houston Division, granted Hicks, Thomas & Lillienstern’s motion for remand and ordered that Valley Forge Insurance Co. be sanctioned for improperly removing a bad faith action filed against it in the Harris County District Court.

“This court is of the . . . opinion that defendant Valley Forge knew that this lawsuit was not removable at the time it filed notice of removal particularly in light of Texas law, and that such removal was, therefore, untaken in bad faith,” Judge Hoyt wrote.

After the order, Hicks Thomas filed a motion with the federal court seeking $37,000 in sanctions to cover plaintiff’s fees and expenses. Judge’s Hoyt’s ruling on the plaintiff’s motion remains pending.

Initial Claim

Hicks Thomas is a law firm in the Bank of America building in Houston.

On June 9, 2001, water from Hurricane Allison entered an unoccupied lower portion of the Albert Thomas Convention Center through openings on an outside wall. The water broke through an interior basement cinder block wall, gaining access to the City of Houston downtown parking garage, from which it flowed underground through a pedestrian tunnel and gained access to the Bank of America building.

Once in the parking garage of the Bank of America building, the water eventually damaged and destroyed the building’s electrical power distribution equipment, thereby rendering the building uninhabitable and denying and preventing access by Hicks Thomas to its offices on the building’s 17th floor.

The building remained closed until July 2, 2001, when Hicks Thomas reoccupied its offices. During the period of closure, the firm was required to relocate to temporary facilities, resulting in out-of-pocket expenses of $22,263.07 and loss of income and other damages totaling $373,074.47.

Valley Forge denied coverage on the basis that the damage was the result of flooding, which is not covered under the terms of the policy. Hicks Thomas filed suit in Harris County District Court, alleging breach of contract and breach of common law duty of good faith and fair dealing.

Summary Judgment

On Aug. 5, 2002, Harris County District Judge Sharolyn Wood granted Hicks Thomas partial summary judgment, finding that coverage exists under the terms of the policy. Hicks Thomas was awarded $395,337.54 on its claim.

Subsequent to Judge Wood’s summary judgment order, Valley Forge filed for removal of the case to federal court.

On Aug. 22, 2002, Hicks Thomas filed a second motion for partial summary judgment, claiming that Valley Forge knowingly breached its contract with the policyholder pursuant to Article 21.21 of the Texas Insurance Code and that under Article 21.55, Section 6, of the Texas Insurance Code, the law firm is entitled to exemplary damages amounting to 18 percent of the amount of its claim.

(Plaintiff’s Second Summary Judgment Motion in Section A. Document #51-030227- 105M.)

The hearing on the Aug. 22 summary judgment motion was postponed as a result of the defendant’s removal of the case to federal court. As a result of the federal court’s remand motion, the issue is once again before Judge Wood.

A hearing on the matter had not been scheduled at press time.

John B. Thomas, Fred Knapp Jr. and Marcus L. Thompson of Hicks Thomas represent the firm. Russell J. Bowman of Scott, Bowman & Stella in Dallas represents Valley Forge Insurance Co.

(Other documents available: Plaintiff’s first amended petition. Document #51-030227- 003C. Plaintiff’s first summary judgment motion. Document #51-030227-004M. Plaintiff’s second summary judgment motion. Document #51-030227-005M. Summary judgment order. Document #51-030227-006R. Joint stipulation of fact. Document #51-030227- 008X.)