The Zelle Lonestar Lowdown
July 17, 2025
Schnatzmeyer v. State Farm Ins. Co., No. 3:23-CV-02820-K, 2025 WL 1697505, at *1 (N.D. Tex. June 17, 2025).
In a case involving two overlapping freeze claims—and a substantial array of legal issues affecting insurers in Texas—a United States District Court in the Northern District of Texas, Dallas Division, recently granted an insurer’s motion for summary judgment on nearly all of two insureds’ causes of action.
Mark Schnatzmeyer and Carole Sandlin (the “Insureds”) submitted a property insurance claim to State Farm Insurance Company (“State Farm”) in February 2021 after a neighbor’s pipe burst during a freeze event, allegedly causing water damage (the “2021 Claim”). Within a month, State Farm inspected the property and issued payment for water mitigation and dwelling repairs. State Farm also requested that the Insureds send receipts for repairs to obtain replacement cost benefits, as well as a complete “content sheet” to substantiate reported personal property loss.
State Farm did not hear from the Insureds for over 21 months, when they submitted another claim in December 2022 for another alleged freeze loss (the “2022 Claim”). State Farm immediately authorized payment for water mitigation, plumbing repairs, and additional living expenses (“ALE”). As State Farm investigated the 2022 Claim, the Insureds advised that they did not make any dwelling repairs related to the 2021 Claim, and they advised that damage related to the 2022 Claim affected the same area of flooring purportedly damaged in the 2021 Claim. State Farm then requested the Insureds send documentation supporting alleged flooring and other damage.
In mid-January 2023, State Farm’s adjusters inspected the property, during which they did not observe damage to flooring, so the adjusters again requested the Insureds send documentation to support the alleged damage. State Farm also sent the Insureds a reservation of rights letter requesting supporting documentation and advising the Insureds of their “Duties After Loss” under the policy. State Farm further advised the Insureds that, without additional documentation, it measured the 2022 Claim below the applicable deductible.
The Insureds eventually advised State Farm that plumbing repairs were complete, so State Farm advised it would no longer issue payments for ALE. The Insureds objected and requested additional payments until all flooring was replaced. In response, State Farm again advised that, without supporting documentation, it measured the loss below the applicable deductible, so it denied coverage for flooring under the 2022 Claim.
In mid-February 2023, the Insureds advised State Farm that they retained a public adjuster, and the public adjuster sent an estimate of repair costs mostly for flooring repairs. After reviewing the estimate and available evidence, in mid-May 2023, State Farm advised that it was standing by its coverage position. State Farm also advised that the Insureds failed to comply with their duties after loss by failing to complete water mitigation and necessary repairs.
The Insureds eventually retained counsel, who sent a letter to State Farm in August 2023 demanding payment for flooring, personal property, and ALE related to the 2021 Claim. State Farm advised that it stood by its coverage position. Weeks later, the Insureds’ counsel sent a second letter demanding payment for the 2022 Claim. State Farm’s adjusters then re-inspected the property, during which they again confirmed that the flooring was not damaged by a covered cause of loss. However, based on some water mitigation and plumbing invoices State Farm received, State Farm revised its prior estimate and issued a payment to settle the 2022 Claim.
In November 2023, the Insureds filed suit against State Farm for several causes of action. Specifically, the Insureds alleged breach of contract, statutory and common-law bad faith, and Prompt Payment of Claims Act penalties for both the 2021 Claim and the 2022 Claim. The Insureds also alleged fraud, misrepresentation, and civil conspiracy related to both claims. After receiving the Insureds’ original petition, State Farm removed the Insureds’ suit to a United States District Court in the Northern District of Texas, Dallas Division, and then filed a motion for partial summary judgment. In a wide-ranging opinion relying on several legal principles and factual findings, the Court granted almost all of State Farm’s motion.
(1) The 2021 Claim
State Farm moved for summary judgment on all causes of action related to the 2021 Claim because the Insureds filed suit outside of both contractual and statutory limitations periods. Under the policy, the Insureds were required to bring their breach of contract cause of action within two years and one day after their cause of action “accrued,” or when the limitations clock began to run. Likewise, under Texas law, the Insureds were required to bring their extra-contractual causes of action within the two-years. In reaching its decision, the Court observed that State Farm issued a claim payment in March 2021, and that State Farm did not change its position at any time before the Insureds filed suit in November 2023. Thus, all of the Insureds’ causes of action related to the 2021 Claim accrued in March 2021. Schnatzmeyer, 2025 WL 1697505 at *4–5. By filing suit over two years later, the Insureds were barred from asserting any causes of action related to the 2021 Claim, so the Court granted State Farm’s motion for summary judgment as to these causes of action.
(2) Breach of Contract for Dwelling Coverage – 2022 Claim
State Farm argued that the Insureds failed to produce competent evidence to show that covered dwelling damage related to the 2022 Claim exceeded State Farm’s estimate, so the Court should grant its motion for summary judgment. Agreeing with State Farm, the Court observed that the Insureds’ own expert produced an estimate of repair costs that was less that State Farm’s estimate. In fact, the Insureds’ expert stated that the “majority” of observed damage was caused by the 2021 Claim, and the 2022 Claim had a “minimal contribution” to the loss. Id. at *5–7. The Insureds’ expert further stated that the only new damage caused in the 2022 Claim was to one bathroom, and his estimate of repair costs for this damage was less than State Farm’s. Id. As such, no reasonable jury could conclude that State Farm owed additional policy benefits for dwelling coverage related to the 2022 Claim, so the Court granted State Farm’s motion as to this cause of action.
(3) Breach of Contract for Personal Property Coverage – 2022 Claim
The Court granted State Farm’s motion for summary judgment as to the Insureds’ cause of action for breach of contract related to personal property damaged caused in the 2022 Claim because the Insureds filed suit without first satisfying their “Duties After Loss” under the policy. Specifically, the Insureds’ policy required them to “cooperate” with State Farm’s investigation by, in part, providing a detailed inventory of damaged personal property, and the policy required the Insureds to satisfy all conditions before filing suit. And yet, the Insureds testified that they did not provide an inventory of damaged personal property before filing suit, and the Court held this failure to comply with the policy before filing suit “inherently prejudiced” State Farm from timely adjusting the Insureds’ reported personal property loss. Because “[f]ederal courts in Texas routinely dismiss policyholders’ first-party claims where they failed to comply with similar loss inventory provisions,” the Court granted State Farm’s motion as to this cause of action. Id. at *4.
(4) Statutory and Common-Law Bad Faith – 2022 Claim
Because the Court granted State Farm’s motion for summary judgment as to the Insureds’ causes of action for breach of contract related to the 2021 Claim, and related to dwelling and personal property coverage for the 2022 Claim, the Insureds could not use these causes of action to support their statutory and common-law bad faith claims. As well, the Court found that the Insureds’ allegations of bad faith were conclusory: the Insureds alleged State Farm knowingly failed to conduct a reasonable investigation, and knowingly denied their claims when its liability was reasonably clear, without citing any actual evidence. Therefore, the Court found the Insureds’ allegations established only a “bona fide” dispute which, under Texas law, is insufficient to establish bad faith. The Court thus granted State Farm’s motion for summary judgment.
(5) Fraud, Misrepresentation, and Civil Conspiracy
The Court granted State Farm’s motion for summary judgment as to the Insureds’ fraud, misrepresentation, and civil conspiracy causes of action for much the same reasons it granted State Farm’s motion on the bad faith causes of action. The Court found that the Insureds failed to produce any evidence of what misrepresentations State Farm made, to whom, when, and what harm was thereby caused. The Court also noted that the Insureds could not rely on any breaches of contract to support these causes of action. Finally, the Court observed that “post-loss communications cannot serve as a basis for misrepresentation under common law fraud, the Texas Deceptive Trade Practices Act, or the Texas Insurance Code,” and the Insureds failed to offer any evidence of pre-loss communications. Id. at *9 (citing Gooden v. State Farm Lloyd’s, No. 4:20-CV-00698-O, 2021 WL 7906860, at *3 (N.D. Tex. May 11, 2021)). Without evidence of the essential elements for these causes of action, the Court granted State Farm’s motion.
(6) Prompt Payment of Claim Act Penalties
State Farm lastly moved for summary judgment on the Insureds’ cause of action under the Prompt Payment Act in Texas Insurance Code chapter 542. Because the Court granted summary judgment on the Insureds’ breach of contract causes of action related to the 2021 Claim, and related to dwelling and personal property coverage for the 2022 Claim, these causes of action could not serve as necessary predicates for Prompt Payment penalties. The Court therefore granted State Farm’s motion as to penalties related to these alleged breaches of contract. However, State Farm did not move for summary judgment as to the Insureds’ cause of action for breach of contract related to ALE coverage for the 2022 Claim. As such, the Insureds could recover Prompt Payment penalties related to this alleged breach only, so the Court denied State Farm’s motion in this respect.
Schnatzmeyer is an insurer’s one-stop-shop for addressing complicated legal and factual matters in a systematic way. Where, as in this case, policyholders pursue several related causes of action involving several years of claim handling, insurers can leverage several related areas of Texas law to hold policyholders to their evidentiary burden.
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