September 4, 2014  | By McCathern Law

Dunhill is represented by Brett M. Chisum and Levi G. McCathern, II of McCathern, PLLC.

Law360, Los Angeles (September 2, 2014, 7:52 PM ET; by Jeff Sistrunk): A Texas federal judge on Thursday refused to rule that Dunhill Partners Inc. can’t recover damages in a $6.2 million dispute with State Automobile Mutual Insurance Co. over coverage for hail damage to properties that Dunhill manages, finding that Texas law doesn’t support the insurer’s position.

U.S. District Judge Jorge A. Solis said that State Auto failed to show that Texas law backs up its view that Dunhill isn’t entitled to recover the costs of repair or replacement on several properties.

“Because State Auto has failed to show that Texas law limits the damages recoverable by an entity with an insurable interest to their pecuniary or contractual interests in the insured property and because State Auto concedes that Dunhill has an insurable interest, the court denies State Auto’s second motion for partial summary judgment,” Judge Solis wrote.

Attorneys for the parties did not immediately respond to requests for comment Tuesday.

State Auto sued Dunhill in Texas federal court on Sept. 17, 2012, and Dunhill sued the insurer in state court two days later, according to court records. Dunhill’s complaint was quickly removed to federal court, and the two cases were consolidated in March 2013.

According to court documents, State Auto issued an insurance policy to Dunhill that covered March 2011 to March 2012. In May 2011, a hailstorm hit the Dallas area, damaging 10 commercial properties that Dunhill manages but doesn’t own.

Dunhill filed several claims with State Auto for storm damage, and the insurer paid about $1.24 million under the policy, according to State Auto’s complaint. However, Dunhill later claimed that it is entitled to an additional $6.2 million.

In a motion for partial summary judgment lodged in July, State Auto contended that, because Dunhill doesn’t own the properties in question, it isn’t entitled to recover policy proceeds for the costs of repair. Instead, State Auto asserted, Dunhill can only recover a contractual management or brokerage fee that it wasn’t paid because of the storm damage, and Dunhill didn’t plead that damages theory.

State Auto relied primarily on the Eleventh Circuit’s decision this year in Banta Properties v. Arch Specialty Insurance Co., which originated in Florida federal court. That ruling held that, based on

Florida statute and precedent, a property manager’s “recoverable damages under an insurance policy [were] limited to the loss the insured might suffer from damage to the insured property.”

Dunhill countered that there is no controlling law that supports State Auto’s position, saying that the insurer “desires to create a new standard in Texas designed to limit an insured’s ability to recover insurance proceeds even when that named insured has a bona fide insurable interest.”

Judge Solis wrote in Thursday’s order that State Auto failed to show that the Banta Properties case “is at all relevant.” The Eleventh Circuit’s decision in that case hinged on specific language from a Florida statute, and State Auto didn’t point to “any support that Texas similarly limits a party’s insurable interest,” the judge wrote.

An attorney for Dunhill, Brett M. Chisum of McCathern PLLC, said in an email to Law360 that “Dunhill is satisfied that its position was affirmed by Judge Solis’ ruling.”

“This ruling allows property management companies such as Dunhill to potentially obtain a full recovery of its damages sought, instead of limiting the recovery to its pecuniary or contractual interest,” Chisum said. “In other words, in Texas, a non­owner who is a named insured and has a legitimate insurable interest will continue to be able to collect the full amount of insurance proceeds awarded to it. It can therefore put those proceeds toward repairing its damaged property instead of having to come out­of­pocket to pay for covered repairs, which would defeat the purpose of having insurance in the first place.”

An attorney for State Auto did not immediately respond to a request for comment Tuesday. State Auto is represented by Charles B. Mitchell Jr. and Raymond C. Palmer Jr. of Naman Howell Smith & Lee PLLC.

The case is State Automobile Mutual Insurance Co. v. Dunhill Partners Inc., case number3:12­cv­03770, in the U.S. District Court for the Northern District of Texas.

Additional reporting by Juan Carlos Rodriguez. Editing by Brian Baresch.