Stephen Hadhazi, Pubic Insurance Adjuster, Proudly presents:
Republic Underwriters Insurance Company VS Mex-Tex, Inc
Insurance:Texas Supreme Court Holds that “Like Kind and Quality” Can Include
A More-Expensive-Than-Identical Replacement: Republic Underwriters Ins. Co. v.
Mex-Tex, Inc., Texas Supreme Court, Cause No. 03-0662 (Nov. 19, 2004)
By: James L. Cornell*
On May 25, 1999, Mex-Tex’s roof was damaged by a hail storm. Mex-Tex reported the
damage to its insurance carrier, Republic Underwriters Insurance Company (“Republic”).
While Republic was investigating the claim, Mex-Tex hired a contractor to replace the
roof at a cost of $179,000.00. The replacement roof was different than the original roof in
that it was affixed to the structure mechanically, not by ballast (gravel), as the original
roof had been.
Republic initially offered $22,000.00 to repair what it thought was minimal damage, but
when Mex-Tex rejected that offer, on August 20, 1999, Republic offered $145,460.00, an
amount its expert had calculated would replace the roof with an identical new roof.
Mex-Tex originally returned the check, but eventually kept the check as a partial
payment. Meanwhile, Mex-Tex had sued Republic for breach of the policy and violation
of the Prompt Payment of Claims Act, Tex. Ins. Code Article 21.55. The trial court found
that Republic had breached the policy and violated Article 21.55, and calculated the 18%
penalties on the full amount of the replacement cost, $179,000.00, allowing no credit to
Republic for the offer of $145,460.00. The judgment was affirmed by the Court of
The Texas Supreme Court reversed and remanded to the trial court for rendition.
Significantly, the Texas Supreme Court upheld the trial court’s finding that even though
Republic had offered to pay for an identical roof, Republic breached the policy by
refusing to pay for the higher priced replacement roof which was mechanically attached.
Under the policy, one of the options that Republic had was to replace the roof with “like
kind and quality” “of comparable material and quality”. The trial court found that
“comparable” does not mean and is not limited to “identical”. In other words, the more
expensive replacement roof was “comparable” and of “like kind and quality”. The Texas
Supreme Court stated that the “plain language of the policy neither restricted nor required
Republic to pay for the cost to replace the roof with an identical one”.
The Texas Supreme Court also held that the penalty under Article 21.55 should be based
on the difference between the amount that Republic offered to pay, and the amount of the
claim ultimately found by the trial court, not on the full amount claimed by Mex-Tex.
Finally, although the Texas Supreme Court stated that a conditional offer to pay would
not stop the assessment of penalties under Article 21.55, in this case, the Texas Supreme
Court found that the offer made by Republic was not conditional. The Texas Supreme
Court reviewed the factual evidence relied on by the trial and appellate courts, and found
that the evidence did not support a finding that the offer was conditional.
* James L. Cornell is a partner at Cornell & Pardue. His practice includes insurance
coverage as well as complex commercial litigation. He may be reached at
email@example.com or 713.526.0500.