Southwest Airlines Co v Liberty Insurance Underwriters Inc

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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SOUTHWEST AIRLINES CO., 	§
Plaintiff, 	§
§
v. 	§ 	No. 3:19-CV-2218-E
§
LIBERTY INSURANCE 	§
UNDERWRITERS INC., 	§
Defendant. 	§
FINDINGS, CONCLUSIONS, AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
Before the Court are motions for partial summary judgment filed by both
parties. On October 25, 2024, Plaintiff Southwest Airlines Company (“Southwest”)
filed a Motion for Partial Summary Judgment (Dkt. No. 110) with a supporting brief
(Dkt. No. 111 (“P. MSJ Br.”)) and appendix (Dkt. No. 112 (“P. MSJ App.”)).
Defendant Liberty Insurance Underwriters Inc. (“Liberty”) filed its response (Dkt.
No. 125), brief (Dkt. No. 126 (“D. Resp. Br.”)), and appendix (Dkt. No. 127 (“D.
Resp. App.”)) on November 22, 2024. Southwest filed a reply on December 6, 2024.
(Dkt. No. 130 (“P. Reply”).)
On October 25, 2025, Liberty filed a Motion for Partial Summary Judgment as
to Plaintiff’s Extra-Contractual and Bad Faith Claims. (Dkt. Nos. 113, 114-2 (“D.
MSJ Br.”).) Southwest filed its response, brief, and appendix in opposition on
November 22, 2024. (Dkt. Nos. 127, 128 (“P. Resp. Br.”), 129.) Liberty filed a reply
on December 6, 2024. (Dkt. No. 134 (“D. Reply”).)
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United States District Judge Ada Brown referred the motions to the
undersigned magistrate judge for recommendation. (Dkt. No. 139.) For the reasons
that follow, the undersigned magistrate judge recommends that Southwest’s Motion
for Partial Summary Judgment be granted in part and denied in part and that
Liberty’s Motion for Partial Summary Judgment be denied.
I. BACKGROUND
The Fifth Circuit summarized the facts giving rise to this lawsuit in reversing a
prior grant of summary judgment. Southwest Airlines Co. v. Liberty Ins. Underwriters,
Inc., 90 F.4th 847, 850–51 (5th Cir. 2024). The undersigned only lightly recounts and
supplements them here.
Southwest sued Liberty after the insurer declined to pay on an insurance
policy for claimed losses arising out of the airline’s systemwide computer failure in
July 2016. That failure resulted in the disruption of flights over a three-day period
and affected approximately 475,000 Southwest customers with flight cancelations or
significant delays. Southwest incurred several costs in connection with its attempts
to recover from the system failure. At issue in this lawsuit are certain expenses
incurred by the airline to recompense its customers for flight cancelations and delays.
At the time of the system failure, Southwest maintained a cyber risk insurance
policy that included “System Failure Coverage.” That provision obligated the
insurer to “pay all Loss . . . that an Insured incurs . . . solely as a result of a System
Failure[.]” Southwest, 90 F.4th at 850. Southwest purchased a series of excess
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policies, including one from Liberty that provided excess coverage for loss beyond
the policies ahead of it. Liberty’s policy provided $10 million of coverage but was
triggered only if Southwest’s losses surpassed $50 million. After exhausting the first
four layers of insurance coverage, Southwest looked to Liberty to pay on its policy,
but Liberty declined the claim, contending among other things that Southwest’s
covered losses did not amount to $50 million.
Southwest has filed a motion for partial summary judgment seeking summary
judgment on two issues. First, Southwest asks the Court to define the term “but for”
for the purposes of the insurance policy to mean “except for” or “if it were not for.”
(P. MSJ Br. at 1.) It contends that this definition is settled as a matter of law.
Second, Southwest asks the Court to determine based on an absence of a factual
dispute that Liberty violated the Texas Prompt Payment of Claims Act (“TPPCA”),
Tex. Ins. Code Ch. 542, subchapter B, by failing to timely request information from
Southwest information it needed to process the claim. (P. MSJ Br. at 1.)
In its motion, Liberty seeks summary judgment on Southwest’s extra-
contractual claims. It contends that Southwest’s bad faith claim fails as a matter of
law because the evidence demonstrates that there is a bona fide dispute between the
parties concerning coverage. (D. MSJ Br. at 7-17.) It also argues that summary
judgment is appropriate on Southwest’s statutory claims because Southwest fails to
show that it suffered any injury beyond its loss of policy benefits and because
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Southwest failed to provide all the information that had been requested from it. (D.
MSJ Br. at 17-22.)
II. LEGAL STANDARDS
Summary judgment is appropriate “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). Evidence is sufficient to establish a “genuine” issue if it would allow a
reasonable trier of fact to find in favor of the non-moving party. Davis v. Fort Bend
Cnty., 765 F.3d 480, 484 (5th Cir. 2014).
“[A] party seeking summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and identifying those portions
of [the record] which it believes demonstrate the absence of a genuine issue of
material fact.” Id. at 484 (quoting Celotex Corp., 477 U.S. at 323). “The burden then
shifts to ‘the nonmoving party to go beyond the pleadings and by [its] own affidavits,
or by the ‘depositions, answers to interrogatories, and admissions on file,’ designate
‘specific facts showing that there is a genuine issue for trial.’” Id. (quoting Celotex
Corp., 477 U.S. at 324). “The court must ‘draw all reasonable inferences in favor of
the nonmoving party’ and ‘refrain from making credibility determinations or
weighing the evidence.’” Id. (quoting Turner v. Baylor Richardson Med. Ctr., 476 F.3d
337, 343 (5th Cir. 2007)). “A party cannot ‘defeat summary judgment with
conclusory allegations, unsubstantiated assertions, or only a scintilla of evidence.’”
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Id. (quoting Turner, 476 F.3d at 343 (internal quotation marks omitted)).
“[S]ummary judgment is appropriate where the only issue before the court is a pure
question of law.” Sheline v. Dun & Bradstreet Corp., 948 F.2d 174, 176 (5th Cir. 1991);
see also ACE Am. Ins. Co. v. Murco Wall Prods., Inc., No. 4:22-CV-01137-P, 2024 WL
3173617, at *2 (N.D. Tex. June 24, 2024) (“Interpretation of an insurance policy is a
question of law that is ‘particularly appropriate for summary disposition.’” (quoting
Fina, Inc. v. Travelers Indem. Co., 184 F. Supp. 2d 547, 550 (N.D. Tex. 2002))).
For a party to obtain summary judgment on a claim—or any component part
of a claim—that the party will shoulder the burden of proof at trial, that party “must
establish beyond peradventure all of the essential elements of the claim or defense.”
Vazzano v. Receivable Mgmt. Servs., LLC, 621 F. Supp. 3d 700, 705 (N.D. Tex. 2022)
(quoting Bank One, Texas, N.A. v. Prudential Ins. Co. of Am., 878 F. Supp. 943, 962
(N.D. Tex. 1995)). That requires the party to demonstrate that there are no genuine
material fact disputes and that the party is entitled to judgment as a matter of law.
Id. The beyond peradventure standard has been described as “heavy.” Id.
III. ANALYSIS
A. 	Southwest’s motion for partial summary judgment should be granted in part
and denied in part.
Southwest moves for partial summary judgment on two issues. In connection
with its contractual claims, it argues that the Court should interpret the insurance
policy term “but for” to mean “except for” or “if it were not for.” (P. MSJ Br. at 8-
13.) And with respect to its Texas statutory claim relating to insurance practices,
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Southwest seeks a determination on summary judgment that Liberty did not request
documents from Southwest within 15 days of being notified of Southwest’s claim.
(P. Br. at 13-15.)1
1. 	The District Judge should conclude that the term “but for” as used in
the insurance policy means “except for.”
Southwest’s first ground for summary judgment concerns interpretation of a
term used in the definition of “loss,” which the Fifth Circuit construed. See
Southwest, 90 F.4th at 851–54. The policy defines loss, in relevant part, to include
both “costs that would not have been incurred but for a Material Interruption,” (P.
MSJ App. at 77) and “costs to reroute or reschedule passenger travel that would not
have been incurred but for a Material Interruption,” (P. MSJ App. 73). In its
decision, the Fifth Circuit held that the disputed expenses claimed as loss by
Southwest—namely, cover refunds, travel vouchers, loyalty points, fare discount
codes, and advertising costs associated with an extended fare sale—“satisfy [the
policy’s] lenient but-for causation standard and are therefore ‘losses.’” Southwest, 90
F.4th at 852.
Southwest asks the Court to construe the term “but for” within the definition
of loss to mean “except for” or “if it were not for.” (P. MSJ Br. at 8-9.) It contends
1 Liberty objects to Southwest’s summary judgment evidence except for the policies
at issue. (D. Resp. at 4.) The undersigned determines that resolution of the evidentiary
objections is unnecessary to the recommendations made for resolution of Southwest’s
Motion for Partial Summary Judgment. See Connell v. TCI Solutions, Inc., No. 3:04-CV-1689-
P, 2005 WL 8148194, at *5 (N.D. Tex. Oct. 5, 2005) (finding resolution of evidentiary
objections unnecessary where objected-to evidence was irrelevant to court’s decision).
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that this construction of the term is supported by the common and ordinary meaning
of the term and by Texas law. (P. MSJ Br. at 8-11.) Indeed, the ordinary
understanding of the term, see Dillon Gage Inc. of Dallas v. Certain Underwriters at Lloyds
Subscribing to Pol'y No. EE1701590, 636 S.W.3d 640, 643 (Tex. 2021), is “except for,
with the exception of; were it not for,” Oxford English Dictionary,
http://www.oed.com (last visited June 25, 2025). With respect to but-for causation,
the Fifth Circuit observed in this case that it is a lenient standard. Southwest, 90 F.4th
at 852. 	The Texas Supreme Court has held that “[a] ‘but for’ cause is one ‘without
which the event could not have occurred.’” Pinto Tech. Ventures, L.P. v. Sheldon, 526
S.W.3d 428, 438 (Tex. 2017).2
Liberty does not offer a competing definition of “but for” in its response.
Rather, its opposition to summary judgment is premised on several reasons it
believes Southwest’s claimed expenses are not covered by the policy regardless of the
airline’s proffered interpretation of “but for.” (D. Resp. Br. at 7-10.) Particularly,
Liberty contends that even if the definition of loss incorporates Southwest’s
understanding of “but for,” the final issue of coverage would remain in dispute
because Southwest would still have to establish that the expenses were within other
coverage provisions—specifically, that they were incurred “solely” as a result of the
system failure, had a sufficient causal nexus to the system failure, fell within the
2 Because the case is before the Court based on diversity jurisdiction (see Dkt. No. 28
¶ 3), it applies Texas law in interpreting the policy. ACE Am. Ins. Co., 2024 WL 3173617, at
*2.
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policy’s “Net Profit Calculations,” and did not fall within any of the policy
exclusions; and that reimbursement of those expenses did not put Southwest in a
better position than they would have been had the system failure not occurred. (D.
Resp. Br. at 9-10.3) Because construing “but for” in the policy will not determine
whether coverage for the expenses at issue, Liberty does not believe it is appropriate
for summary judgment. (D. Resp. Br. at 10.)
The undersigned disagrees. Contrary to Liberty’s assertion otherwise,4
Southwest is not asking the Court to conclude at this stage that the disputed expenses
are covered by the insurance policy. (See Reply at 1.) Rather, its motion is aimed
precisely at the construction of one term used in the policy, which is a purely legal
matter that can be decided on summary judgment. See Willbros RPI, Inc. v. Cont'l Cas.
Co., 601 F.3d 306, 309 (5th Cir. 2010) (“Interpretation of an insurance policy is a
question of law.”). Based on the applicable law—and in the absence of any evidence
or argument suggesting the parties adopted a competing interpretation—the
undersigned concludes that the term “but for” as used in the relevant policy means
“except for.” In reaching this conclusion, the undersigned does not conclude or
opine with respect to whether the insurance policy provides coverage for the disputed
expenses, or any part of them.
3 Liberty posits an additional reason that is unclear and undeveloped: “Fifth, within
the Policy coverage period, and limits.” (D. Resp. Br. at 10.) The undersigned does not
address this ground because it is inadequately briefed.
4 (See D. Resp. Br. at 8 (arguing that Southwest “incorrectly impl[ies] that [construing
the term ‘but for’] completes the coverage analysis”).)
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2. 	Southwest is not entitled to summary judgment on elements of it
claim under Tex. Ins. Code § 542.055(a).
The second part of Southwest’s motion for partial summary judgment
concerns its claim against Liberty for violating statutory obligations to its insured
with respect to the timely investigation of claims. (See Dkt. No. 28 ¶¶ 233-40.)
The Texas Prompt Payment of Claims Act (“TPPCA”)—which is found at
Chapter 542, subchapter B, of the Texas Insurance Code—“provides that an insurer,
who is ‘liable for a claim under an insurance policy’ and who does not promptly
respond to, or pay, the claim as the statute requires, is liable to the policy holder or
beneficiary not only for the amount of the claim, but also for ‘interest on the amount
of the claim at the rate of 18 percent a year as damages, together with reasonable and
necessary attorney’s fees.’” Patton v. Meridian Sec. Ins. Co., 617 F. Supp. 3d 516, 539
(N.D. Tex. 2022) (quoting Tex. Ins. Code § 542.060(a)). “The Texas Legislature
advises courts that these provisions should be ‘liberally construed to promote the
prompt payment of insurance claims.’” Id. (quoting Tex. Ins. Code § 542.054.)
“To recover a statutory penalty under [the TPPCA], an insured must establish:
(1) a claim under an insurance policy; (2) that the insurer is liable for the claim; and
(3) that the insurer has failed to comply with one of the requirements of [the statute]
with respect to the claim.” Patton, 617 F. Supp. 3d at 540 (quoting Evergreen Nat.
Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 678 (Tex. App. 2003)). Southwest
seeks summary judgment only on the first and third elements of its claim. (P. MSJ
Br. at 14.) It argues that the there is no material dispute of fact that it submitted a
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claim on the Liberty policy on April 13, 2017, and that Liberty failed to request
information from Southwest until 110 days later, in violation of Tex. Ins. Code
§ 542.055(a)(3).5 (See P. MSJ App. 101-03, 326-29.)
Liberty opposes summary judgment on several grounds. First, it objects to
Southwest’s summary judgment evidence establishing the date of the claim, among
other things. (D. Resp. Br. at 5-7.) Second, it asserts that Southwest’s April 13, 2017
notice of loss was sent to the primary insurer—not Liberty—and that Liberty
therefore was not obligated to adhere to the deadlines in § 554.055(a) based on that
date. (D. Resp. Br. at 11.) Third, it contends that it acknowledged Southwest’s
claim in writing and began its investigation into the claim months before Southwest
submitted its notice of loss. (D. Resp. Br. at 11.) Fourth, Liberty suggests that it
fulfilled its obligations under § 542.055(a)(3) when it requested documents and
information from Southwest prior to its notice of loss. (D. Resp. Br. at 12.)
The undersigned concludes that summary judgment is not warranted here.
Liberty has not ably disputed the facts as Southwest portrays them but makes factual
averments in its brief concerning meetings and investigative steps that occurred prior
5 Tex. Ins. Code § 542.055(a)(3) states that, “[n]ot later than the 15th day, or if the
insurer is an eligible surplus lines insurer, the 30th business day after the date an insurer
receives notice of a claim, the insurer shall . . . request from the claimant all items,
statements, and forms that the insurer reasonably believes, at the time, will be required from
the claimant.”
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to the April 13, 2017, notice of loss. (See D. Br. at 11-12.) But its evidentiary
citations are untrustworthy in supporting the averments made.6
Nonetheless, Southwest has not carried is heavy burden to establish beyond
peradventure that it is entitled to judgment as a matter of law on the elements on
which it moves. Among other things, the Texas statute is unclear with respect to the
duties of an excess insurer vis-à-vis the timing set out in § 542.055(a). Liberty cites
authority for the proposition that Southwest’s April 13, 2017, notice of loss triggered
the statutes deadlines only with respect to the primary insurer. (D. Resp. Br. at 36
(citing Keck, Mahin & Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692,
701 (Tex. 2000)).) The undersigned appreciates Southwest’s distinction of Keck and
its arguable irrelevance to § 542.055, a subject the decision did not address. Even so,
Southwest’s brief does little more on this particular issue than distinguish Keck, and it
does not establish that, as a matter of law, Liberty’s duties under § 542.055 were
triggered by the April 13, 2017 communication alone. Given the lack of clarity on
this issue and the parties’ lack of precise engagement with the issue in their briefing,
6 As only one of multiple available examples, Liberty avers that it participated in an
in-person meeting with Southwest on August 15, 2016. (D. Resp. Br. at 11.) To support
that factual assertion, it cites “Pl. App. 327, Ex. C to Southwest’s Motion. [Doc. No. 111,
11].” (D. Resp. Br. at 11 n.39.) That page of Southwest’s appendix, which is actually Dkt.
No. 112, does not refer to, much less provide, admissible summary judgment evidence of, a
meeting attended by Southwest and Liberty on August 15, 2016. Rather, the cited page is
the second page of correspondence from Liberty’s outside counsel to a claims consultant
dated August 1, 2017. (P. MSJ App. 237.) This is just one example of the Liberty’s failure
to support its factual averments with evidence, which is its burden to withstand summary
judgment. See Fed. R. Civ. P. 56(c)(1)(A).
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the undersigned concludes that summary judgment should be denied on this issue for
which Southwest bears the burden of proof at trial. See Aircraft Holding Sols., LLC v.
Learjet, Inc., No. 3:18-CV-0823-D, 2022 WL 562760, at *16 (N.D. Tex. Feb. 23,
2022) (denying summary judgment based on uncertainty of the law).
B. 	Liberty’s motion for partial summary judgment should be denied.
Southwest asserts a claim against Liberty for bad faith insurance practices in
violation of Texas Insurance Code Chapters 541 and 542. (See Dkt. No. 28 (“Am.
Compl.”) ¶¶ 234-39.) Through its claims of bad faith, Southwest seeks policy
benefits, treble damages, and statutory interest, among other things. (Id. ¶ 240.)
Liberty moves for summary judgment on Southwest’s extra-contractual and bad faith
claims on three bases. First, Liberty contends that the record demonstrates that it is
entitled to summary judgment on Southwest’s claim of bad faith because there is a
bona fide dispute between the parties concerning whether the policy provides
coverage. (D. MSJ Br. at 7-17.) Second, Liberty argues that Southwest’s claim
under Chapter 541 should be dismissed because it has not shown that it suffered any
injury from the alleged statutory violation that is independent of the loss of policy
benefits. (D. MSJ Br. at 17-19.) Third, Liberty asserts that Southwest’s TPPCA
claim fails as a matter of law because Southwest did not provide all the information
Liberty requested of it necessary to its resolution of the claim. (D. MSJ Br. at 19-22.)
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1. 	This Court is precluded from reconsidering the Fifth Circuit’s
decision that summary judgment on Southwest’s bad faith claim is
not appropriate.
To establish a bad faith claim, Southwest must prove that Liberty “knew or
should have known it was reasonably clear that the claim was covered.” Hellstern v.
Hartford Fire Ins. Co., No. 3:14-CV-0993-P, 2015 WL 11120978, at *3 (N.D. Tex.
June 23, 2015) (internal quotation marks omitted)). The erroneous denial of a claim
does not, however, equate to bad faith. “A bona fide dispute about the insurer’s
liability on the insurance contract does not rise to the level of bad faith.” Luna v.
Nationwide Prop. & Cas. Ins. Co., 798 F. Supp. 2d 821, 830 n.14 (S.D. Tex. 2011).
Liberty argues that there can be no bad faith as a matter of law because the evidence
establishes the existence of a bona fide dispute between the parties as to whether the
policy covered Southwest’s claimed losses. (D. MSJ Br. at 7-17.)
Liberty cannot obtain summary judgment on this basis. Liberty’s briefing and
the evidence it cites for support are largely copied verbatim from Liberty’s prior
motion for summary judgment filed in November 2021. (Compare D. MSJ. Br. at 9-
17, with Dkt. No. 50-1 at ECF pp. 48-53.) On appeal, the Fifth Circuit considered
whether Liberty was entitled to summary judgment on this precise basis. Southwest,
90 F.4th at 856 (considering the grant of summary judgment on bad faith claim on
the basis “that there was a bona fide dispute between the parties as to coverage”).
After considering the arguments and evidence, the court of appeals “conclude[d] that
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Southwest satisfied its burden of showing that a genuine dispute of material fact
exists as to whether Liberty had a reasonable basis to deny Southwest’s claims.” Id.
“[T]he mandate rule compels compliance on remand with the dictates of a
superior court and forecloses relitigation of issues expressly or impliedly decided by
the appellate court.” ODonnell v. Goodhart, 900 F.3d 220, 224 (5th Cir. 2018)
(quoting Gene & Gene, L.L.C. v. BioPay, L.L.C., 624 F.3d 698, 702 (5th Cir. 2010)).
“The district court ‘must implement both the letter and the spirit of the appellate
court’s mandate.’” Id. (quoting United States v. McCrimmon, 443 F.3d 454, 460 (5th
Cir. 2006) (quotation marks omitted)). Liberty does not address the mandate rule or
explain how this Court may grant summary judgment based on the same arguments
and evidentiary record that prompted the Fifth Circuit to determine that fact issues
preclude summary judgment. Curiously, Liberty acknowledges the Fifth Circuit’s
decision but, without authority, argues that the appellate court’s reasoning buttresses
its argument that coverage was not reasonably clear. (D. Reply at 5.) The
undersigned disagrees. The Fifth Circuit spoke clearly on this issue when it
concluded that fact issues exist precluding summary judgment, see Southwest, 90 F.4th
at 856, and this Court “is required to abstain[] from reexamining an issue of fact or
law that has already been decided on appeal,” Franklin v. Regions Bank, 125 F.4th
613, 629 (5th Cir. 2025) (internal quotation marks omitted).
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2. 	Liberty is not entitled to summary judgment on Southwest’s claim for
damages under Chapter 541.
Liberty contends that it is also entitled to summary judgment on Southwest’s
claim for damages arising out of Chapter 541 of the Texas Insurance Code. Texas
law provides that proof of a statutory violation may result in an award of actual
damages, court costs, and attorney’s fees and, if proved to have been committed
knowingly, treble damages. See Tex. Ins. Code § 541.152. Liberty argues that,
regardless whether Southwest ultimately shows that it is entitled to contractual
damages, it cannot obtain additional statutory damages because Southwest has
produced no evidence of an injury other than its loss of policy benefits. (D. MSJ Br.
at 17-19.) In Liberty’s view, Southwest cannot maintain a claim for statutory
damages under Chapter 541 when its only claimed injury is the loss of the policy
benefits. Southwest does not point to any evidence of independent injury but argues
that it need not do so. It contends that damages are recoverable under Chapter 541
based solely on its claim for actual damages amounting to policy benefits.7 (P. Resp.
Br. at 16.)
7 Southwest also argues that the Fifth Circuit’s decision precludes consideration of
this issue. (P. Resp. Br. at 16.) In granting summary judgment on Southwest’s bad faith
claims, the district court held that Southwest failed to show injury apart from its contractual
damages. (Dkt. No. 91 at 2 & n.4.) The Fifth Circuit’s opinion does not mention this basis
for summary judgment, but Southwest contends that its ruling that Liberty was not entitled
to summary judgment implicitly decided the issue such that the Court cannot reconsider
Liberty’s independent-injury argument. (See P. Resp. Br. at 16.) The undersigned does not
agree. The mandate rule precludes a district court from relitigating matters decided on
appeal, but it applies to issues decided “expressly or necessarily by implication.” Quest Med.,
Inc. v. Apprill, 90 F.3d 1080, 1094 (5th Cir. 1996). It does not appear from the Fifth Circuit’s
opinion that it decided this issue by necessary implication.
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The parties find support for their respective argument in USAA Texas Lloyds
Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018), in which the Supreme Court of Texas
sought to “provide clarity regarding the relationship between claims for an insurance-
policy breach and Insurance Code violations.” Id. at 488. There, it explained that
claims for breach of an insurance agreement are “‘distinct’ and ‘independent’ from
claims that the insurer violated its extra-contractual common-law and statutory
duties.” Id. at 489. Although the claims may be “largely interwoven,” id. (quoting
Liberty Nat. Fire Ins. Co. v. Akin, 927 S.W.2d 627, 629 (Tex. 1996)), the former is a
breach-of-contract claim while the latter statutory and common-law claims “‘sound[]
in tort,’” id. (quoting Twin City Fire Ins. Co. v. Davis, 904 S.W.2d 663, 666 (Tex.
1995)). The primary question in Menchaca was “whether an insured can recover
policy benefits as ‘actual damages’ caused by an insurer’s statutory violation absent a
finding that the insured had a contractual right to the benefits under the insurance
policy.” Id. Although the court answered the question with a “[g]eneral[]” no, it
observed that the issue was a complicated one that implicated several related
questions. Id. In an attempt to provide clarity, the court explained “five distinct but
interrelated rules that govern the relationship between contractual and extra-
contractual claims in the insurance context.” Id.
Liberty relies on the fourth rule explained in Menchaca: “if an insurer’s
statutory violation causes an injury independent of the loss of policy benefits, the
insured may recover damages for that injury even if the policy does not grant the
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insured a right to benefits.” Id. This rule, referred to as the “independent-injury
rule,” grows from precedent observing that an insured cannot sue the insurer for bad
faith based on the denial of a claim for which there was in fact no coverage unless the
insurer’s tort causes some injury that is independent of the policy claim. Id. at 499
(citing Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995)). The court further
explained that this rule has two facets. First, “if an insurer’s statutory violation
causes an injury independent of the insured’s right to recover policy benefits, the
insured may recover damages for that injury even if the policy does not entitle the
insured to receive benefits.” Id. Second, “an insurer’s statutory violation does not
permit the insured to recover any damages beyond policy benefits unless the violation
causes an injury that is independent from the loss of the benefits.” Id. at 500.
Liberty embraces this second aspect of the independent-injury rule. It argues that,
under Menchaca, it cannot be liable for statutory damages (i.e., “any damages”)
beyond policy benefits unless Southwest establishes that it suffered an injury that is
independent of its loss of policy benefits. Considering only this aspect of Menchaca, it
might appear that Southwest cannot maintain a claim for statutory damages beyond
policy benefits without showing some independent injury.
Southwest, however, contends that the independent-injury rule has no role
here because its claim for statutory damages is rooted elsewhere in Menchaca. The
second rule distilled by the court in Menchaca is that “an insured who establishes a
right to receive benefits under an insurance policy can recover those benefits as
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‘actual damages’ under the statute if the insurer’s statutory violation causes the loss
of the benefits.” Menchaca, 545 S.W.3d at 495. This rule emanates from precedent
recognizing that “an insurer’s unfair refusal to pay the insured’s claim causes
damages as a matter of law in at least the amount of the policy benefits wrongfully
withheld.” Id. (quoting Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 136
(Tex. 1988)). Under this “entitled-to-benefits” rule, an insured may elect to recover
the amount of benefits as actual damages under the statute rather than through a
breach-of-contract claim. Id. Stated succinctly, “an insured who establishes a right
to benefits under the policy can recover those benefits as actual damages resulting
from a statutory violation.” Id. at 497. Because Southwest seeks to establish a right
to benefits under the insurance policy, it contends the entitled-to-benefits rule enables
it to recover the amount of policy benefits as actual damages without regard for any
independent injury resulting from a statutory violation. And, in its view, having a
right to actual damages under the entitled-to-benefits rule, it is not constrained in
seeking additional statutory damages by the independent-injury rule.
It is difficult to discern from Menchaca alone which of its clarifying
categories—the entitled-to-benefits rule or independent-injury rule—Southwest’s
claim for statutory damages falls into. The parties’ briefs do not engage the other’s
position; they rely on their own selection from Menchaca without explaining why the
other party’s reliance on a competing portion of the opinion is misplaced.
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Fifth Circuit precedent provides guidance here, and it favors Southwest on this
issue. See Lyda Swinerton Builders, Inc. v. Oklahoma Sur. Co., 903 F.3d 435, 450–53
(5th Cir. 2018). In Lyda Swinerton Builders, a building contractor brought claims for
statutory damages under Chapter 541 against a subcontractor’s insurer that failed to
provide a defense to the contractor. See id. at 443. After a bench trial, the district
court held that the insured contractor failed on its claim for extra-contractual
damages because it did not prove that it suffered an injury separate and apart from
the denial of policy benefits. Id. at 444. The Fifth Circuit examined Menchaca and
the decisions it relied on, and it particularly considered the interplay between the
entitled-to-benefits rule and the independent-injury rule in that circumstance. Id. at
450–52. Upon doing so, the court concluded that “the independent-injury rule does
not restrict the damages an insured can recover under the entitled-to-benefits rule.”
Id. at 452. “Rather, the independent-injury rule limits the recovery of other damages
that ‘flow’ or ‘stem’ from a mere denial of policy benefits.” Id. The Fifth Circuit
illustrated the point by noting that damages for emotional distress could not be
recovered under the entitled-to-benefits rule (because it would not be a measure of
damages under policy benefits), nor could they be recovered under the second facet
of the independent-injury rule without establishing that they flow from some separate
and independent injury beyond the mere denial of policy benefits. Id. at 452 & n.4.
Because the contractor advanced a claim under the entitled-to-benefits rule, the Fifth
Circuit concluded that the insured could obtain the amount of policy benefits as
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statutory damages and treble damages (if proved) without running afoul of the
independent-injury rule. Id. at 543.
Despite Southwest’s express reliance on Lyda Swinerton Builders, Liberty does
not engage the decision in its reply. That precedent persuades the undersigned that
Southwest’s statutory claim falls within Menchaca’s entitled-to-benefits rule and is not
subject to dismissal for lack of an independent injury.
3. 	Liberty is not entitled to summary judgment on Southwest’s claim
under Chapter 542.
Liberty next asserts that it is entitled to summary judgment on Southwest’s
TPPCA claim under Chapter 542 of the Texas Insurance Code. (D. MSJ Br. at 19-
20.) Under that chapter, Liberty was required to notify Southwest of its acceptance
or rejection of the claim “not later than the 15th business day after the date the
insurer receives all items, statements, and forms required by the insurer to secure
final proof of loss.” Tex. Ins. Code § 542.056(a). Liberty argues that it is entitled to
summary judgment because the evidence is undisputed in showing that Southwest
never provided Liberty with all the documents Liberty had requested to process the
claim, such as Southwest’s correspondence with other insurers and hourly
calculations of lost bookings. (D. MSJ Br. at 20.) As Liberty views it, Southwest’s
failure to provide the requested information means that Liberty’s duties under
§ 542.056(a) never arose. (Id.) Southwest argues that Liberty rejected the claim for
reasons other than the failure to provide requested information, so it cannot now rely
on that reasoning as a basis for summary judgment. (P. Resp. Br. at 17.)
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Even accepting that Southwest did not provide all the records that Liberty
requested—which Southwest does not dispute—it does not automatically follow that
Liberty is entitled to summary judgment. This is so because Liberty cannot rely on
Southwest’s failure to provide information as an after-the-fact escape from liability.
See Weiser-Brown Operating Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 524 (5th
Cir. 2015) (“The insurer cannot avoid liability under § 542.056 by pointing after-the-
fact to missing information, the absence of which did not affect the insurer’s
decision.”). Liberty argues that Weiser-Brown does not apply here because this is not
a case in which the failure to provide requested information is a post hoc reason that
did not actually animate its coverage decision. (D. Reply at 11-12.) Liberty noted in
its no-coverage letter that “Southwest [was] either unable or unwilling to provide any
further information or documentation in response to Liberty’s outstanding requests”
and that Liberty made its final coverage determination “based upon the
representation that no further information or documentation will be forthcoming
from Southwest.” (Dkt. No. 115-2 at 472.) Additionally, Liberty asserts that the
policy specifically provided that “net profit (or net loss) and charges and expenses
shall be calculated on an hourly basis and based on such an Insured’s actual net
profit (or loss) and charges and expenses.” (D. Reply at 10.8)
8 Liberty states that this language comes from a policy endorsement found at page 85
of its appendix, which it identifies as Endorsement No. 21 at ¶ 11. (D. Reply at 10 n.20.)
The cited page, however, is a Liberty policy declaration identifying the insured, limits of
liability, and underlying policies. The undersigned did not find Endorsement No. 21 in the
appendix but, after considerable effort, located it at in Southwest’s appendix, P. MSJ App.
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Liberty has shown that Weiser-Brown is distinguishable because Liberty
specifically noted its inability to obtain additional information from Southwest when
it rendered its no-coverage decision—i.e., the failure to provide documents is not
merely a post hoc explanation for the denial. It is doubtful, however, that this
distinction warrants summary judgment. The Fifth Circuit rejected the insurer’s
argument about unprovided information in Weiser-Brown not simply because it was a
reason given after the fact, but also because it “did not affect the insurer’s decision.”
Weiser-Brown, 801 F.3d at 524. Here, Liberty’s no-coverage letter acknowledged the
absence of requested information, but even without that information it was able to
determine that there was no coverage for the claimed loss. Arguably, Liberty might
demonstrate at trial that the missing information affected its no-coverage decision
and, thus, prove that its duty under § 542.056(a) did not arise. But the record does
not demonstrate such to be the case, and therefore, Liberty is not entitled to
summary judgment on that claim.
IV. RECOMMENDATION
For the foregoing reasons, the undersigned RECOMMENDS that Plaintiff
Southwest Airlines Co.’s Motion for Partial Summary Judgment (Dkt. No. 110) be
GRANTED in part and DENIED in part and that Liberty Insurance Underwriter’s
Motion for Partial Summary Judgment (Dkt. Nos. 113, 114-2) be DENIED.
79. This is just another example of briefing errors that have slowed the undersigned’s
consideration of the pending motions.
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SO RECOMMENDED on December 2, 2025.
BRIAN McKAY
UNITED STATES MAGISTRATE JUDGE
INSTRUCTIONS FOR SERVICE AND
NOTICE OF RIGHT TO OBJECT
A copy of this report and recommendation will be served on all parties in the manner
provided by law. Any party who objects to any part of this report and
recommendation must file specific written objections within 14 days after being
served with a copy. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). To be specific,
an objection must identify the finding or recommendation to which objection is
made, state the basis for the objection, and indicate the place in the magistrate
judge’s report and recommendation where the disputed determination is found. An
objection that merely incorporates by reference or refers to the briefing before the
magistrate judge is not specific. Failure to file specific written objections will bar the
aggrieved party from appealing the factual findings and legal conclusions of the
magistrate judge that are accepted or adopted by the district court, except upon
grounds of plain error. See Douglass v. United Services Automobile Ass’n, 79 F.3d 1415,
1417 (5th Cir. 1996), modified by statute on other grounds, 28 U.S.C. § 636(b)(1)
(extending the time to file objections to 14 days).
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