January 13, 2016

Last week, Federal District Court Judge Smith in the Waco Division of the Western District granted summary judgment as to all claims on behalf of an insurer for compliance with the appraisal process.  In Marvin Carter v. State Auto Property & Casualty Insurance Company., No. 6:14-cv-00468, (W.D. Tex. January 6, 2016), the insured was suing his carrier to recover damages for breach of contract, bad faith and breach of Texas Insurance Code § 542.058 based on the handling of a claim for hail damage to his roof. The insurer evaluated Carter's claim for hail damage and determined that approximately $3,000 was required to fix his roof. After Carter accepted the $3,000, he filed suit claiming that the insurer had underpaid his claim and that the roof would cost more than $3,000 to repair. On November 3, 2014, the insurer invoked an appraisal  provision contained within the Policy. The standard appraisal provision required each party to select impartial appraisers who then agree on an umpire, who sets the amount of loss if the appraisers fail to reach an agreement as to the amount of loss based on their own estimates.

In this case, the umpire determined that the amount needed to fix Carter's roof was approximately $49,000, which the insurer promptly paid. After State Auto paid the    appraisal   award,   both   parties   moved   for   summary   judgment arguing towards opposite conclusions, stating the appraisal award was conclusive as a matter of law on the breach of contract and extra-contractual claims. The insurer argued the plaintiff's claims were barred as a result of its payment of the appraisal award and full compliance with the Policy.

Judge Smith agreed with the insurer citing to Texas law that full compliance with the appraisal provision of the policy negates a claim for breach of contract, even when the ultimate value of the loss is higher than what was originally paid.  Judge Smith also found that with no evidence, or allegation of any “extreme” act or independent damages, the claim for bad faith also fails. Finally, as to the claim for § 542.058 prompt pay penalties, Judge Smith referenced Texas case law and found that payment of an appraisal award “extinguishes any claim for attorneys' fees and statutory interest stemming from a prompt pay deadline imposed by§ 542.058.” Based on these findings, the Court denied Plaintiff’s motion and granted summary judgment in favor of the insurer as to all claims.