SOUTHERN DISTRICT FINDS TIMELY PAYMENT OF APPRAISAL AWARD PRECLUDES EXTRA-CONTRACTUAL LIABILITY, EVEN UNDER TEXAS SUPREME COURT’S RECENTLY ARTICULATED BAD FAITH STANDARDS

In granting summary judgment in an insurer’s favor, the Southern District of Texas rejected arguments that the Texas Supreme Court’s recent efforts to clarify standards for insurer’s extra-contractual liability, in USAA Tex. Lloyds Co. v. Menchaca, 2017 WL 1311752 (Tex. April 7, 2017) (See Texas Insurance Law Newsbrief April 10, 2017, newsroom-news-TIN-20170410-item1.html ) should allow the lawsuit to proceed despite timely payment of an appraisal award. In Losciale v. State Farm Lloyds, 2017 WL 3008642 (S.D.Tex. July 14, 2017), the insured claimed storm damage to their residence.  State Farm investigated the claim and because damage less than the deductible, no payment was issued. The insured ultimately filed suit and the parties agreed to abate the case pending completion of the appraisal process. An award was entered in excess of the deductible and State Farm issued timely payment of the award in compliance with the policy and the Texas Insurance Code. Both parties then filed motions for summary judgement.

State Farm asserted that its timely payment of amounts owed under the appraisal award, precluded the breach of contract and extra-contractual claims asserted against it.  The insured argued that the recent Texas Supreme Court’s decision in Menchaca, overruled the cases State Farm relied upon in seeking summary judgment of the extra-contractual claims. The court analyzed recent case law and, applying the Menchaca standards, the court concluded that there was no loss of benefits under the policy and, no independent-injury to support the extra-contractual claims. The court held that well established Texas case law was not changed by Menchaca, and that by issuing timely payment based on the appraisal award, the insured’s contractual and all extra-contractual claims were precluded as a matter of law.