In the midst of many disputes at the state and district court levels involving appraisal issues, the Fifth Circuit Court of Appeals recently examined an insured’s pursuit of contractual and bad faith claims against an insurer following the insurer’s timely payment of an appraisal award.  In Blum’s Furniture Company, Inc. v. Certain Underwriters at Lloyds London, 2012 WL 181413, No. 11–20221 (5th Cir. Jan. 24, 2012), Plaintiff-Appellant, Blum’s Furniture Company filed suit against Defendant–Appellee Certain Underwriters at Lloyds London alleging extensive property damages to its property caused by Hurricane Ike.

Less than a month after the insured accepted payment for undisputed portions of damage and invoked appraisal as to the disputed portions, a lawsuit was filed.  The appraisal process continued during the duration of the lawsuit and the appraisal umpire ultimately issued an award for damage to the property exceeding $1,000,000. Lloyds promptly issued payment to Blum’s for the appraisal amount, less amounts already paid and other deductions provided for by the policy. Blum’s accepted Lloyds’ payment of the appraisal amount, but continued to pursue the breach of contract and extra-contractual claims.  Thereafter, Lloyds filed for summary judgment which the district court granted, finding that Blum was estopped from pursuing its breach of contract claim by Lloyds’ timely payment of the appraisal award.  The district court further held that Blum could not maintain its bad faith claims absent a showing that Lloyds committed an act so extreme that it would cause injury independent of the policy claim or that Lloyds failed to timely investigate  the  insured’s  claim.  Finding  no  evidence  of  either,  the  district  court  granted  summary judgment as to Blum’s contractual and bad faith claims against Lloyds.

On appeal, the Fifth Circuit agreed with the district court, finding that Lloyds promptly commenced investigation of Blum’s claims and timely issued payment based on its adjustment of the claim. Citing In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 407 (Tex. May 6, 2011), the Court went on to state that the appraisal process can only determine the value of damages, while liability is left for the courts to decide.  Since Lloyds never disputed the issue of coverage and made payment to Blum for its contractual damages, the court held that Blum failed to establish a genuine issue of material fact regarding its bad faith claims against Lloyds and therefore affirmed the district court’s judgment.

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