Earlier this month Judge Micaela Alvarez of the Southern District of Texas, McAllen Division, granted summary judgment as to all claims on behalf of an insurer for its compliance with the appraisal process. In Dizdar v. State Farm Lloyds, No. 7:14-cv-00445, (S.D. Tex. February 4, 2016), the insureds sued their carrier for damages allegedly suffered at their property as a result of the now-infamous March 29, 2012 hail and wind storm in  the  Rio  Grande  Valley.

Almost three months after the storm, Mr. Dizdar reported a claim to State Farm and State Farm inspected the property on June 23, 2012, estimating the loss to the property at $1,096. On the same day, the carrier issued to the insured a payment of $199, after applying depreciation and the deductible.

A month later, State Farm received an estimate from the insureds’ contractor alleging the damages to the property totaled at least $24,000.  The insureds then requested a re-inspection  of  the  property.  Subsequent to the re-inspection, the carrier issued an additional payment  of  $49 for the insureds’ storm claim. After payment was issued, State Farm had no discussions with the insureds regarding “any concerns or complaints” about the adjustment of their claim until this suit was filed in April of 2014.

Plaintiffs filed their lawsuit in state court alleging various insurance related causes of action against State Farm. Subsequently, it removed the case to federal court where, several months later, Plaintiffs’ counsel invoked the appraisal provision of the insurance policy. Plaintiffs and State Farm filed an agreed motion to abate the case pending completion of the appraisal process which the Court granted.

Last November, State Farm filed a motion for summary  judgment arguing:  (1)  an  appraisal  award  had  been  issued  setting  the  amount  of  loss  at $1,682 for the replacement  cost of covered damage and  $1,584.06  for the ACV of the same covered damage;  (2)  the award was signed by each parties’ appraiser; and (3) one day after receiving the award, State Farm  tendered  payment  of  the ACV award to Plaintiffs in the amount of $590 (the appraisal award  less  the deductible and the prior payment).

The Court first granted Defendant’s request to lift the abatement finding Plaintiffs had failed to identify any additional discovery likely to create a fact issue on each remaining claim.  Judge Alvarez then turned to the breach of contract claim. The Court found that in breach of contract cases where liability derives from an allegation that the insurer wrongfully underpaid a claim, Texas law dictates that the insured is estopped from maintaining a breach of contract claim when the insurer makes a proper payment pursuant to the appraisal clause.  Because Plaintiffs did not point to any issue of fact on a distinct contractual provision or of the validity of the appraisal process, Plaintiffs were “effectively foreclosed” from maintaining a breach of contract action. The Court further found the mere fact of a discrepancy between what was initially paid and the appraisal award cannot be used as evidence of breach of contract under Texas law.

The Court then turned to the common-law and statutory bad faith claims. Because Plaintiffs’ claims related solely to the investigation and payment of the policy claim, and because Plaintiffs failed to even allege an act that would give rise to an independent injury summary judgment was granted on these claims. As to claims under Chapter 542, the Court found that in Texas, courts have constantly held that “full and timely payment of an appraisal award under the policy precludes an award of penalties under the Insurance Code’s prompt payment provisions as a matter of law.”  Accordingly, summary judgment was granted as to those claims as well. Finally, the Court granted summary judgment as to the fraud and conspiracy claims as Plaintiffs had failed to show a genuine issue of material fact regarding these claims.

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