Last week, a Houston federal judge adopted a magistrate’s recommendation adding to the growing body of law holding that payment of an appraisal award conclusively ends the litigation against the carrier and entitles the insurer to summary judgment in virtually all cases. Garcia, v. Liberty Mutual Ins. Co., CV H-17-1587, 2019 WL 1383011(S.D. Tex. Mar. 27, 2019) (slip op.) was a residential wind/hail case in which the carrier invoked appraisal shortly after being sued.  The appraisal resulted a replacement cost award of about $30,000.  Ten business days after the award was issued, the carrier notified the insureds that it accepted the award and paid the actual cash value portion of the award, advising the insureds of the deadline to complete the repairs in order to collect the remaining replacement cost benefits. Shortly after making the payment, the carrier sought summary judgment on all claims in the lawsuit.

Plaintiffs invoked the policy’s five business day loss payment provision to argue that payment ten business days after rendition of the award was not timely. The court disagreed, holding the loss payment provision only requires the carrier to pay within five business days of notifying the insured it will pay all or part of a claim, which the carrier did. The court went further and stated, “The loss-payment provision of the Policy does not apply to apply to appraisal awards.” The court also rejected the idea that the carrier was required to pay the award within 15 business days of receiving it, noting that deadlines triggered by receipt of items requested from the insured do not apply to appraisal awards. [Editor’s note: Even assuming statutory deadlines in Texas Insurance Code Chapter 542 apply to receipt of an appraisal award, the carrier complied with the statute by accepting the claim and paying the award within 15 business days.]

The court then rejected Plaintiffs’ argument that the award was not fully paid because the depreciation was withheld, noting the withholding of depreciation was consistent with the policy terms requiring the insured to actually complete repairs before collecting replacement cost benefits.

Finally, the court rejected any attempt to invoke USAA Texas Lloyds v. Menchaca as grounds for proceeding with extra-contractual claims against the carrier after prompt and full payment of the appraisal award, repeating Menchaca’s confirmation that the independent injury rule is alive and well in Texas.  Ultimately, the court granted summary judgment in favor of the carrier on all claims. 

Editor’s Note: Federal courts appear to be sending an increasingly clear message that they are tired of policyholders collecting appraisal awards and subsequently attempting to continue litigating their claims against insurers, and this opinion is one of the strongest statements yet in that regard.

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