Texas Insurance Law Newsbrief - December 3, 2025
INSURER’S WAIVER OF PROOF OF LOSS FORM DOESN’T WAIVE APPRAISAL CONDITION
The First Court of Appeals in Houston concluded that “the claims-handling provision requiring” an insurer “to request a sworn proof of loss is not a condition precedent to” the insurer’s “contractual right to appraisal” and nothing in the court record supported an intentional waiver of that contractual right.
In re American Zurich Insurance Co., 2025 Tex. App. Lexis 8932*; 2025 LX 550828, involves a builder’s risk insurance policy and a substantial fire loss to the insured property, an 8,009 square foot home in West University Place, a few days prior to the home buyer’s scheduled move-in. The claim was reported July 24, 2023, and Zurich promptly began its investigation, inspected the property, retained experts and worked with consultants to determine the amount of loss. In February 2024, Zurich issued a $500,000 advance to begin remediation and repairs while the parties continued inspections and negotiations on the amount of loss. In May 2024, Zurich estimated repairs at $1,480,394.80 and the insured estimated the cost of repairs at $4.8 million.
Inspections and negotiations were still ongoing in October 2024, when the insured filed suit against Zurich alleging common law and statutory bad faith. Zurich’s answer included a reservation of all rights and defenses under the policy. But Zurich also informed the insured that the claim remained open and its investigation was ongoing subject to its reservation of rights. The parties mediated the case on May 8, 2025, and when they failed to reach an agreement, Zurich made a demand for appraisal on May 16, 2025, eight days after the mediation. When the insured refused, Zurich filed a motion compel appraisal and to stay the litigation asserting in part that the fire was a covered cause of loss, the investigation and efforts to determine the amount of loss under the policy were ongoing, and they were working with the insured and its experts to make that determination.
The insured responded in part to Zurich’s motion to compel arguing that Zurich failed to comply with its contractual policy deadlines. Specifically, by failing to request a signed proof of loss within 15 days after receiving notice of the claim, as required under a “Claims Handling” section of the policy, the insured argued Zurich waived this “condition precedent” to demanding “Appraisal” under a “Loss Conditions” section of the policy which states in part:
If we and you disagree on the value of the property or the amount of loss, either may make a written demand, within 60 days after our receipt of a signed sworn proof of loss, for an appraisal of the loss….
Considering these and other arguments, the trial court denied Zurich’s motion to compel appraisal and Zurich filed this mandamus action with the court of appeals.
The First Court of Appeals conducted a well-reasoned analysis of the issues and observed that the 60-day temporal component in the Appraisal condition was never triggered because Zurich never received a sworn proof of loss form from the insured. Further, the court disagreed with the insured’s argument applying two separate policy provisions, the claims handling provision and the appraisal provision were somehow both waived by Zurich’s failure to provide a sworn proof of loss form or waiver of the form requirement. Instead, the court concluded that “the claims-handling provision requiring Zurich to request a sworn proof of loss is not a condition precedent to Zurich’s contractual right to appraisal. And that nothing in the record indicates that Zurich waived its contractual right to appraisal by failing to request a proof of loss.”
The court further found that the assertion of coverage defenses did not preclude appraisal. And that Zurich’s appraisal demand eight days after a failed mediation, was not an unreasonable delay and Zurich did not waive its right to appraisal. Accordingly, the court conditionally granted mandamus relief directing the trial court to vacate its order denying Zurich’s motion to compel appraisal and to order the parties to proceed with appraisal.
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INSURER MUST PROVE POLICY IN FORCE TO COMPEL APPRAISAL
The Corpus Christi Court of Appeals considered an insurer’s argument that it possessed “an unqualified contractual right” to resolve storm-related damage disputes through appraisal and found that it had not met its burden to obtain relief.
In re Homesite Insurance Co. 2025 Tex. App. Lexis 9013*; 2025 LX 597602, denied an insurer’s petition for writ of mandamus to compel appraisal finding: “Specifically, based on the pleadings filed in the proceedings below, the trial court may have reasonably concluded that Homesite sought to compel appraisal based on an insurance policy that was not in effect at the time of the loss.” Accordingly, the court lifted its stay and denied the petition for writ of mandamus.
Editors Note: Storm-related damage claims often involve a determination of when the loss occurred and whether it fell within the policy period, e.g. hail damage can be the result of a series of storms over time, some of which may fall outside the policy period. This case illustrates the need for specificity in pleading and proof of the policy and time period under which an insurer seeks to compel appraisal.
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COURT FINDS USURY VIOLATIONS ARE “PENALTIES” AND NOT COVERED UNDER DIRECTORS AND OFFICERS POLICY
The U.S. District Court for the Northern District of Texas considered whether usury claims presented under a directors and officers policy were “penalties” and found that they were and thus, not covered.
In Yaquinto v. CNA Ins. Co., 2025 U.S. Dist. LEXIS 226457, 2025 LX 540208, 2025 WL 3214758, CNA rejected a policy limits demand to settle over $11 million in usury claims made against Actitech, its insured. Actitech then filed for bankruptcy and settled the claims for $2.5 million, the Trustee took an assignment and sought to recover against CNA. The bankruptcy court granted CNA’s motion for judgment on the pleadings finding that the policy did not cover “penalties” sought in the usury lawsuit and this appeal followed.
On appeal, the Trustee argued in part “that the underlying usury suit was covered under the insurance Policy because "penalty" in the insurance contract only means penalties paid to the government." In response, CNA argued “that Texas law calls the violation of usury law a penalty in the code and the underlying lawsuit was thus not covered.” The court agreed with CNA and in doing so noted:
The policy’s definition of Loss includes "damages, settlements, judgments (including any award of pre-judgment and post-judgment interest on a covered judgment) and Defense Costs for which the Insured is legally obligated to pay on account of a covered Claim[.]" But the Policy expressly did not include "civil or criminal fines, penalties, taxes, sanctions, or forfeitures imposed on an Insured whether pursuant to law, statute, regulation, or court rule, other than those civil fines or penalties imposed under 42 USC 1320d-5(a) of the Health Insurance Portability and Accountability Act of 1996[.]"
The court considered the Black’s Law Dictionary definition of “penalty” as "punishment imposed on a wrongdoer, usually in the form of imprisonment or fine; especially, a sum of money exacted as punishment for either a wrong to the state or a civil wrong (as distinguished from compensation for the injured party's loss)." And that here, “Texas imposes a penalty for usury to the party charged the usurious interest rate, not to compensate the injury but as punishment itself.” The court also noted that while "fines, penalties, taxes, sanctions, or forfeitures" are imposed by the government, although not always paid to the government.” And concluded that the policy provided no coverage.
Lastly, the court considered the Trustee’s argument that the bankruptcy court erred and should have granted its leave to amend the complaint and observed:
But more importantly the Court need not grant leave in this circumstance where the defects cannot be cured. There are no facts that could be pled in this case that would convert what is not insured under the Policy, like the usury penalties, into a covered loss. No Jedi mind trick—"This isn't the policy you're looking for"—will work. Thus, repleading would be wholly futile only delaying the inevitable.
Applying Obi Wan like wisdom, the court affirmed the bankruptcy court’s order granting CNA’s motion to dismiss.
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UIM INSURER ENTITLED TO IME – COUNTEROFFER TO POLICY LIMITS DEMAND WAS NOT A “DENIAL” OR WAIVER OF INSURER RIGHTS
The Fort Worth Court of Appeals considered an Underinsured Motorist (UIM) insurer’s right to conduct an independent medical exam (IME) and whether an offer of settlement waived its right to do so.
In re Progressive County Mutual Ins. Co., 2025 Tex. App. LEXIS 9014, 2025 LX 589603, involved a low-speed parking lot accident in which the insured settled with the other driver and then presented a UIM claim to Progressive. Progressive requested additional medical records from the insured’s attorney and reserved the right to review the records and have the insured submit to an IME.
Later, the insured’s attorney sent a detailed letter regarding the medical records, offering to submit to an IME and demanding $500,000, the UIM policy limit to settle the claim. Progressive responded by letter expressing a willingness to settle for $15,000, based on “information currently known and provided by” the insured. The letter also reminded the insured of their duties under the policy and requested additional information, including medical and billing records for further evaluation. The insured then sued Progressive alleging Texas Insurance Code violations, and became uncooperative, refusing to participate in an IME or to submit to an examination under oath. Progressive filed a motion to compel an IME and the trial court denied the motion. This appeal followed.
The court considered the insured’s argument that by failing to conduct an IME before refusing the policy limit demand, Progressive was somehow precluded or waived its right to proceed with an IME. The court observed that the insured placed his medical condition in controversy and the IME is a condition precedent to UIM coverage. The court rejected the argument that Progressive’s offer of less than policy limits was a denial of the claim and concluded that Progressive was entitled to any IME under Rule 204.1 and under the express terms of the policy. But the court rejected Progressive’s assertion that it was entitled to an abatement of the lawsuit because the IME is a condition precedent, applying by analogy the Texas supreme court’s observation in appraisal cases that a trial court’s refusal to abate pending appraisal is not subject to mandamus. Accordingly, the court conditionally granted mandamus relief directing the trial court to allow the IME to proceed.
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