Texas Insurance Law Newsbrief - February 13, 2024

Texas Insurance Law Newsbrief


In Rodriguez v. Safeco Ins. Co. of Ind., 2024 Tex. LEXIS 93 (Tex. 2024), the Texas Supreme Court of Texas recently answered the Fifth Circuit Court of Appeals’ long-awaited certified question: “In an action under Chapter 542A of the Texas Prompt Payment of Claims Act, does an insurer’s payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney’s fees?”  It turns out, the answer is yes.

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On May 25, 2019, Mario Rodriguez’s home was struck by a tornado and the Safeco adjuster inspected and found covered damage totaling $1,295.55. Dissatisfied with the inspection and payment, Rodriguez claimed that Safeco owed an additional $29,500.  Rodriguez sued in June 2020 alleging breach of contract and Insurance Code violations, and Safeco removed to federal court in the Northern District of Texas.  After an unsuccessful mediation, Safeco invoked the insurance policy’s appraisal provision. The subsequent appraisal panel valued the replacement cost of the damage at $36,514.52.  Safeco then issued Rodriguez a check for $32,447,73, representing actual cash value, less the deductible and prior payment, plus $9,458.40 for accrued interest. Safeco then moved for summary judgment, saying that the payment should end the litigation, as Insurance Code Section 542A.007 foreclosed Rodriguez’s request for attorney’s fees.  Specifically, Safeco argued its appraised value payment plus accrued interest discharged its policy obligations and foreclosed a “judgment to the claimant under the insurance policy” that would otherwise entitle Rodriguez to attorney’s fees under the Insurance Code.

The Northern District agreed and dismissed the case.  Rodriguez appealed, and The United States Court of Appeals for the Fifth Circuit certified this writing’s opening question to the Supreme Court of Texas for its analysis under Texas substantive law.  The Supreme Court of Texas agreed with Safeco, concluding that when an insurer has already paid all amounts owed under the insurance policy plus any possible statutory interest, there is not and could never be an “amount to be awarded in the judgment to the claimant for the claimant’s claim under the insurance policy” and hence no value to plug into that portion of the formula for calculating attorney’s fees. This application of the statutory formula results in no statutory basis for attorney’s fees.  “For these reasons, the answer to the certified question is yes.”

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The United States District Court for the Southern District of Texas concluded that the insured’s two-year and six-month delay in invoking the appraisal process under the insurance policy constituted a waiver of his right to appraisal.

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In Ganim v Zurich Am. Ins. Co., No. H-23-1897, 2024 U.S. Dist. LEXIS 19383 (S.D. Texas [Houston Division], Feb. 5, 2024, mem. op.), Ganim’s property was damaged during Winter Storm Uri. Ganim made a claim with his insurer, Zurich American Insurance Company (“Zurich”), and he received the final payment for his claim in April 2021. Two years later, though, Ganim filed suit against Zurich alleging that Zurich underpaid his claim for property damages. Then, six months after filing suit, Ganim invoked the appraisal process under the insurance policy, and moved to abate the case pending the appraisal. Zurich opposed the motion to abate contending that Ganim’s delay in invoking appraisal constituted a waiver of his right to appraisal.

The U.S. District Court began its analysis by noting that the contractual right to appraisal may be waived. Further, "while an unreasonable delay is a factor in finding waiver, reasonableness must be measured from the point of impasse. An impasse is a mutual understanding that neither party will negotiate further."  Also, "mere delay is not enough to find waiver; a party must show that it has been prejudiced. Prejudice to a party may arise in any number of ways that demonstrate harm to a party's legal rights or financial position."

The U.S. District Court concluded that Ganim waived his right to appraisal and denied Ganim’s motion to abate.  The court reasoned that “Ganim did not explain why he did not invoke appraisal during those two years [after he received his final payment]. Nor [did] he explain why he waited six more months after filing suit to invoke appraisal. The delay [did] not appear to be explained by negotiations between the parties. Ganim did not notify Zurich of his complaint until Zurich was served with the lawsuit. Ganim's delay [was] inconsistent with an intention to exercise his appraisal rights.” Additionally, “Ganim's delay was prejudicial to Zurich because during that time, Zurich ha[d] responded to Ganim's complaint, participated in discovery, and filed three motions to dismiss, all steps and expenses that could have been avoided had Ganim invoked appraisal before filing suit.”

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In Yount v Travelers Pers. Ins. Co., No. SA-23-CV-00150-JKP, 2024 U.S. Dist. LEXIS 5817 (S.D. Tex. [San Antonio], Jan. 11, 2024, mem. op.), the dispute involved the interplay between compliance with the Texas Prompt Payment of Claims Act (“TPPCA”) and invocation of the appraisal process during litigation.

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The Younts’ home was damaged by a hailstorm.  The Younts’ public adjuster assessed the total replacement cost of $88,937.98. Based on Travelers’ assessment, and after deducting labor-cost depreciation and the insurance policy hail-damage limitation and deductible, Travelers paid $4,799.69.  The Younts subsequently sued Travelers asserting, among other causes of action, that Travelers violated the TPPCA. 

During the pendency of the litigation, Travelers invoked the appraisal process pursuant to the insurance policy. The appraisal panel of two appraisers and an umpire issued an appraisal award of $31,950.25. Travelers subsequently issued a check to the Younts in the amount of $46,626.12 (factoring in Travelers’ prior payment, the deductible, and payment for interest and attorney fees potentially recoverable). However, the Younts rejected the payment and continued litigation. The Younts asserted that Travelers violated the TPPCA by waiting to invoke the appraisal process until after litigation ensued and by waiting to pay the claim until issuance of the appraisal award in the Younts' favor.  In response, Travelers sought summary judgment based on the undisputed evidence that Travelers made an initial payment of its assessment of the insurance claim in compliance with the Texas Insurance Code, and it timely paid the appraisal award. 

The U.S. District Court granted summary judgment in favor of Travelers.  The court concluded that “for an insurer to avoid liability for a cause of action for violation of the TPPCA, ‘the insurer must have made a reasonable pre-appraisal payment within the statutorily provided period.’" The court reasoned that “Travelers present[ed] undisputed summary judgment evidence it provided a good faith timely acceptance and payment of the Younts' insurance claim, although the appraisal panel determined later that the insurance claim had a higher actual cash value than what Travelers assessed, … and [Travelers] timely paid the appraisal award.” The court further reasoned that this case was factually distinguishable from Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019) –which held that invocation of the appraisal process and payment of an award, alone, are insufficient to avoid liability under the TPPCA– because the insurer in Barbara “initially rejected the insurance claim and paid it only when liability was later determined through the appraisal process.”

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The United States District Court for the Southern District of Texas recently concluded that payment of appraisal award plus statutory interest six months after the appraisal award did not give rise to a breach-of-contract claim.

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In Navarra v. State Farm Lloyds, No. H:23-1689, 2023 WL 8188864 (S.D. Texas [Houston Division], Nov. 27, 2023, mem. op.), the Navarras submitted a claim to State Farm after their home was damaged by wind and hail in May 2022. State Farm inspected the Navarras’ property and informed them in September 2022 that the damage amount was below their deductible. The Navarras subsequently invoked appraisal, and an appraisal award was signed in December 2022. In January 2023, State Farm stated that it would not honor the award because the appraisal had improperly decided questions of coverage. Consequently, the Navarras sued State Farm alleging a claim of breach of contract. After suit was filed, State Farm paid the appraisal award in full, including statutory interest dating from September 2022. State Farm then moved for summary judgment, arguing that its full payment of the appraisal award and of statutory interest foreclosed any claims. The Navarras responded that although the payment was made in full, it did not constitute compliance with the insurance contract as it was made too late, i.e., six months after the appraisal award, and therefore did not preclude their claims. 

In granting summary judgment in favor of State Farm, the court concluded that failure to pay when the appraisal award was originally issued was not itself a breach of contract. “The case law is clear that late payment of the award precludes a breach of contract claim so long as it includes accrued interest. The court need not decide what length of delay might allow the claims when the delayed payment covers principal and interest. The amount of delay here is not so much as to give rise to a breach of contract.”

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A Texas Court of Appeals recently concluded that a “mistake” by one of two appraisers resulted in an unintended appraisers’ award and, therefore, reversed summary judgment granted to the insurer.

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In Dalton v. Republic Lloyds, No. 07-22-00308-CV, 2023 WL 8270247 (Tex. App-Amarillo, Nov. 29, 2023, mem. op.), a mother and daughter passed away in their home in July 2018.  There was a delay in discovering them, which led to a biohazard event within the home caused by their decomposing bodies. The independent administrator of the estate made a claim with Republic Lloyds, who in turn provided a list of approved service providers to remediate the property. ServPro was hired and performed significant removal and remediation efforts. Subsequently, the independent administrator invoked the mandatory appraisal clause of the insurance policy. The two appraisers agreed on the loss and an award of $93,038.85. As Republic had already paid more than the award, it refused to pay more.  Consequently, the independent administrator sued Republic alleging claims of breach of contract and extracontractual claims. Summary judgment was granted in favor of Republic, and the independent administrator appealed. 

On appeal, the independent administrator contended that the award arose from mistake and should be vacated because the independent administrator’s appraiser failed to include in his calculation of the loss the remediation efforts performed by ServPro before his inspection of the home. The Court of Appeals agreed and reversed summary judgment granted to Republic.

The Court of Appeals began its analysis by noting that “mistake” applies when appraisers operate under a mistake of fact that results in an unintended award. The court concluded that a factfinder could reasonably infer that the intent was to appraise the entire loss, the appraiser misinterpreted the scope of his task, and the award was not as intended. The court rejected Republic’s argument that both appraisers had to have operated under a mistaken intention for “mistake” to apply.  “If one of the two appraisers did not so intend, then the appraisers (plural) cannot be said to so have intended. Both had to agree that the award was what they intended. Dancing with oneself may be acceptable to Billy Idol, but two appraisers needed to tango together to have a viable award.”

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The United States District Court for the Northern District of Texas concluded that claims for punitive damages are not transferrable when a Stowers claim is transferred via turnover order and dismissed a claim for punitive damages in the plaintiff’s Stowers action against the insurer.

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In Carpenter v Twin City Fire Ins. Co., No. 3:23-CV-0769-N, 2024 U.S. Dist. LEXIS 20348 (N.D. Texas [Dallas Division], Feb. 5, 2024, mem. op.), Carpenter sued his employer, which was insured by Twin City Fire Insurance Company (“Twin City”). Carpenter offered to settle his case against his employer within the limits of the policy with Twin City, but Twin City declined the settlement offer.  After the trial against his employer, the jury awarded Carpenter damages that exceeded the limits of the insurance policy. As part of the judgment, the court assigned “all common law causes of action Judgement Debtors may own under G.A. Stowers Furniture Co. v. American Indemnity Co." to Carpenter via a turnover order.  Subsequently, Carpenter filed suit against Twin City asserting the assigned Stowers claim.  Carpenter also sought punitive damages. In response, Twin City moved to dismiss the claim of punitive damages for lack of standing. 

The U.S. District Court began its analysis by noting that although “it is generally recognized that an insured party may recover exemplary damages to redress its Stowers injury …, under Texas law this right is not assignable.” The Court, relying on cases concluding that punitive damages are not transferrable when a Stowers claim is transferred via voluntary assignment or the doctrine of equitable subrogation, extended this rule to claims for punitive damages when a Stowers claim is transferred via a turnover order. “Texas courts draw an important distinction between claims that are property-based and remedial and claims that are personal and punitive, holding that the former are assignable and the latter are not." “A claim for punitive damages is, logically, ‘personal and punitive’ and therefore not assignable. Because the claim cannot be assigned to Carpenter under Texas law, and because Carpenter has not asserted independent grounds to support a claim for punitive damages, Carpenter has no standing to bring this claim.” Therefore, the Court dismissed Carpenter's claim for punitive damages.

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The Dallas Court of Appeals recently ruled in favor of homeowners who argued that “windstorm” in an insurance policy is ambiguous enough to reasonably be distinct from “tornados.” 

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In Mankoff v. Privilege Underwriters Reciprocal Exch., 2024 Tex. App. LEXIS 594 (Tex. App.—Dallas 2024), Jeff and Staci Mankoff’s home suffered $748,858.19 in October 2019 in a tornado and two-minute rainstorm.  They notified their insurer, Privilege Underwriters Reciprocal Exchange (PURE), of their loss.  PURE paid a portion of the claim, stating that some of the damages were limited by operation of the $87, 516 Windstorm or Hail Deductible, instead of the base $25,000 deductible which is waived for losses over $50,000 as would be the case here. The Mankoffs sued to recover the $87,516 Windstorm or Hail Deductible, arguing that it did not apply to their tornado and rainstorm loss.  PURE filed and was granted a motion for summary judgment on the basis that the Windstorm or Hail Deductible applied to the tornado and rainstorm loss in this case.

When the Mankoffs appealed to the Dallas Court of Appeals, they asserted that the policy did not define “windstorm,” so it was subject to its normal common usage. And because the Windstorm or Hail Deductible serves to limit or exclude coverage, the rules of insurance policy contract interpretation require that the insured’s reasonable construction of that term must be applied even if the insurer’s may be more reasonable. The Mankoffs then offered expert testimony from meteorologists that explained that tornados and windstorms are materially different in how they are measured, classified, warned about, and defined.  PURE argued that Texas courts have ruled “windstorms” to include tornados.  However, the court of appeals noted that those courts did not consider whether the term “windstorm” was ambiguous, nor did those parties dispute whether “windstorm” included tornados.  Accordingly, the Court concluded that “windstorm” was ambiguous, and it was subject to reasonable definitions that would and would not include tornados.  As a result, Texas law required the court to interpret ambiguous policy exclusions or limitations in the light most favorable to the policyholders.  Accordingly, the Court reversed the trial court’s holding and remanded the case in favor of the Mankoffs.

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