Texas Insurance Law Newsbrief - March 12, 2024

Texas Insurance Law Newsbrief


The Supreme Court of Texas recently considered whether to grant a settlement credit to a defendant based on an agreement which did not plainly define the settlement amount and determined that the settlement credit applied.

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In Bay, Ltd. v. Mulvey, No. 22-0168, 2024 Tex. LEXIS 174 (March 1, 2024), Bay, Ltd., a development and construction company, hired Michael Mendietta to manage its trucking and materials division. Mendietta began leasing a ranch in his personal capacity from the Most Reverend Wm. Michael Mulvey, the Bishop of the Diocese of Corpus Christi. The ranch lease between Mendietta and Mulvey put certain obligations on Mendietta to make improvements to the ranch at Mendietta’s expense. Without his employer’s permission or consent, Mendietta used Bay’s materials, equipment and employees to make the ranch improvements. After Bay’s discovery of Mendietta’s actions, Bay sued Mendietta and Mulvey in Jim Wells County. Bay also filed another suit in Nueces County against Mendietta alone for all of his wrongful conduct, including the unauthorized improvements to the ranch. Bay and Mendietta entered into an agreement in the Nueces County suit to resolve their claims against each other. The specific settlement agreement included mutual covenants to nonsuit pending claims and required the settling defendant to pay Bay $750 per month to avoid execution of a $1.9 million agreed final judgment.

The dispute ultimately landed before the Supreme Court of Texas where Bay argued that the agreement in the Nueces County suit did not constitute a “settlement agreement” for purposes of the common-law one-satisfaction rule, which is that a plaintiff is entitled to only one recovery for any damages suffered. Instead, Bay argued that the agreement did not obligate Mendietta to pay $1.9 million but is merely a “forbearance agreement” requiring him to make monthly $750 payments to avoid foreclosure on his home. The Supreme Court rejected Bay’s arguments and stated that a “hallmark of a settlement agreement is that it ends a dispute,” and the agreement between Bay and Mendietta did just that. The Supreme Court further clarified that agreed final judgments are common in settlements.  As a matter of law, the parties in the Nueces County suit settled. The Supreme Court went on to analyze and determine the amount of the settlement and the amount of the settlement credit to be applied. Bay argued that Mendietta was only required to pay $175,000 related to Mendietta’s homestead ($750 per month times 19-plus years). Construing the agreement and agreed final judgment together, the Supreme Court stated the agreement is unambiguous that Mendietta’s obligation is $1.9 million and promised future payments do not preclude a credit here. Because there was no evidence supporting any particular allocation of value to the injury Bay suffered in connection with the unauthorized improvements at the ranch, in the absence of such evidence, precedent requires the entire remaining unallocated settlement amount of $1.725 million to be credited against the jury’s verdict ($1,900,000 - $175,000 = $1,725,000).

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The United States District Court for the Northern District of Texas recently considered whether an insurer waived its right to compel appraisal by waiting two-months after suit was filed and concluded that it did not.

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But the court refused to abate the lawsuit pending appraisal. In Kincaid v. Acceptance Indemnity Ins. Co., Civil Action No. 5:23-CV-282-H-BQ, 2024 U.S. Dist. LEXIS 33165 (N.D. Tex. 2024), the insured, Kris Kincaid d/b/a Kincaid Roofing & Remodeling (Kincaid), filed a claim for property damage to his roof following a hail and wind event. Acceptance Indemnity Insurance Company (Acceptance), inspected the property and issued payment to Kincaid based on its estimate for repairs. Kincaid believed the amount paid was insufficient and sent Acceptance a demand with an estimate for full roof replacement. Sixty-days went by without a response from Acceptance and Kincaid filed suit exactly sixty-nine days after the demand, asserting claims for breach of contract and duty of good faith and fair dealing, and alleging violations of the Texas Insurance Code and Deceptive Trade Practices Act. A little over two months after filing suit, Kincaid sent an updated demand seeking an increased dollar amount. A few days after this updated demand was received, Acceptance made its appraisal demand.

Kincaid argued that Acceptance waived its right to appraisal. To establish waiver, Kincaid had to demonstrate that: (1) the parties have reached an impasse; (2) after reaching impasse, one party did not invoke appraisal within a reasonable time; and (3) the other party will suffer prejudice as a result of the delay. There was disagreement as to when the impasse occurred.

The Court found that Kincaid failed to show that Acceptance did not make its appraisal demand within a reasonable time. Although Acceptance did not respond to the first demand letter in sixty days, Acceptance did make a written demand for appraisal within approximately three months from the earliest date Kincaid asserted that the impasse occurred. Also, during this three-month period, Acceptance indicated in its Answer filed in state court that Defendant “reserves the contractual right to invoke [the appraisal] clause, and that the property be appraised according to the …insurance policy if the parties reach an impasse.” Finally, and most significantly, the court concluded that Kincaid failed to show that it would be prejudiced by the appraisal process. The court noted that to find waiver there must be an unreasonable delay following impasse and prior to invocation of the appraisal process and, the prejudice must be caused by the unreasonable delay. The court pointed out that if Kincaid truly sensed the parties reached an impasse after 60 days went by from the initial demand or even earlier when Kincaid felt that Acceptance underpaid his damages, he himself could have invoked the appraisal clause and avoided any alleged prejudice. Accordingly, the court granted Acceptance’s motion to compel appraisal.

Kincaid also argued that the claims asserted in the lawsuit involve contractual and extra-contractual claims in addition to coverage issues that will not be resolved by appraisal. And, that the extra-contractual violations were committed before appraisal was invoked. As a result, abatement pending appraisal “will not promote judicial efficiency.” The court examined the policy’s “no action” clause (requiring full compliance with the terms and conditions of the policy before bringing legal action) and determined that it doesn’t “necessarily mean that the appraisal process” be completed before suit is filed. Moreover, the court observed that the extra-contractual claims “are not governed by the appraisal clause” and that liability remains disputed “no matter the result of appraisal.” Accordingly, the court denied the insurer’s motion to abate and stated that it expects the parties to comply with the deadlines set in its Scheduling Order.

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