Texas Supreme Court Confirms Payment of Appraisal Award Has No Impact on Insurer Liability for Prompt Pay Penalty

April 17, 2020

By: Brytne D. Kitchin

Category: Insurance Regulatory

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Today, the Texas Supreme Court issued three per curiam opinions[1] emphasizing its decisions last year in Barbara Technologies and Ortiz which held that an insurer’s payment of an appraisal award does not bar an insured’s claim under the Texas Prompt Payment of Claims Act (“Prompt Pay Act”), codified in Chapter 542 of the Texas Insurance Code. While all three cases were remanded to the trial court for consideration of the Prompt Pay Act claims, one case was also remanded to address whether an insurer’s payment of an appraisal award after using a unilateral appraisal clause to force the insured to file suit constitutes actual damages sufficient to support claims for breach of contract and bad faith.

The three cases involve nearly identical facts. Each plaintiff filed a claim with their respective insurer for wind and hail property damage, and ultimately filed suit, believing the insurer undervalued the loss. In the trial court, each defendant insurance company obtained an order compelling appraisal, paid the appraisal amount, and subsequently moved for summary judgment on all contractual and extra-contractual claims, including the plaintiffs’ claims under the Prompt Pay Act. In all three cases, the court rendered a take-nothing judgment which was affirmed by the respective court of appeals (two cases were from the Fourth Circuit and one was from the Seventh). The appellate courts explained that in the absence of an injury independent of policy benefits, an insurer’s payment of an appraisal award entitles the insurer to summary judgment on all of the insured’s contractual and extra-contractual claims. The courts further held that the Texas Supreme Court’s decision in USAA Texas Lloyds Co. v. Menchaca did not change that conclusion.

In Menchaca, the Court held that an insured cannot recover policy benefits as actual damages for an insurer’s statutory violation if the insured has no rights to those benefits under the policy. 545 S.W.3d 479, 495 (Tex. 2018). However, the Court issued two opinions post-Menchaca that alter the analysis of the plaintiffs’ claims. In Barbara Technologies Corp. v. State Farm Lloyds, the Court held that “payment in accordance with an appraisal is neither an acknowledgement of liability nor a determination of liability under the policy for purposes of [Prompt Pay Act] damages.” 589 S.W.3d 806, 820 (Tex. 2019). That same day, the Court underscored this holding in Ortiz v. State Farm Lloyds in which it held that “an insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claims under the Prompt Payment Act.” 589 S.W.3d 127, 135 (Tex. 2019).

Barbara Technologies and Ortiz are directly contrary to the courts’ of appeals holdings that an insurer’s payment of an appraisal entitles the insurer to summary judgment on all of the insured’s contractual and extra-contractual claims. Thus, the Court reversed and remanded all three cases for consideration of the plaintiffs’ Prompt Payment Act claims in light of those decisions.

One of the cases, Biasatti v. GuideOne National Insurance Company, involved a unilateral appraisal clause. The plaintiff in Biasatti alleged that insureds don’t need to establish independent injury when an insurer relies on a unilateral appraisal clause to force the insured to file suit, compels appraisal, and then pays the appraisal award. According to the plaintiff, in such cases, the appraisal award itself constitutes the requisite actual damages sufficient to support breach of contract and bad faith claims. The trial court and court of appeals disagreed with the plaintiff. While the Texas Supreme Court explained that the lower courts’ decisions “comport[] with Ortiz generally,” it noted that Ortiz did not involve a unilateral appraisal clause. Consequently, Biasatti was remanded for reconsideration of the plaintiff’s Prompt Pay Act claims and the plaintiff’s breach of contract and bad faith claims.

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