FEDERAL COURT FINDS INSURER’S INSISTENCE UPON ACCORD AND SATISFACTION DEFENSE COMBINED WITH LENGTHY DELAY IN DEMANDING APPRAISAL RESULTED IN WAIVER OF RIGHT TO APPRAISAL

The U.S. District Court for the Southern District of Texas, Galveston Division recently held that an insurer that mediated a case twice, unsuccessfully due in part to its reliance on an accord and satisfaction defense, combined with a three year delay in seeking to compel appraisal and ongoing expenses incurred by plaintiff’s during the process, resulted in waiver of the insurer’s right to demand appraisal.  In JAI Bhole, Inc. v. Employers Fire Insurance Co., 2014 WL 50165 (S.D. Tex., January 7, 2014), the insured motel was damaged by Ike and the insured,  dissatisfied with the payment on the claim, filed suit on October 12, 2010.  The parties attempted to mediate the case on two occasions, June 2, 2011 and September 17, 2013, but both efforts failed due in part to the insurer’s continued reliance on its accord and satisfaction defense as barring recovery.  On November 15, 2013, briefing was completed on the insurer’s motion to compel appraisal and on December 19, 2013, the court heard the motion.

In response to the insured’s argument that appraisal had been waived, the court noted that it only need consider one Texas case, In re Universal Underwriters of Texas Ins. Co., 345 S.W.3d 404 (Tex. 2011), wherein the Supreme Court of Texas stated that the insured must prove; 1) the length of the insurer’s delay in demanding appraisal showed an intent to waive is contractual right to demand it and, 2) that the insured was prejudiced as a result of the delay.    The court noted that the insurer’s insistence on its accord and satisfaction defense which contributed to the two failed mediations and the amount of time that passed before it sought to enforce the appraisal provision, combined with the estimated $40,000 in costs and fees incurred by the insureds over that time, resulted in prejudice.  Accordingly, the court denied the insurer’s motion to compel appraisal and abate the lawsuit.  The case is set for trial in March 2014.