FEDERAL COURT REJECTS MORE APPRAISAL GAMESMANSHIP; COMPLIANCE WITH AWARD DEFEATS ALL CLAIMS

In a Bastrop County wildfire case, Judge Sam Sparks of the Western District of Texas, Austin Division, also recently addressed the validity of an umpire appointment and appraisal award.  See Michels v. Safeco Ins. Co. of Indiana, No. 1:12-CV-00511-SS (W.D. Tex. March 13, 2013) (slip copy). 

The policyholders initially invoked appraisal on a smoke damage claim to their home, and selected Mark West as their appraiser.  Safeco appointed Jason Womack as its appraiser, and the two appraisers agreed on an umpire, but the policyholders then rescinded their appraisal demand.  Safeco re-invoked appraisal and again selected Jason Womack.  This time the insureds selected Stephen Hadhazi as their appraiser.  Unsurprisingly, the appraisers failed to agree on an umpire in 15 days, and Safeco filed suit to have an umpire appointed.  The insureds responded by filing suit in state court alleging a variety of claims against Safeco and Womack, and their state court case was removed and consolidated with Safeco’s first-filed suit.

Judge Sparks appointed an umpire and ordered the parties to go forward with appraisal.  The umpire issued an award of $17,500.  Safeco’s appraiser agreed to the award, and Safeco tendered a check to the insured in the amount of the award less the deductible and prior payments.  Although both parties had previously represented to the court that the appraisal result would resolve all issues, the insureds refused to dismiss their claims, instead seeking to set aside the award and vacate the appointment of the umpire.  Among other things, the insureds argued that the umpire impermissibly issued a lump-sum award.  The court rejected this argument, noting the insureds’ own appraiser, Hadhazi, was the one who requested a lump-sum award, and that their own appraiser’s actions would not be the basis for setting aside the award.

After upholding the validity of the appointment and award, the court held timely compliance with the appraisal award defeated all of the insureds’ causes of action.   The insureds tried to argue they had not accepted the award and therefore were entitled to continue pursuing their claims, but the court summarily rejected that argument stating: “If an insured could simply avoid the outcome of the appraisal process by refusing to accept payment of the award, appraisals would be meaningless exercises in futility.”

The two above cases exemplify the power that courts have, should they choose to exercise it, to prevent appraisal gamesmanship and to correct it when it does happen.