TEXAS SUPREME CHANGES APPRAISAL LAW: INSURED CAN PURSUE EXTRA-CONTRACTUAL CLAIMS DESPITE INSURER’S PAYMENT OF APPRAISAL AWARD

Last week, the Texas Supreme Court reversed and remanded an appellate court’s decision to limit an insured’s statutory and common law bad-faith claims to those under Texas Prompt Payment of Claims Act (TPPCA), even after appraisal benefits were fully paid by the insurer under a policy with an unilateral appraisal clause. In TopDog Properties v. GuideOne National Insurance Company, 2020 WL 1898538 (Tex. Apr. 17, 2020), the insured property sustained wind and hail damage. After its first inspection, GuideOne determined that the loss fell below TopDog’s $5,000 deductible. TopDog requested a second inspection and GuideOne reached the same conclusion. After GuideOne declined a request for a third inspection, TopDog sought to invoke the policy’s appraisal process. GuideOne refused arguing the policy contained a unilateral appraisal clause, GuideOne was the only party that could invoke appraisal and they considered appraisal unnecessary.

TopDog then sued GuideOne asserting claims for breach of contract, common-law and statutory bad faith, and violations of the TPPCA. Eight months later, GuideOne demanded an appraisal, but TopDog declined their demand.  GuideOne went to the court and was able to secure an order compelling an appraisal. The appraisal set the amount of loss at $168,808—significantly higher than GuideOne’s initial estimates. GuideOne then paid TopDog the value of the appraisal award less the deductible and depreciation. After payment by GuideOne, both parties moved for summary judgment. The trial court denied TopDog’s motion and granted GuideOne’s, based on GuideOne’s payment of the appraisal award. TopDog appealed, but the appellate court held, “(1) TopDog failed to raise a fact issue because GuideOne paid all benefits available under the policy when it paid the appraisal award, and (2) TopDog’s bad-faith and TPPCA claims failed because it did not allege an injury independent from the policy benefits and did not demonstrate policy benefits were withheld after the appraisal award was paid.  TopDog then petitioned the Texas Supreme Court asking whether the court of appeals’ holdings were consistent with recent precedent and whether GuideOne’s unilateral appraisal clause ought to change the result.

Prior to issuing an opinion in this case, the Texas Supreme Court decided two cases relevant to TopDog’s question.  The court in Barbara Technologies Corp v. State Farm Lloyds 589 S.W.3d 806 (Tex. 2019), held that payment in accordance with an appraisal clause does not foreclose TPPCA damages, but the payment is “neither an acknowledgement of liability nor a determination of liability under the policy for purposes of TPPCA damages under section 542.060.”  In Ortiz v. State Farm Lloyds 589 S.W.3d 127, the court held an appraisal payment eliminates an insurer’s liability for breach of contract and common-law and statutory bad faith so long as the insured did not suffer an independent injury.  TopDog asked the Court to create an exception to Ortiz arguing that “insureds need not establish independent injury to recover for breach of contract and bad faith where an insurer relies on a unilateral appraisal clause to force the insured to file suit, then compels appraisal, and pays the appraisal award.”  TopDog argued that under these facts “the appraisal award itself constitutes actual damages.” 

In reversing the court of appeals, the Texas Supreme Court noted last week that Ortiz did not involve a unilateral appraisal clause and that the independent injury argument may be considered by the trial court on remand.  Further, and consistent with its holding in Barbara Technologies, not allowing TopDog to maintain their TPPCA claim was error.  Accordingly, the Court reversed the judgment of the court of appeals and remanded the case to the trial court to further consider TopDog’s claims.

Editor’s Note: The Court’s willingness to allow statutory and common law bad-faith claims to proceed despite full payment of an appraisal award may be limited to those matters where an insurer has a unilateral right to invoke appraisal and refuses to appraise until after suit is filed. Nevertheless, this case is significant in suggesting that an insurer’s refusal to appraise a damage dispute until after suit is filed may support an “independent injury” argument allowing the statutory and common law bad-faith claims, in addition to the TPPCA claims, to proceed. The Court also noted that TopDog is free to brief its argument that unilateral appraisal clauses are illusory and therefore, unenforceable, on remand.  We will continue to monitor this case for further developments.