CHAPTER 542 CLAIMS MAY PROCEED DESPITE FULL PAYMENT OF APPRAISAL AWARDS

Continuing its reversal of lower court decisions disallowing Texas Prompt Payment of Claims Act claims after payment of appraisal award, the Texas Supreme Court reversed and remanded two more cases last week based on its rulings in Barbara Technologies Corp v. State Farm Lloyds 589 S.W.3d 806 (Tex. 2019) and Ortiz v. State Farm Lloyds 589 S.W.3d 127 (Tex. 2019). Last week, in Lazos v. State Farm Lloyds, 2020 WL 1898534 (Tex. Apr. 17, 2020) and Alvarez v. State Farm Lloyds, 2020 WL 1898528 (Tex. Apr. 17, 2020), the Court held that payment of an appraisal award does not preclude an insured from bringing a claim under the Texas Prompt Payment of Claims Act (TPPCA), found in Chapter 542 of the Insurance Code.

Both Lazos and Alvarez involved wind and hail damage to residential property insured by State Farm, and disputes over the amount of damage that were ultimately resolved when State Farm successfully compelled appraisals in the trial court and paid the full amount of the awards after the appraisals exceeded State Farm’s prior estimates.  State Farm moved for and received summary judgment on all claims.  The trial courts granted State Farm’s motions and the court of appeals affirmed both decisions, holding (1) payment of an appraisal award entitled an insurer to summary judgment on all of the insured’s contractual and extra-contractual claims and (2) the Texas Supreme Court’s decision in USAA Texas Lloyds Co. v. Menchaca 545 S.W.3d 479 (Tex. 2018) did not change that conclusion. Both insureds petitioned the Texas Supreme Court to determine whether the court of appeals’ opinion complied with Menchaca.

While these cases were pending, the Texas Supreme Court decided two cases relevant to Lazos’s and Alvarez’s petitions. 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 insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claims under the Prompt Payment Act.”

After the court decided Barbara Technologies and Ortiz, Lazos and Alvarez amended their petitions and abandoned all claims other than damages under Chapter 542, arguing that State Farm’s payment of the appraisal awards did not preclude them from claims under the TPPCA. Interestingly, neither Lazos or Alvarez expressly alleged a TPPCA claim in their original petitions, but only alleged entitlement to the 18% statutory interest rate and argued they could still pursue his TPPCA claim in their summary-judgment motions.  And, the Court noted that by arguing against the insured’s TPPCA claims in their own summary-judgment motions, State Farm appeared to acknowledge the claims.

The Court then held that despite State Farm’s payment of the appraisal awards, the insureds could still maintain their TPPCA claims.  And under Barabara Technologies and Ortiz, it was error not to allow them to pursue the TPPCA claims. Accordingly, both cases were remanded to the trial court to consider the TPPCA claims.