Invoking Appraisal – Be Careful What You Ask For

Last week, the Texas Second Court of Appeals issued Lambert v. State Farm Lloyds,¹ which follows the Texas Supreme Court’s recent opinion in Barbara Technologies Corp. v. State Farm Lloyds.²

In a recent blog post, Payment of an Appraisal Award: Is There More, I reviewed Barbara Tech and its companion case, Ortiz v. State Farm Lloyds.³ These two landmark cases hold that an insurer’s full and timely payment of an appraisal award, bars an insured’s causes of action for breach of contract and any common law and statutory bad faith claims, to the extent the bad faith claims seek only actual damages that are considered lost policy benefits.

Consequently, in Texas, after Barbara Tech and Ortiz, the only potential causes of action remaining after an insurer’s full and timely payment of an appraisal award, are:

1. either an extracontractual claim/statutory violation that causes an injury independent of the loss of benefits, (an “independent injury”), or
2. a cause of action for statutory interest and attorney’s fees for the insurer’s failure to timely pay an insurance claim under Section 542.060(a) of the Texas Insurance Code’s Prompt Payment of Claims Act (“TPPCA”).

Under number one above, to date, there has never been a decision involving an “independent injury.” With regard to number two above, a potential TPPCA cause of action, Barbara Tech held that an insured could be entitled to a recovery by showing that:

• the insurer was liable for the claim under the policy, and
• the insurer violated a TPPCA provision.

In Barbara Tech, the Texas Supreme Court remanded the case to the trial court because State Farm had neither accepted liability nor its liability adjudicated for the claim—which was necessary before it could be found liable for an untimely payment under the TPPCA.

The facts in Lambert are remarkably similar to those in Barbara Tech and quite typical of the majority of storm-related insurance claims. Lambert involved a failure of State Farm to properly handle the Lamberts’ claim for hail and wind damage to their residence in May 2015. State Farm’s first inspection found damages below the Lamberts’ policy deductible and depreciation amounts which equaled a zero payment. A reinspection found additional damages but after subtracting depreciation and the deductible, awarded a mere $1,700.

In Barbara Tech, State Farm also conducted two damage investigations finding damages below Barbara Tech’s deductible. Barbara Tech filed suit and State Farm moved for appraisal. Likewise, the Lamberts, unhappy with their result, filed suit and State Farm moved for an appraisal. The appraisal in Lambert found the amount of loss on a replacement cost basis of $99,112.72 and an actual cost value amount of $70,965.54. After subtraction of the deductions and its previous payment, State Farm paid the Lamberts $63,404.63. The Lamberts accepted the appraisal award as Barbara Tech had in its case.

Immediately thereafter, dueling summary judgment motions were filed in Lambert. State Farm argued that its payment of the appraisal award entitled it to a dismissal of all claims. The Lamberts argued that their extracontractual claims and their TPPCA claim survived appraisal. The Lambert trial court ultimately granted State Farm’s summary judgment motion and signed a final judgment.

The Lamberts appealed on two issues contending that the trial court erred in granting State Farm’s summary judgment motion because: (1) their extracontractual claims were still viable, and (2) their TPPCA’s cause of action for statutory interest and attorney’s fees survived the appraisal award payment.

As to issue one, the Second Court of Appeals followed Barbara Tech and found: “Neither to the trial court nor to us have the Lamberts pointed to any evidence that they seek actual damages that are different from, in addition to, or aside from what they have now received under the policy.”⁴ Simply stated, the Lamberts had not alleged an “independent injury” for their extracontractual claims to survive.

As to issue two—the Lambert’s TPPCA cause of action—the appellate court, as in Barbara Tech, held that to sustain their TPPCA cause of action required the Lamberts to show: (1) State Farm was initially liable for the claim under their policy, and (2) the insurer had violated a TPPCA provision. Like in Barbara Tech, liability in Lambert had not been found against State Farm; therefore, the case was remanded to the trial court to consider the TPPCA cause of action.⁵

Summary from Lambert and Barbara Tech on the current state of Texas’ appraisal law are:

1. When an appraisal has been completed, the TPPCA time limits only attach to an insurer on a finding of liability;
2. Payment of an appraisal award has no bearing on the finding of liability because its only purpose is to determine the amount of damages; and
3. If an insurer has not explicitly accepted or assumed liability, the matter must be adjudicated.

The conclusion that can be determined from these three principles of law is that an insurer’s payment of an appraisal award does not immunize it from a potential violation of the TPPCA.

Take Away: “Be Careful What You Ask For”

If you are an insured and invoke appraisal, you may obtain a larger award for your damages than had been offered by the insurer but upon acceptance of the award, you will give up all causes of action except a potential TPPCA claim.

If you are an insurer and invoke appraisal, you may have to pay a larger award to the insured than previously offered but upon acceptance of the award by the insured, you cannot be held liable for any alleged causes of action except a potential TPPCA claim.

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¹ Lambert v. State Farm Lloyds, No. 02-17-00374-CV (Tex. App. Nov. 7, 2019).
² Barbara Technologies Corp. v. State Farm Lloyds, No. 17-0640, 2019 WL 2710089 (Tex. June 28, 2019).
³ Ortiz v. State Farm Lloyds, No. 17-1048, 2019 WL 2710032 (Tex. June 23, 2019).
⁴ Lambert, No. 02-17-00374-CV at *8.
⁵ Id. At *10.