Some of you have had the experience of going through the appraisal process with your insurer. Most insurance companies include a provision in their insurance policies stating that if the parties disagree as to the amount of damages, either party can demand an appraisal. But are the resulting appraisal awards legally binding? As the policyholder discovered in Franco v. Slavonic Mut. Fire Ins. Assoc., 154 S.W.3d 777 (Tex.App.—Houston [14th] 2004, no pet.), appraisal awards are typically upheld by Texas courts.
In Franco, the policyholder made an insurance claim for damages related to a plumbing leak. The parties went through the insurance claim process, and the insurance company issued a check. After the insurance company issued the check, the policyholder invoked the appraisal provision of the insurance policy. The appraisal resulted in an award in favor of the policyholder, and the insurance company issued a check for the damages not paid in the first check.
After the appraisal award, the policyholder filed a lawsuit against the insurance company, alleging violations of the Texas Insurance Code and the Texas Deceptive Trade Practices Act and claims of negligent misrepresentation, fraud, breach of contract, breach of the duty of good faith and fair dealing, and other related claims. The insurance company quickly filed a motion for summary judgment, claiming that the appraisal award prevented the policyholder from filing his lawsuit. In order to succeed, the policyholder had to persuade the Court to set aside the appraisal award. The policyholder was not successful:
Texas courts have long held that appraisal awards made pursuant to the provisions of an insurance contract are binding and enforceable, and every reasonable presumption will be indulged to sustain an appraisal award.
The Court noted the very high standard for setting aside appraisal awards:
Texas courts recognize three situations in which the results of an otherwise binding appraisal may be disregarded: (1) when the award was made without authority; (2) when the award was made as a result of fraud, accident, or mistake; or (3) when the award was not in compliance with the requirements of the policy.
Franco illustrates the high level of deference Texas courts give to appraisals. Therefore, make sure that appraisal is something you want before invoking it. Because once you start the process, you may be stuck with the results, good or bad.
