I wish I had a dollar for every person who has said, “This is a slam dunk bad faith case.” One lesson I repeatedly tell readers of this blog is that there is no such thing as an easy lawsuit. The second is that allegations in a complaint are one thing, and proof to satisfy a judge or jury is another. A recent Texas case following a successful appraisal outcome is an example of these lessons.1

The case, decided last week, involved a policyholder who received a significantly higher appraisal award than the insurer’s initial payment. Despite this substantial discrepancy, the court found no bad faith, reinforcing the long-standing legal precedent that an insurer’s reliance on an appraisal process does not, by itself, establish misconduct. In other words, just because the appraisal award was much higher than the initial payments, courts will not project that the difference was caused by a lack of good faith treatment.

At the heart of this case was a policyholder who suffered significant property damage and filed a claim with their insurer. After conducting its initial assessment, the insurer issued a payment that the policyholder believed was insufficient to cover the true extent of the loss. Frustrated by the perceived underpayment, the policyholder invoked the policy’s appraisal provision, which allowed neutral appraisers to determine the appropriate amount owed. The appraisal process ultimately yielded an award far greater than the insurer’s original offer, leading the policyholder to argue that the initial underpayment was evidence of bad faith.

Despite the dramatic difference between the initial payment and the final appraisal award, the court remained steadfast in its application of Texas law, which holds that an insurer does not act in bad faith simply because it initially underpays a claim. The court emphasized that the insurer followed the contractual appraisal process and, upon receiving the final award, promptly paid the full amount. Because the insurer adhered to the policy’s dispute resolution mechanism and the policyholder did not offer more proof of wrongful conduct, the court found no basis for bad faith liability.

Texas law requires more than an incorrect claim valuation to support a finding of bad faith. Texas courts require that the policyholder demonstrate that the insurer knowingly engaged in unfair or deceptive practices, acted without a reasonable basis, or exhibited reckless disregard for the insured’s rights. In this case, there was no evidence that the insurer deliberately undervalued the claim with malicious intent or attempted to deceive the policyholder. Instead, the court determined that the original low payment resulted from a dispute over valuation rather than an intentional effort to deny benefits.

Under current Texas law, payment of an appraisal award generally precludes a bad faith claim unless the policyholder can prove an independent injury beyond the underpayment itself. This standard prevents routine disputes over claim amounts from escalating into bad faith litigation unless there is clear evidence of wrongful conduct.

Policyholders facing significant differences between initial claim payments and appraisal awards may find this legal doctrine frustrating. It raises questions about the effectiveness of law holding insurers accountable when their initial valuations fall far below what an objective appraisal determines to be fair. I highlighted this issue in last week’s post, Bad Faith Insurance Practices Shielded By “Get Out of Jail Free” Late Payments:

This ruling highlights a major flaw in the way Texas courts handle bad faith insurance claims. It sends a clear message to insurers: if you eventually pay what you owe—no matter how long you drag it out—you can avoid any real consequences for wrongful claim practices. The result is an uneven playing field where policyholders suffer through financial uncertainty, property deterioration, and legal battles while insurance companies use delay tactics as a calculated business strategy.

The logic behind shielding insurers from bad faith liability after a late payment is deeply flawed. When a policyholder files a legitimate claim, they do so because they need the money to repair their home, replace their belongings, or recover from a loss right away. A wrongful denial or prolonged delay doesn’t just create inconvenience—it can force business owners and families into financial distress, leave structures in disrepair, and disrupt lives. It undermines the reason why Americans purchase insurance in the first place. The fact that an insurer can later “fix” the situation with a payment—including interest—doesn’t erase the harm caused by the initial refusal to pay or roadblocks causing delay.

If a bank wrongly foreclosed on someone’s home and later reversed course by offering the homeowner compensation plus interest, that wouldn’t undo the damage of being wrongfully evicted. Yet, in the insurance world, this kind of harm is routinely excused under the guise of legal precedent. Texas courts, citing cases like Ortiz and Navarra v. State Farm Lloyds, now consistently rule that once a payment is made through appraisal, policyholders have no further recourse—unless they can prove an independent injury….

For policyholders and public adjusters navigating Texas insurance law, this case serves as a reminder that the mere fact of an insurer underpaying a claim—even by a significant margin—is not enough to establish bad faith. Texas courts require concrete evidence that the insurer acted unfairly, dishonestly, or recklessly in handling the claim. Without such proof, even substantial differences between an insurer’s initial valuation and an appraisal award will not necessarily support a successful bad faith lawsuit.

As I read the opposing brief filed by the policyholder, I did not see any reference to any bad faith expert opinions with supporting evidence of bad faith conduct. Many bad faith cases involving insurance misconduct require showing what standards of good faith conduct are and that the insurer failed to act in that manner. This case might be as much about a lack of proof as any other lesson.

While this ruling reinforces existing legal precedent, it also raises important considerations for policyholders who believe they have been mistreated. Although an appraisal award itself does not prove bad faith, other factors—such as intentional delay tactics, knowingly lowballing claims, or disregarding clear evidence of damage—may still give rise to valid legal claims.

Policyholders who suspect wrongful conduct should document their interactions with insurers carefully, immediately seek legal guidance even before demanding appraisal, and explore all available options for ensuring all rights are protected.

Thought For The Day

“Wise men speak because they have something to say; fools because they have to say something.”
— Plato

1 Dillen v. QBE Ins. Corp., No. 4:23-cv-2043 (S.D. Tex. Feb. 11, 2025).