One source of protection for policyholders is the Texas Prompt Payment of Claims Act (TPPCA), which places various deadlines on an insurance company’s claims processing. In order to encourage that claims are timely paid, the TPPCA penalizes insurers who break those deadlines. Recently, the Texas Supreme Court decided several cases which raised the question of whether appraisal awards can prevent a TPPCA action. In 2019, the court ruled that the payment of an appraisal award did not bar an insured’s claims under the TPPCA. Three new cases decided by the Texas Supreme Court have re-affirmed this holding, bolstering the win for policyholders in Texas.
The Texas Supreme Court originally decided that appraisal awards did not bar TPPCA action in Barbara Technologies Corp. v. State Farm Lloyd. 589 S.W.3d 806 (Tex. 2019). In Barbara, State Farm inspected Barbara Tech’s property after it was damaged by wind and hail and found that the damage was less than Barbara Tech’s $5,000 deductible. On this basis, they denied Barbara Tech’s claim. After Barbara Tech filed suit against state farm, alleging violations of the TPPCA, State Farm invoked the appraisal provision of the policy. Based off that appraisal, State Farm paid Barbara Tech $178,000. After this, both parties moved for summary judgement, with Barbara Tech arguing that State Farm failed to pay the claim within TPPCA’s sixty-day time limit, and with State Farm arguing both that the appraisal award was timely paid and that they were not liable under the policy. The trial court denied Barbara Tech’s motion and granted State Farm’s, and the court of appeals affirmed.
This payment and the motions which followed created a new legal question, which is the crux of the cases we discuss today: Does paying the appraisal award constitute a timely payment which forecloses the possibility of TPPCA damages? The Texas Supreme Court chose a middle ground of sorts, ruling that while such an appraisal award does not prevent a TPPCA action, said award also is not an acknowledgement of liability. So, the court thought state farm was incorrect in their assertion that the appraisal award was a timely payment, but also thought that Barbara Tech was incorrect in their assertion that the award was an admission of liability. In accordance with this ruling, the Texas Supreme Court reversed the court of appeals’ judgment and remanded the case to the trial court. For a more in-depth look at Barbara, you can find a previous post we made about it here.
This background brings us to three recent cases decided by the Texas Supreme Court, all of which reinforce the idea that appraisal awards leave open the possibility of TPPCA damages. The first two have almost identical fact patterns, and the Texas Supreme Court’s opinions brevity reflected that. In Alvarez v. State Farm Lloyds, ___ Tex. ___ slip op. (April 17, 2020) (avail. at https://cases.justia.com/texas/supreme-court/2020-18-0127.pdf?ts=1587132239), Alvarez filed a claim for residential property damaged by wind and hail. Like in Barbara, State Farm determined that the damages were less than the deductible. Alvarez filed suit, in response to which State Farm compelled appraisal and paid the appraisal award. The trial court then granted a motion for summary judgement on all of Alvarez’s claims, and the court of appeals affirmed, concluding that “Alvarez could not maintain his TPPCA claim due to State Farm’s payment of the appraisal award.”
Barbara was decided after this court of appeals decision, so the court’s opinion here is a brief directive to reconsider the TPPCA claim in light of this new precedent on remand. The second recently decided case, Lazos v. State Farm Lloyds, ___ Tex. ___ slip op. (April 17, 2020) (avail. at https://cases.justia.com/texas/supreme-court/2020-18-0205.pdf?ts=1587132240), is functionally identical in fact and result to Alvarez. Again, the court rules that Barbara is controlling and remands the case to the trial court to evaluate Lazos’s TPPCA claim.
The third case involved a unilateral appraisal clause, where only the insurer could invoke appraisal under the policy. Biasatti v. GuideOne National Ins. Co., ___ Tex. ___ slip op. (April 17, 2020) (avail. at https://cases.justia.com/texas/supreme-court/2020-18-0911.pdf?ts=1587132241). Biasatti owned properties under the company TopDog Properties, and those properties were insured by GuideOne. After the properties sustained wind and hail damage, TopDog filed a claim. GuideOne inspected the properties and determined that the loss was under TopDog’s $5,000 deductible. Another inspection reached the same result, so TopDog asked for an appraisal under the appraisal clause. GuideOne pointed out that the clause was unilateral, and since it considered appraisal unnecessary, declined to invoke the clause. TopDog filed suit, alleging violations of the TPPCA among a mix of breach of contract and bad faith claims. GuideOne invoked the appraisal clause and paid the loss of $168,000, less the deductible and depreciation.
Both parties then moved for summary judgement, and the trial court granted TopDog’s motion, rejecting all TopDog’s claims because of the payment. The court of appeals affirmed, holding that “(1) TopDog failed to raise a fact issue on damages for breach of contract because GuideOne paid all benefits available under the policy”, 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.” Subsequently, Barbara was decided, where this court decided that payment in accordance with an appraisal clause does not foreclose TPPCA damages. Another recent case held that “payment of an appraisal award forecloses an insurer’s liability for breach of contract and . . . bad faith unless the insured suffered an independent injury.” Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 129 (Tex. 2019).
The Texas Supreme Court then evaluated the court of appeals’ decision in light of this new precedent. The TPPCA claim was handled much like in Alvarez, and the Supreme Court found error under Barbara. The issue of whether liability must be found before an insurer must pay TPPCA damages was left open in Barbara, and the court declined to answer that question here. Thus, the court of appeals’ second holding was reversed, and the case was remanded to the trial court in consideration of recent court decisions.
The first holding by the court of appeals, that there were no breach of contract damages because GuideOne paid all benefits, was reversed for further consideration. Though the court of appeals’ decision was consistent with Ortiz generally, Ortiz did not involve a unilateral appraisement clause. Unique issues exist when a policyholder cannot compel appraisal, as they can then be forced to file suit in order to get the proper award. Since a unilateral appraisal clause could have a different effect on the claims, the Supreme Court asked the trial court to consider this unique interaction on remand. Thus, both holdings were reversed and remanded back to the trial court.
All three of these decisions are wins for the policyholder. These new cases maintain that insurers are not off the hook for TPPCA damages just by later paying an appraisal award, protecting the ability for policyholders to have their claims quickly processed. The question of whether liability is needed for certain sections of the TPPCA is also one to watch closely, because if liability is found not to be necessary it would lower the burden on policyholders who file suit. With TPPCA penalties of 18% interest per year on the line, along with reasonable and necessary attorney’s fees, this is not a battle either side wants to lose.
If you or your business have been denied coverage from your insurer’s inspection, contact our lawyers today. We are here to help!