Wednesday, August 14, 2019
Recent Insurance Decisions by the Supreme Court of Texas
On June 28, 2019, a divided Supreme Court of Texas issued two opinions addressing whether an insurer’s payment of an appraisal award impacts a policyholder’s contractual and extracontractual claims post-appraisal. Barbara Technologies Corp. v. State Farm Lloyds, — S.W.3d —, No. 17-0640, 2019 WL 2710089 (Tex. June 28, 2019) and Ortiz v. State Farm Lloyds, — S.W.3d —, No. 17-1048, 2019 WL 2710032 (Tex. June 28, 2019).
In Barbara Technologies, the Supreme Court of Texas held that the timely payment of an appraisal award neither proves nor disproves liability under the Texas Prompt Payment of Claims Act (TPPCA). This is significant because, as the dissent notes, it upends years of decisions from Texas appellate courts, U.S. District Courts, and the Fifth Circuit — which all generally held that the timely payment of an appraisal award barred all claims, including TPPCA claims. The TPPCA claims are crucial because they allow a policyholder to recover penalty interest and attorney’s fees in addition to the actual claim amount.
Ortiz v. State Farm Lloyds
Ortiz continues the Barbara Technologies line of reasoning. It addresses whether a policyholder’s causes of action for breach of contract, common-law bad faith, and statutory bad faith under chapter 541 of the Texas Insurance Code survive the timely payment of an appraisal award. After the last inspection, the insured in Ortiz filed suit against his insurer. The insurer then invoked appraisal and paid the actual cash value amount of the appraisal award less the deductible. The trial court granted, and the court of appeals affirmed, the insurer’s motion for summary judgment on all claims because the insurer timely paid the appraisal award.
The Texas Supreme Court found that summary judgment was properly granted as to causes of action for breach of contract, common-law bad faith, and statutory bad faith. However, the Court held that summary judgment as to the TPPCA claims could not be granted in light of its Barbara Technologies opinion. The Court held that the appraisal process is a contractual dispute resolution mechanism. Therefore, when the dispute resolution process is invoked and properly completed, no breach of contract exists because the insurer complied with its obligations by completing the appraisal process and paying the binding amount.
With respect to the common law and statutory bad faith causes of action, the Court found that both of those claims require a finding of actual damages. In that regard, the policyholder could not establish actual damages other than the loss of policy benefits. When the insurer paid the appraisal award in accordance with the appraisal provision, those damages become moot. Therefore, the insured lacked an injury independent of his alleged wrongful-denial-of-benefits claim. The Court rejected the notion that attorney’s fees and litigation costs are “actual damages” under Texas law. However, the Court remanded to the trial court for further determination of the TPPCA claims under Barbara Technologies, as those claims were not decided by the payment of the appraisal award. The insurer may still have liability for attorneys’ fees and penalty interest.
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