Claimant/Named Insured Limited to $30K Statutory Minimum when Houston First Court Declines to Find a “Separation of Insureds” Implied in Auto Policy
A closer look at Texas Farm Bureau Mutual Ins. Co. v. Minchew.
Case Note: Barbara Technologies Corp. v. State Farm Lloyds, No. 17-0640, 2019 WL 2710089 (Tex. June 28, 2019)
By Shannon E. Loyd
Payment of an appraisal award on a denied claim does not affect a carrier’s potential liability for prompt pay damages under Texas Insurance Code § 542.060. The section requires the carrier to either accept liability or be adjudicated liable under the policy before it may be liable for prompt pay damages.
This case arises out of the denial of a claim for wind and hail damage to Barbara Tech’s property in 2013. Following State Farm’s inspection of the property, it denied the claim stating the damages were below the policy’s deductible. About six months after Barbara Tech filed suit, State Farm invoked appraisal. Some seven months after appraisal was invoked, the appraisers agreed to an award of over $195,000. Thereafter, Barbara Tech amended its petition to include only claims for violations of the Texas Prompt Payment of Claims Act (“PPCA”). Following cross motions for summary judgment, judgment was found in favor of State Farm. The appellate court affirmed the trial court’s judgment holding that a plaintiff could not sustain a claim under the PPCA when it is undisputed that the insured had timely paid the appraisal award per its precedent in Garcia v. State Farm Lloyd’s, 514 S.W.3d 257 (Tex. App.—San Antonio 2016, pet. denied).
Holding and Authorities
The specific issue the Court determined was whether an insurer can be liable under the PPCA when it initially denied the claim but later paid the insured in full according to the amount of loss determined in the appraisal process. The Court characterized the insurance claim process as “inherently adversarial” beginning “as soon as a claim is filed and end[ing] only when the resolution of the claim is finally determined and accepted by the parties.” The Court noted that when appraisal is initiated after a claim is rejected, meaning after the insurer has received all the requested information from the claimant, conducted an investigation, evaluated the claim, and concluded that it was not liable under the policy, the issue generally becomes a contractual matter of dispute resolution. In such circumstances appraisal often “reflects a compromise” between the parties.
State Farm argued that its initiation of appraisal constituted an additional information request under § 542.055(b) since State Farm considered the appraisal additional necessary information to evaluate the claim. It argued that the time for accepting or rejecting the claim therefore did not begin until its receipt of the appraisal award. The Court rejected this argument, reasoning that State Farm’s demand for appraisal was based on its contractual right to engage in a specific dispute resolution process rather than “a request for items, statements or forms from Barbara Tech to secure a final proof of loss.” Thus, the use of appraisal fell outside the scope of section § 542.055.
Further supporting this holding, the Court reasoned that the rejection or acceptance of a claim under section § 542.056(a) “is the insurer’s acknowledgment that it had all the information it needed from the claimant to determine whether the claimant was entitled to benefits under the policy.” Thus, appraisal is not part of the investigation and does not start the investigation all over again. As State Farm denied the claim having determined the covered loss was below the deductible, use of appraisal was not part of its investigation. Therefore, the use of appraisal to resolve a dispute has no bearing on any deadlines or enforcing any missed deadlines in the PPCA.
However, the Court disapproved of opinions relied on by State Farm (Breshears v. State Farm Lloyds, 155 S.W.3d 340, 343 (Tex. App.—Corpus Christi–Edinburg 2004, pet. denied) (mem. op.) for example) to the extent they could be read to excuse a carrier liable under a policy from having to pay PPCA damages merely because it paid an appraisal award. The Court further noted those opinions do not foreclose further proceedings to determine the carrier’s liability under the policy.
For State Farm to be “liable” under § 542.060(a), the Court held State Farm either must “(1) ha[ve] completed its investigation, evaluated the claim, and come to a determination to accept and pay the claim or some part of it; or (2) [be] adjudicated liable by a court or arbitration panel.” Payment based on an appraisal decision does neither. The Court noted the possibility of liability under § 542.058 (which does not require a carrier to be “liable”), but it gave little guidance in respect to that statute, given the lack of briefing by the parties on it.
Ultimately, the Court remanded the case so Barbara Tech may attempt to show State Farm was “liable” under § 542.060 when it rejected the claim, and to the extent § 542.058 applies, State Farm may attempt to prove the claim was invalid and should not have been paid. How these sections interrelate will continue to be an open question.