With the
continued onslaught of hail and other weather related litigation in Texas,
insurance carriers often elect to resolve claims through the appraisal process
outlined in the policy. Insurance
carriers historically demanded appraisal under the policy knowing that as part
of the ordinary adjustment process set forth in the policy, the full and timely
payment of an appraisal award would preclude the policyholder from seeking statutory
penalties found in the Texas Prompt Payment of Claims Act (TPPCA) and other
extra-contractual remedies. This legal
precedent had previously been confirmed by the Fifth Circuit, several federal
district courts, and multiple Texas courts of appeal.
In 2015,
however, one federal court judge in the Northern District issued the Graber v. State Farm Lloyds opinion, and for the first and only time, held that an insurer’s “full and timely
payment of [an] appraisal award d[id] not preclude [the insured’s] claim for
statutory interest under the TPPCA.” Policyholder
lawyers rejoiced over the opinion as a win. Our firm, however, predicted Graber was an outlier opinion, and we were right.
Since the 2015 Graber opinion, two federal courts
interpreting Texas law have disagreed with the rationale of Graber and held that the full and timely
payment of an appraisal award still insulates an insurer from TPPCA. Both opinions were issued by other federal
court judges in the Northern District.
The first
opinion opposite Graber is Aguilar v. State Farm Lloyds. In Aguilar,
the plaintiff made a timely claim for damage from a June 15, 2013 storm. After notice of the claim, the carrier adjusted
the loss, paid the claim and understood the matter was resolved. The carrier was unaware of any dispute until
the plaintiff filed suit on June 26, 2015 – almost two years after the carrier
made what it understood was an undisputed payment. Despite the suit, the parties agreed to
submit the matter to appraisal. An
appraisal award was issued and the carrier timely paid the award in full, which
in the ordinary case, should have been the end of the matter. The plaintiff and her lawyers, however,
persisted in pursuing the breach of contract extra-contractual claims.
The federal
district court granted summary judgment to the carrier on all claims, noting if
such claims were allowed to survive, “[t]he entire purpose of the appraisal
process would be rendered nugatory.” The
federal district court also found it “especially galling” that the plaintiff
waited almost two years to “notify” the carrier of the dispute by filing suit,
instead of simply picking up the phone.
More recently,
another federal judge for the Northern District issued a March 2017 opinion on
these same issues - also opposite Graber. In Mainali Corp. v. Covington Specialty Insurance, Judge Fitzwater dismissed all TPPCA
claims against the carrier after its timely payment of an appraisal award. The court held “that an insurer is not liable
for statutory interest for the time between an initial payment and the timely
payment of an appraisal award.” In the Mainali opinion, Judge Fitzwater acknowledged
the Graber opinion, but noted it as
an “outlier.”
The policyholder
rejoicing from the “outlier” opinion of Graber
should be over.
Closing
note…State Farms Lloyds appealed the federal district court’s decision in Graber to the Fifth Circuit. Before the Fifth Circuit ruled, however, the
plaintiff and plaintiff’s counsel unilaterally dismissed the action. They likely did so to avoid the Fifth Circuit
overturning the unusual and unprecedented Graber
opinion.
Posted by Todd Tippett
