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