In two cases decided June 28, 2019, the Texas Supreme Court held that an insurer’s invocation of a contractual appraisal provision after denying a claim does not as a matter of law insulate it from liability under the Texas Prompt Payment of Claims Act (“TPPCA”). But, on the other hand, the court also held that the insurer’s payment of the appraisal award does not as a matter of law establish its liability under the policy for purposes of TPPCA damages.

     In Barbara Techs. Corp. v. State Farm Lloyds, No. 17-0640, 2019 WL 2666484, at *1 (Tex. June 28, 2019), State Farm Lloyds issued property insurance to Barbara Technologies Corporation for a commercial property. A wind and hail storm damaged the property, and Barbara Tech filed a claim under the policy. State Farm denied the claim, asserting that damages were less than the $5,000 deductible.

Barbara Tech filed suit against State Farm, including for violation of the TPPCA. Six months later, State Farm invoked the appraisal provision of the policy. More than a year after the suit was filed, appraisers agreed to a value of $195,345.63. State Farm then paid that amount, minus depreciation and the deductible. Barbara Tech amended its petition to include only TPPCA claims.

In the trial court and court of appeals, State Farm successfully argued that because it invoked the contractual appraisal process and then paid Barbara Tech in accordance with the appraisal, as a matter of law it could not be liable for TPPCA damages. The Supreme Court rejected that argument, noting that the TPPCA was silent with respect to the role of any appraisal process. The court held that an insurer’s use of the policy’s appraisal process and payment of the appraisal amount does not absolve it from liability for TPPCA damages. Conversely, the court also held that an insurer’s payment of an appraisal award “is neither an acknowledgment of liability nor a determination of liability under the policy for purposes of TPPCA damages under Section 542.060.” The court therefore concluded that neither Barbara Tech nor State Farm was entitled to summary judgment on the TPPCA claims.

Similarly, in Ortiz v. State Farm Lloyds, No. 17-1048, 2019 WL 2710032, at *1 (Tex. June 28, 2019), State Farm sold Oscar Ortiz (“Ortiz”) homeowner’s insurance. After his home was damaged by wind and hail, he submitted a claim which State Farm rejected as being below the deductible amount of $1,000. Ortiz ultimately sued state farm for TPPCA violations, among other claims.

State Farm demanded an appraisal which the court ultimately compelled. The appraisal set the cash value of the loss at $5,243.93, which State Farm paid about a week later. One issue on appeal was whether the payment of the appraisal amount barred claims under the TPPCA. Citing its decision in Barbara Tech, the court held that “the payment of an appraisal award does not as a matter of law bar an insured’s claims under [the TPPCA],” and remanded for further proceedings in light of Barbara Tech.

These two opinions will aid policyholders whose insurers wrongfully deny claims and then try to use a policy’s appraisal procedure to shield themselves from TPPCA damages.  But the decisions also teach policyholders that they typically must establish liability under the policy to obtain damages under Section 542.060 of the TPPCA.