“I come, then, to bury appraisals, not praise them.”

-Chief Justice Nathan Hecht, Barbara Technologies (dissenting).

In its Barbara Technologies and Ortiz decisions last Friday, the Texas Supreme Court resolved the troublesome question of whether an insurer’s payment of an appraisal award necessarily precludes common law and statutory “bad faith,” as well as prompt payment penalties under the Texas Insurance Code.  Writing for a 6-3 majority in Barbara Technologies, Justice Paul Green found in favor of the policyholder and held “the invocation of the contractual appraisal provision to resolve a dispute as to a claim rejected in accordance with the (Texas Prompt Payment of Claims Ac) procedural requirements neither subjects an insurer to TPPCA damages nor insulates the insurer from TPPCA damages.”  Cause No. 17-0640, Barbara Technologies v. State Farm Lloyds, slip op. at 35 (Tex. June 28, 2019) (emphasis added).  The Court held the 18% penalty and attorneys’ fees provisions of the Prompt Payment Act apply if the insurer either (1) accepts the claim, thereby admitting liability for the policy benefits; or (2) is “adjudicated liable [for the policy benefits] by a court or arbitration panel.”  Id.

The Court remanded the case to allow Barbara Tech “the opportunity to argue that State Farm owed Barbara Tech benefits under the policy” and was therefore “liable” under the policy when it rejected the claim. Id. at 36.  Justices Guzman, Lehrmann, Devine, and Busby joined Justice Green’s majority opinion.  Justices Brown and Blalock joined Chief Justice Hecht’s dissent.  Justice Boyd concurred in part and dissented in part, and would have found that “by voluntarily and unconditionally paying the benefits claimed, the insurer conceded both its liability and the claim’s validity.”  Boyd, Concurring, at 2.  Justice Boyd would have remanded solely for a determination of the amount of statutory interest and attorneys’ fees owed.  Id.

Chief Justice Hecht’s dissent laments the Barbara Technologies result, which he believes “discourages continued use of a century-old appraisal process that fosters settlements . . . and upends 15 years of unanimous case law ….”  Hecht, Dissenting, at 12.  Hecht emphasizes that now if an appraisal is requested “after a claim has been rejected in whole or in part, and the insurer immediately pays the award, it is nevertheless liable for 18% interest and attorney fees if the claim is later adjudicated to be covered by the policy.”  Id.  (noting that “[u]nless the insured gives up, litigation is unavoidable, either over the rejection or over the penalty”).

In the Ortiz companion case, Justice Lehrmann delivered the Opinion of the Court reiterating Barbara Technologies and holding that despite State Farm’s payment of the appraisal award, “the insured may proceed on his claim under the Prompt Payment Act.”  Cause No. 17-1048, Ortiz v. State Farm Lloyds, slip op. at 2 (Tex. June 28, 2019).  Ortiz further holds that “the insurer’s payment of the award bars the insured’s breach of contract claim premised on failure to pay the amount of the covered loss.”  Id., slip op. at 1.  The decision emphasizes that “payment of the award bars the insured’s common law and statutory bad faith claims to the extent the only actual damages sought are lost policy benefits.”  Id. 

In so holding, Ortiz rejected the insured’s argument that “if an appraisal award is higher than the amount the insurer offered, then the insurer necessarily breached the policy.”  Id., slip op. at 7 (noting “[i]t simply does not follow that an appraisal award demonstrates that an insurer breached by failing to pay the covered loss”).    Having invoked appraisal to determine the amount of the loss, “and having paid that binding amount, State Farm complied with its obligations under the policy.”  Id. at 8 (citing Breshears v. State Farm Lloyds, 155 S.W.3d 340 (Tex. App.– Corpus Christi 2004, pet. denied).  In finding no “bad faith,” the Ortiz majority noted the insured did not claim “the delay in payment . . . caused additional property damage to his home” nor did the insured “seek either appraisal costs or sums related to pre-appraisal damage assessments.”  Id. at 12. However, the Court expressed “no opinion on whether such damages would be ‘independent from the loss of [policy] benefits” and thus recoverable under Menchaca.   Because Ortiz did not seek actual damages “other than policy benefits paid in accordance with the policy’s appraisal provision,” he could not maintain any “bad faith” claim.  Id.

 In light of Barbara Technologies and Ortiz, we can expect policyholders to invoke appraisal early and often.  Resolving property damage claims without litigation will be more difficult in the future.  To misquote Julius Caesar yet again, “the evil that some decisions do lives after them; the good is oft interred with the dissent.”