In a recent case grounded in the “plain language” of the appraisal clause of the Texas Homeowners’ insurance policy, the Texas Supreme Court answered a certified question from the Fifth Circuit and held “an insurer’s payment of the full appraisal award plus any possible statutory interest precludes the recovery of attorneys’ fees.  See Cause No. 23-0534, Rodriguez v. Safeco Ins. Co. of Indiana, Slip Op. at *1 (Tex. Feb. 2, 2024).  In so holding, the Court not only resolved a vexing split of Texas state and federal decisions, but also provided a math lesson addressing fractions and application of the formula for calculation of attorneys’ fees under Texas Insurance Code § 542A.007(a)(3). Chapter 542A of the Insurance Code governs first-party property claims resulting from “forces of nature” including earthquake, earth tremor, wildfire, flood, tornado, lightning, hurricane, hail, wind, snowstorm or rainstorm.  Rodriguez, Slip Op. at *6 (citing § 542A.001(2)(c)).

Rodriguez arose from a property damage claim after a tornado.  Safeco paid $27,499.98 on that claim, which Rodriguez accepted though he ended up demanding an additional $29,500.  Id. at *2.  After suit was filed and removed to federal court and then mediated unsuccessfully, Safeco invoked the appraisal provision. The appraisal panel valued the claim at $36,514.52.  After subtracting prior payments and other amounts, Safeco issued full payment of $32,447.73 on the claim. Id. at *3. Safeco also paid an additional $9458.40 in interest owed on the appraised amount.  Id. Safeco then moved for summary judgment arguing its full payment of the appraisal plus interest ended litigation and precluded recovery of attorneys’ fees.  Id.

In this context, the Texas Supreme Court held section 542A.007(a)(3) “prohibits an award of attorney’s fees when an insurer has fully discharged its obligations under the policy by voluntarily paying the appraised amount, plus any statutory interest, in compliance with the policy’s appraisal provisions.” Id. at *5.  The Court noted that among its many other provisions, section 542A limits the recovery of attorneys’ fees. The Court emphasized that section 542A.007(a)(3) provides a “mathematical calculation” of attorneys’ fees by “dividing the amount to be awarded in the judgment to the claimant” by another amount. Rodriguez, Slip Op. at *7. The fraction generated by this initial step, which can be greater or lesser than 1, is then multiplied by the total of attorneys’ fees awarded at trial Id. However, when the insurer has already paid all amounts owed plus any possible statutory interest, there will never be an “amount to be awarded” in any judgment for the claimant. When there is no judgment the “numerator of the fraction” described by subsection (a)(3)(A) does not exist and is always zero. Id.  Multiplying this zero value by another number “can never yield a non-zero amount of attorney’s fees.”  Id. at 8. In light of this mathematical truth, Rodriguez holds no attorneys’ fees can be recovered under Section 542A.007(a)(3) when the appraisal award and applicable interest have been paid.

Also of interest in the opinion was the Rodriguez court’s observation that Ortiz and Barbara Technologies left the door open to the “possibility of a judgment on related statutory or common law claims even while foreclosing contract claims under their policies.” Id. at 9-10. Although the potential viability of extracontractual claims in the appraisal context appears to be a continuing issue for Texas courts, that’s a blog post for another day!