No Safe Harbor: Hinojos Holds “Late Payment” Penalties Apply Despite Insurer’s Timely Payment of an Appraisal Award
On March 19, 2021, the Texas Supreme Court issued a 7-2 decision and Opinion by Justice Jane Bland holding there is no appraisal payment safe harbor from Chapter 542 late payment liability for insurers that timely pay appraisal awards after accepting coverage when those payments are late under the statute. See Cause No. 19-0280, Hinojos v. State Farm Lloyds et al., slip op. at *2. In so holding, Hinojos emphasizes that “claim” under Chapter 542 means the amount that “must be paid the insurer” not the amount the insurer agrees to pay. Id. at *9 (noting the late payment statute “does not authorize partial payment of an accepted claim”).
Hinojos involved a homeowner’s hail claim that was initially valued at $755.02. State Farm subsequently agreed to pay “covered damages” of $3859.22 and tendered $1995.11 (the value of the claim less the deductible). Id. at *4. Two years later, in the course of litigation, State Farm invoked the policy’s appraisal clause. The appraisers subsequently valued the loss at $38,269.95 for replacement cost or $26,259.86 on an actual cash value basis. Id. at *4. Within a week of the appraisers’ decision, and two-and-a-half years after the claim was submitted, State Farm tendered an additional $22,974.75 for payment of the appraisal award (less the earlier payment made, deductible, and depreciation). Id. at *5. Following payment of the appraisal award, State Farm moved for summary judgment contending the “timely tendering of the appraisal award precludes prompt payment damages under Chapter 542.” The trial court granted summary judgment and the court of appeals affirmed. Id.
Relying on its Barbara Technologies and Ortiz decisions, the Supreme Court reversed and held that “payment of an appraisal award does not absolve the insurer of statutory liability when an insurer accepts a claim but pays only part of the amount it owes within the statutory deadline.” Id. at *2. Because the appraisers determined that State Farm underpaid the amount that “must be paid” on a covered claim, late payment penalties applied. Hinojos is not a surprising result given the Court’s discussion of prompt payment claims in Barbara Technologies.