San Antonio Court of Appeals Issues Strong Appraisal Opinion
Adding to a line of Texas cases that found appraisal resolved all issues regarding a dispute over the cost and scope of damage to a homeowner’s property, the Fourth Court of Appeals in San Antonio recently affirmed a trial court’s decision to grant summary judgment after completion of appraisal and payment of the appraisal award by State Farm in Garcia v. State Farm Lloyds. No. 04-16-00209-CV, 2016 WL 7234064 (Tex. App.–San Antonio Dec. 14, 2016, no pet. h.). In Garcia, State Farm denied Garcia’s claim for hail/wind damages to her property after an inspection revealed that the amount of covered damages did not exceed Garcia’s deductible. Garcia filed suit, alleging claims of breach of contract, breach of duty of good faith and fair dealing, as well as violations of the Texas Prompt Payment of Claims Act, the Texas Insurance Code, and the DTPA against State Farm. The parties agreed to go to appraisal and both appraisers subsequently signed an agreement agreeing to a replacement cost value for hail damage to the house. State Farm promptly tendered payment of the award and moved for summary judgement on the grounds that payment of the appraisal award estopped Garcia from maintaining her breach of contract and extra-contractual claims against State Farm.
Garcia argued that because the parties’ pre-appraisal damage estimates differed from the covered items in the appraisal award, the appraisers exceeded the scope of their authority. The appellate court however, noted that the appraisal clause at issue only required that the appraisers be disinterested. Nothing in the appraisal clause specified the manner in which the appraisers determined the amount of loss and the court held that the mere fact the appraisers’ findings differed from the pre-appraisal estimates was not evidence—standing alone—that the appraisers exceed their authority. Second, the court found that the award was not the result of fraud, accident, or mistake, in that Garcia failed to provide any evidence that the award was made to operate in a way that the appraisers did not intend or that the error resulting in the award is so great as to be indicative of gross partiality, undue influence or corruption. The court also rejected the argument that an insured can defeat a valid appraisal award by simply refusing the insurer’s payment of the award.
One of the things that makes Garcia particularly helpful for insurance carriers is that the opinion strongly refutes the holding in Graber v. State Farm Lloyds. 3:13-CV-2671-B, 2015 WL 3755030 at *9-10 (N.D. Tex. June 15, 2015), by highlighting the long-established rule that full and timely payment of an appraisal award precludes an insured from recovering prompt payment penalties as a matter of law. The court recognized that, unlike the cases relied on by the court in Graber which did not involve appraisals, Texas appraisal cases have consistently held determined that prompt payment of an appraisal award precludes payment of penalties under the Insurance Code’s prompt payment provisions as a matter of law.
Further, the Garcia court reiterated the independent injury requirement for bad faith claims, holding that in order to recover damages in excess of the appraisal award. Garcia had to prove that State Farm “committed some act, so extreme, that would cause injury independent of the policy claim.” As Garcia failed to present evidence of an independent injury, the court held that what remained was simply a bona fide dispute on the amount of damages to Garcia’s home and such dispute was resolved by the appraisal process. The court ultimately held that Garcia’s failure to present evidence on the common-law and statutory bad-faith claims and the fact that State Farm timely paid the appraisal award foreclosed all her bad faith claims.