Insurer’s Appraisal Award and Statutory Interest Payments Entitle It to Summary Judgment

At A Glance

• The Dallas Court of Appeals’ opinion in Rosales reverses the leverage imbalance that was an unfortunate byproduct of earlier Texas Supreme Court cases prior to the enactment of Chapter 542A of the Texas Insurance Code, which had breathed new life into statutory interest claims that Texas appellate courts previously cast aside as nonactionable.
• With Rosales — which follows a growing trend of similar decisions issued in Chapter 542A cases by Texas federal district courts — insurers can again achieve the finality that is, in part, the purpose of the appraisal process by paying, together with appraisal award payments, any statutory interest a policyholder could seek on an award amount. 
• Rosales bodes well for the future of appraisal clauses in Texas property insurance policies, which inures to the benefit of policyholders across the state who retain the advantages of appraisal as an ADR tool.

In a case of first impression, the Dallas Court of Appeals recently held that, under a statute passed by the Texas Legislature in 2017, if an insurer pays an appraisal award issued in connection with a weather-related insurance claim, the insurer cannot be liable for attorney’s fees incurred by the policyholder in any lawsuit arising out of the claim.

The Appraisal Process

Appraisal is an alternative dispute resolution (ADR) mechanism that features prominently in Texas property insurance policies. The appraisal award that results from the process serves two functions: (1) it establishes the universe of damages a policyholder may attempt to prove were caused by a covered event; and (2) it definitively sets the amounts necessary to pay for the repairs to or replace the damaged items. Because appraisal does not decide issues of coverage, though, an appraisal award does not actually establish that an insurer is liable to pay anything on an insurance claim; and so insurers have no obligation to pay appraisal awards. They often do, however, to bring finality to the dispute.

The Dallas Court of Appeals Finds That an Insurer’s Appraisal Award Payment Precludes Any Attorney’s Fee Recovery

In a case governed by Texas Insurance Code Chapter 542A — a new chapter that is applicable to weather-related insurance coverage lawsuits filed after September 1, 2017 — the Dallas Court of Appeals found that an insurer is entitled to summary judgment on all of a policyholder’s claims if the insurer pays an appraisal award and any statutory interest that the policyholder could conceivably contend to be owed on the award amount. 

In Rosales v. Allstate Vehicle and Property Insurance Company, the policyholder invoked the appraisal process several months after filing suit, and when the appraisal award issued, Allstate paid it. Based on Allstate’s appraisal award payment, there was no amount “to be awarded in the judgment” for unpaid policy benefits as the applicable statute in Chapter 542A requires for an award of attorney’s fees. With no unpaid policy benefits and no possibility that the plaintiff could recover attorney’s fees, the only other issue was statutory interest under the Texas Prompt Payment of Claims Act. But because Allstate not only paid the appraisal award but also voluntarily paid all statutory interest the policyholder could have conceivably sought on the award amount, there were no possible damages left. Consequently, the Dallas Court of Appeals affirmed the trial court’s summary judgment in favor of Allstate.

The Impact of Rosales on Future Post-Appraisal Cases

Principally, Rosales reverses the leverage imbalance that was an unfortunate byproduct of earlier Texas Supreme Court cases under the pre-Chapter 542A regime, which had breathed new life into statutory interest claims that Texas appellate courts previously cast aside as nonactionable. Even though appraisal does not decide issues of coverage and insurers have no obligation to pay appraisal awards, historically, insurers often have paid such awards simply to achieve finality, even though the policyholder is not entitled to any further payment under the insurance policy. An insurer’s payment also relieves the policyholder of what would otherwise be their burden to prove the damages addressed by the appraisal award were caused by a covered event. The Texas Supreme Court cases that revived statutory interest claims in cases to which Chapter 542A did not apply compromised the value of appraisal as an ADR procedure by creating a pathway to continuing litigation even after an appraisal award is paid.

With the court’s opinion in Rosales — which follows a growing trend of similar decisions issued in Chapter 542A cases by Texas federal district courts — insurers can again achieve the finality that is, in part, the purpose of the appraisal process by paying, together with appraisal award payments, any statutory interest a policyholder could seek on an award amount. Almost universally, the amount of potential statutory interest pales in comparison to the attorneys’ fees sought by plaintiffs in weather-related insurance coverage cases, which was the driving force for the unprecedented surge in litigation that the Texas Legislature set out to stymie by passing the bill that codified Chapter 542A in the first place.

The Rosales decision also comports with the legislature’s goal of curbing what has become a growth industry in weather-related insurance coverage litigation by collaring — at least in those cases in which an appraisal award has been paid — the profit motive which the legislature found had facilitated the development of that industry. Relatedly, Rosales bodes well for the future of appraisal clauses in Texas property insurance policies, which inures to the benefit of policyholders across the state who retain the advantages of appraisal as an ADR tool.