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By Jennifer L. Gibbs
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Does a party waive its right to demand appraisal if it states in open court, “We don’t like appraisal,” simultaneously opposes a motion to compel appraisal in a companion case with nearly identical facts, attempts a unilateral “stealth appraisal,” and delays demanding appraisal until nearly a year after litigation?

According to Judge Micaela Alvarez of the Southern District of Texas, not even those facts warrant a finding of waiver. This recent opinion regarding appraisal can be found at Heller v. ACE European Group, No. 7:12 – cv-422, (S.D. Tex. Dec. 16, 2013), and begins as follows:

Pending before the court are no fewer than eight separate motions, with associated responses and replies, totaling 17 separate briefs. To mix Herculean metaphors, faced with a hydra-headed docket, the court will choose the path of virtue and clean out the Augean stables.

The dispute at issue involved three rental properties owned by Zev Heller located on East Shasta Avenue in McAllen, Texas, which were allegedly damaged during a March 29, 2012, weather event. The properties were insured by property policies issued by ACE European Group.

After the insured reported the claims to ACE, independent adjuster Steve Schulz with ACSI was hired to inspect the properties and estimate covered damages. Schulz found covered damages totaling $8,578.51 at the 119 E. Shasta location, covered damages totaling $8,248.03 for the 123 E. Shasta location, and covered damages totaling $1,815.39 at the 125 E. Shasta location.

Heller disagreed with these estimates, claiming over $100,000 in damage to the 119 E. Shasta location; over $52,000 in damage to the 123 E. Shasta location; and over $62,000 in damage to the 125 E. Shasta location.

Unable to reach a resolution with ACE, Heller filed suit in October 2012 for breach of contract, misrepresentation, violations of the Texas Insurance Code, and wrongful denial of coverage, naming both ACE and ACSI as defendants. ACE removed the case to federal court on the basis of diversity of citizenship, claiming fraudulent joinder of ACSI. When the insured failed to oppose the removal, the federal court dismissed ACSI from the case.

At a scheduling conference held on Dec. 18, 2012, Alvarez ordered Heller to provide a damage estimate by Jan. 31, 2013, and ACE to provide a damage estimate by March 1, 2013. The transcript from that status conference reveals the following statements made by the judge:

Basically, what I have been doing with these cases is — is having a schedule that basically allows you to engage in this process before you get to the formal appraisal process. And I’ll hear from you, Mr. [John] Saenz, but, basically, what I have proposed up until now — all the parties in the other cases of the same type have agreed to it — is that we set a deadline for the plaintiff to provide whatever it is that the plaintiff thinks is necessary for the insurance company to properly evaluate the claim, whether that’s an appraisal or an estimate from a contractor, whatever the case may be; their own pictures, whatever. So, then, I set a deadline for the defendant to, if they want to have some independent appraisal done, to do that. I then set it for a status conference before this court. In the event that isn’t sufficient for the parties to resolve it, one of two things can happen. You can either say, “Look, we’ve gotten now everything; for whatever reason we’re having a little bit of difficulty as far as, you know, coming to a meeting of the minds, but we think we can still do it,” and then I give you a little bit more time; or, in some cases, they have engaged the formal appraisal process; or, in other cases, they resolve it and it’s — and it’s gone. Only in those cases where they say, “Look, I mean, we’re too great at odds and we really think we just need to move forward with a regular discovery,” have I done that. Mr. Saenz, does that sound like something that will work for the plaintiffs here? 

Plaintiff's representative, Saenz, responded:

Actually, your honor, we were actually discussing this matter, and we were trying to figure out — obviously, we don’t like appraisal. If there is something that we can — I don’t — I have to dive into the facts. There’s ways around the appraisal, but I don’t know if that’s going to apply to this case or not.

After Heller failed to comply with the court’s scheduling order and was sanctioned on two separate occasions for discovery violations, Heller changed his position entirely and demanded appraisal on July 1, 2013. ACE responded that Heller had waived, by word and by conduct, his right to appraisal.

And, as if this case weren’t bizarre enough, Heller notified ACE on Aug. 1, 2013, that he had conducted alone, a binding appraisal pursuant to the appraisal clause — a tactic described by ACE as a “stealth appraisal.” 

Specifically, Heller sent ACE the following letter:

Dear Counsel,

On or about July 23, 2013, I faxed your office the setting of Plaintiff’s property inspections and appraisals of 119 Shasta, 123 Shasta, and 125 Shasta. The appraiser assigned by Plaintiff was Gus Grajales. Gus Grajales, myself and the Plaintiff waited for an hour for you to arrive. You and your independent appraiser never arrived for the inspection and appraisal of Plaintiff’s properties. Such inspection and appraisal was completed on all three properties by Gus Grajales. It is my understanding that Gus Grajales will have the appraisal results of the properties within the next day or so. As you have failed to attend the appraisal and have waived any objection to the appraisal process, I will move forward to enforce such appraisal once the appraiser forwards your office and my office the inspection and appraisal results. If you have any questions, please let me know.

When ACE refused to be bound by the “stealth appraisal” and again rejected Heller’s demand for appraisal, Heller filed a motion to compel appraisal.

In opposing the motion, ACE argued that the plaintiff’s own conduct waived any right to appraisal. Noting that the demand for appraisal was “nothing more than an effort to disrupt this litigation” and adding, “[p]erhaps more important, plaintiff is taking inconsistent positions with the court, as plaintiff has resisted appraisal in other lawsuits arising from the March 2012 hailstorm and involving identical allegations.”

Moreover, ACE informed the court that appraisal of the damage was likely to be difficult given that Heller had submitted a claim in 2008 for damage to the properties located at 123 and 125 E. Shasta and had submitted a new claim for roof and interior damage to certain underwriters at Lloyd’s London for the 119 E. Shasta location allegedly resulting from an April 28, 2013, weather event.

On Dec. 16, 2013, with eight individual motions pending before it, the court granted all but one of ACE’s motions for summary judgment in their entirety, resulting in the dismissal of all claims except the alleged wrongful denial of coverage.

Surprisingly, however, the court granted Heller’s motion to compel appraisal — ordering the parties to appraisal despite the fact that the insured stated in the pretrial conference that “we don’t like appraisal” and had opposed a motion to compel appraisal in the companion lawsuit. Alvarez stated:

While Texas courts encourage appraisal as an alternative to litigation as a matter of public policy, and resorting to appraisal after a year of litigation certainly flouts this policy, appraisal can still avoid some litigation in this case.

This ruling illustrates that even in the most egregious circumstances, courts are reluctant to find waiver of the right to appraisal. However, given the contentious history of this case, how accurate is Alvarez’s prediction that appraisal will “avoid some litigation in this case?” One can only hope that, in this instance, appraisal will lead to the path of virtue and not the path of vice.

—By Jennifer L. Gibbs, Zelle Hofmann Voelbel & Mason LLP

Jennifer Gibbs is a senior associate in Zelle Hofmann's Dallas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.