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by Alexander Masotto

The Southern District of Texas recently denied an insured’s Motion to Set Aside the Appraisal Award after the Appraisal Panel considered causation relating to the damages claimed by the insured.

In Rios v. Homesite Insurance Company, et al, No. 5:23-CV-00006, 2024 WL 4984446 (S.D. Tex. Sept. 26, 2024), the insured filed a windstorm/hail claim for damage to her roof and fence at her residence located in Webb County, Texas occurring on or around May 24, 2022. After investigating the property, the insurer confirmed wind damage to the insured’s fence; however, the investigation did not reveal any storm damage to the insured’s shingle roof. Based on the investigation findings, the insurer issued a partial denial letter stating that the covered damage to the insured’s fence ($2,354.67) fell below the policy’s deductible ($2,500).

Following the coverage determination, the insured disputed the claim and issued a pre-suit notice letter demanding, among other things, $35,146.27 in actual damages. In response, the insurer reinspected the property, but the covered damages still fell below the policy’s deductible.

Eventually, the insured filed suit against the insurer, and the case was removed thereafter to the Southern District of Texas. Shortly after removal, the parties agreed to invoke the appraisal provision under the policy to determine the amount of loss.

On May 31, 2023, the umpire and the insurer’s appraiser signed an appraisal award for the amount of loss totaling $3,425 for storm damage. Notably, the award did not include purported wind damage to the insured’s roof or exterior. The insurer proceeded to pay $1,066.61, representing the appraisal award plus prompt payment penalties, pre-judgment interest, and less the $2,500 deductible. The insured’s appraiser swiftly disputed award, stating that the appraisal panel exceeded its authority by making “a coverage determination by asserting that the damages to the roof were caused by improper installation and not wind.”

The insurer then filed a Motion for Summary Judgment, arguing in relevant part that: (1) the appraisal award payment estopped the insured’s breach of contract claim, and (2) the insured’s extra-contractual claims fail based on the prompt payment and pre-judgment interest payments made. In response, the insured filed a Motion to Set Aside the Appraisal Award based on: (1) the appraisal panel exceeding its authority by considering causation; and (2) the payment of a “faulty appraisal award and some statutory interest does not absolve [the insurer] from liability under the [p]olicy and the Texas Insurance Code.

Relying on State Farm Lloyds v. Johnson, 290 S.W.3d 886, 893 (Tex. 2009), the Court recognized that “[a]ny appraisal necessarily includes some causation element, because setting the ‘amount of loss’ requires appraisers to decide between damages for which coverage is claimed, from damages cause by everything else.” Here, the Court ultimately found that the appraisal panel did not exceed its authority when it “distinguished between covered damage to Plaintiff’s wood fence caused by the storm and uncovered damage to [the insured’s] composition shingle roof caused by improper installation.” See MLCSV10 v. Stateside Enter., Inc. 866 F. Supp. 2d 691, 705 (S.D. Tex. 2012) (“[The appraiser]’s causation evaluation involved no more than ‘separating loss due to a covered event from a property’s pre-existing condition.’”). Additionally, the Court noted that the fact the insured’s appraiser’s findings differed from those of the insurer’s appraiser and the umpire was not sufficient proof to hold that the panel was either incompetent, biased, or otherwise acted outside the scope of its authority. Accordingly, the Court denied the insured’s Motion.

The Court then analyzed the insurer’s Motion for Summary Judgment and granted the same on the basis that: (1) the insured cannot maintain a breach of contract claim after the timely payment of an appraisal award; and (2) “because timely and full payment of an appraisal award precludes a breach of contract claim, extra-contractual claims for fraud, bad faith, and violations of the DTPA and Texas Insurance [C]ode also fail.” Losciale v. State Farm Lloyds, 2017 WL 3008642 at *2 (S.D. Tex. July 14, 2017). Here, the insurer paid any statutory interest and prompt payment penalties to the insured in addition to the appraisal award payment. Additionally, the insured failed to show any injury independent from the alleged loss of benefits. Thus, the Court granted summary judgment on the insured’s breach of contract and extra-contractual claims.

Overall, the Court in Rios soundly relied on controlling Texas law relating to the specific rights an appraisal panel may have during the appraisal process, and properly granted summary judgment in favor of the insurer.