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By Michael P. O’Brien and Claire Fialcowitz
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Until recently, property insurers who paid a binding appraisal award in Texas were almost certain to end a matter by doing so, with respect to both breach-of-contract claims and all extracontractual claims.

But changes over the past few years in Texas law have altered the interaction of appraisal awards with certain extracontractual claims, specifically, prompt payment claims. Even with the recent case law, there remain several options for summary judgment on an insured's claims after the entry of an appraisal award.

Setting the Stage — Appraisal Law Changes

In the past two years, the Texas Supreme Court significantly changed the legal landscape of insureds’ post-appraisal rights. The cases Barbara Technologies v. State Farm Lloyds[1] and Ortiz v. State Farm Lloyds,[2] both decided on June 28, 2019, opened the door for an insured to claim certain extracontractual damages that many courts previously held were barred by the timely payment of an appraisal award.

Ortiz confirmed that it is still Texas law that an insured cannot recover damages for breach of contract or bad faith claims if the insurer timely pays an appraisal award.[3]

However, the Barbara Technologies opinion allowed for an insured to recover for one type of extracontractual claim post appraisal: violations of the Texas Prompt Payment of Claims Act, or TPPCA.[4] That statute sets out requirements and deadlines for various claim activities, most significantly the imposition of statutory interest on the unpaid portion of a claim if the insurer delays payment of a claim.[5]

The Texas Supreme Court noted that the TPPCA does not acknowledge the appraisal process and held that an insurer's payment of the appraisal award neither establishes liability under the policy nor forecloses TPPCA damages under Section 542.060.[6] Rather, an “insurer will become liable for TPPCA damages under section 542.060 only if it (1) accepts liability or is adjudicated liable under the policy, and (2) violated a TPPCA deadline or requirement.”[7]

Essentially, as one Texas appeals court put it, Barbara Tech placed the TPPCA and the appraisal process “in separate realms.”[8]

Texas courts have spent the past two years navigating the new landscape created by these Texas Supreme Court decisions. For claims alleging bad faith conduct on the part of an insurer, courts still hold that an insured is precluded from recovering on claims that stem or flow from the denial of policy benefits.[9]

On the other hand, an insured can recover statutory penalties based on alleged violations of the TPPCA even if the insurer has made a payment pursuant to an appraisal award.[10]

Courts have consistently held that an insurer does not admit liability by paying an appraisal award.[11] But, as the Texas Supreme Court held on March 19 in Hinojos v. State Farm Lloyds,[12] an insurer’s payment of an appraisal award outside the TPPCA statutory deadline also does not relieve the insurer of TPPCA liability.

Post-Appraisal Availability of Extracontractual Claims

White v. Allstate — Paying Interest to Obtain Summary Judgment

White v. Allstate Vehicle and Property Insurance Co. decided by the U.S. District Court for the Southern District of Texas on Sept. 21 contains a well-known fact pattern.

Chris White's residence sustained damage during Hurricane Harvey in August 2017.[13] White's homeowner's insurance carrier, Allstate, conducted several inspections of the property and prepared an estimate of the damage.[14] After accounting for depreciation and the deductible, Allstate issued payment to White based on its estimate.[15]

White filed suit and invoked appraisal a few months later. Allstate declined the request for appraisal, arguing unreasonable delay, whereupon White filed a motion to compel appraisal that the court granted. The appraisal process concluded with a higher appraisal award than Allstate's prior estimate.[16]

Allstate issued two checks to White: one for the appraisal award less the deductible and previous payment, and another for “any additional interest [White] could possibly allege to be owed.”[17] Allstate then moved for summary judgment, contending that it had paid White the entire amount to which he was entitled under the policy as well as any interest to which he could be entitled under Texas law.[18]

After quickly dismissing White's claim for breach of contract in accordance with Ortiz, the Southern District held that the insurer was also entitled to summary judgment on the alleged bad faith claims.[19] The court held that White's arguments failed under both theories of recovery for bad faith claims established by Ortiz.[20]

First, White could not demonstrate that he “suffered actual damages by not receiving benefits under the Policy to which he is entitled” because “the appraisal award constitutes the entirety to which White is entitled.”[21] Second, because White's damages “all stem from the dispute over White's proceeds under the Policy,” he could not establish that he sustained an injury independent of the policy.[22]

Having eliminated any chance of recovery under the breach of contract or bad faith claims, White's final chance at recovery hinged on the Southern District's interpretation of the TPPCA. Asserting that Allstate violated the TPPCA by failing to follow Chapter 542's statutory timeline and issue payment for contractual benefits within the allotted time, White claimed that he was entitled to receive interest and attorney's fees.[23]

The court in White recognized that Barbara Technologies allows for recovery of TPPCA interest even after payment of an appraisal award.[24] However, unlike in many other Texas cases, Allstate issued two checks to White after appraisal — one for the appraisal amount and another for the full amount of the interest that White could potentially claim under the TPPCA.[25]

Since White could not establish that he was “entitled to any amount of interest greater than what Allstate has already paid him,” the court granted summary judgment in favor of Allstate.[26]

The White court also granted Allstate summary judgment on White's claim for attorney fees under the TPPCA.[27] While an in-depth discussion is outside the scope of this article, the court found that because the statute calculates the amount of attorney fees as the lesser of several options, one of which is based on the amount to be awarded in the judgment — in this case, zero — White could not recover any attorney fees.[28]

Not all courts take this position — even prior to Barbara Technologies, courts were divided on whether attorney fees could be recovered under the TPPCA if the insured could not recover TPPCA interest in a judgment.[29]

White demonstrates that insurers can still obtain summary judgment following payment of an appraisal award if TPPCA interest is likewise paid.

Last year, the U.S. District Court for the Southern District of Texas, Houston Division, heard two other cases with fact patterns nearly identical to the White case. In both Trujillo v. Allstate Vehicle and Property Insurance Co. and Gonzalez v. Allstate Vehicle and Property Insurance Co., the insureds invoked appraisal after the insurer issued partial payment on their respective claims.[30]

Both appraisals resulted in higher awards for the insureds, which the insurer paid.[31] As it did in White, the insurer issued two checks to each insured — one that represented the appraisal award less the applicable depreciation and deductibles and another “to cover any additional interest [the insureds] could possibly allege to be owed.”[32]

In both Trujillo and Gonzalez, the Southern District held that the insurer was entitled to summary judgment on the insureds’ claims of bad faith and interest under the TPPCA.[33] With respect to the bad faith claims, the court explained that the insureds were only claiming damages based on the denial of their policy benefits, which are explicitly precluded from recovery by Ortiz.[34]

The court also found that the insureds could not establish that they were “entitled to any greater amount of interest under the TPPCA” because the insurer had already “tendered payment of interest to the plaintiff[s] at the penalty rate specified in the TPPCA.”[35] Thus the court rejected the insureds’ TPPCA claims.

Randel v. Travelers Opens Door to Summary Judgment Where Preappraisal Payments Roughly Correspond to Appraisal Awards

Insurers can still obtain summary judgment on TPPCA claims without paying interest. The central Texas Supreme Court case on this issue, cited above, is Hinojos v. State Farm Lloyds. There the court held that, despite “acceptance and partial payment of the claim” in accordance with the TPPCA's timeline, an insurer can still be liable “for interest on amounts owed but unpaid when the statutory deadline expires.”[36]

In that case, the insurer argued that it had made a reasonable payment prior to appraisal, which was about one seventh of the appraisal award, and therefore should not be liable under the TPPCA.[37]

The court rejected the insurer's argument, stating that “[a]lthough the statute says nothing about reasonableness, a reasonable payment should roughly correspond to the amount owed on the claim.”[38] The court therefore reversed and remanded the judgment of the court of appeals that had upheld the trial court's granting of summary judgment to the insurer.[39]

Even after Hinojos, however, some federal courts have entertained the idea of — and even granted — summary judgment without payment of interest by the insurer.

The U.S. Court of Appeals for the Fifth Circuit, in Randel v. Travelers Lloyds of Texas Insurance Co. decided on Aug. 12, analyzed Hinojos’ statement that a reasonable preappraisal payment must “roughly correspond” to the amount ultimately owed and left open the possibility that a preappraisal payment can still bar a TPPCA claim if it is close enough to the appraisal award.[40]

On the specific facts in Randel, however, the court found that the preappraisal payment did not “roughly correspond” because the difference of $185,000 was even greater than the underpayment in Hinojos.[41]

In Lee v. Liberty Insurance Corp., decided on Sept. 30, the U.S. District Court for the Northern District of Texas, Dallas Division, held that an insurer was not liable for TPPCA interest where the difference between the preappraisal and post-appraisal amounts was only $4,371.91, or approximately 20% of the claim post-appraisal.[42]

Basing its analysis on Hinojos and Randel, the court found that the preappraisal payment roughly corresponded to the amount owed pursuant to the appraisal award.[43] The court therefore dismissed with prejudice the insured's claims for breach of contract, Texas Deceptive Trade Practices Act violations, bad faith and TPPCA violations.[44]

Insurers’ Options for Summary Judgment

While the landscape has changed in the wake of Barbara Technologies and Hinojos, the options for prevailing on summary judgment on an insured's post-appraisal claim under the TPPCA remain roughly the same.

First, an insurer can argue that its preappraisal payment roughly corresponds to the amount owed post-appraisal, particularly if it is less — by amount or percentage — than in Hinojos.

Second, an insurer can pay the full amount of the appraisal award as well as the amount of any potential TPPCA interest, as in White, and argue that no further amounts are owed.

Third, because Barbara Technologies confirms that liability and appraisal are in separate camps, an insurer can still defend a breach of contract claim on liability issues like causation even after the issuance of an appraisal award.[45]

The best option will be dependent on the facts and circumstances of the individual case, but summary judgment remains available in post-appraisal cases.

Michael P. O'Brien and Claire Fialcowitz are associates at Zelle LLP.

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.

[1] Barbara Technologies v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019).

[2] Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019).

[3] Id. at 133–35. The sole exception remains the “independent injury” doctrine, if the insured sustained damages for a statutory violation that caused an injury independent of policy benefits. Id. The Texas Supreme Court has noted that Texas courts have “yet to encounter” an instance of a truly independent injury in this type of dispute. USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479, 499 (Tex. 2018).

[4] Barbara Techs. Corp., 589 S.W.3d at 823, 827–29.

[5] Id. at 812–13 (citing Tex. Ins. Code Ann. §§ 542.054–.060).

[6] Id. at 823.

[7] Id. at 827–28.

[8] Crayton v. Homeowners of Am. Ins. Co., No. 02-20-00037-CV, 2020 WL 7639582, at *15 (Tex. App.—Fort Worth Dec. 23, 2020, no pet.).

[9] See, e.g., White v. Allstate Vehicle & Prop. Ins. Co., No. 6:19-CV-00066, 2021 WL 4311114, at *5 (S.D. Tex. Sept. 21, 2021); Sang Lee v. Liberty Ins. Corp. & David Yoon, No. 3:19-CV-321-L, 2021 WL 4502323, at *8 (N.D. Tex. Sept. 30, 2021); Trujillo v. Allstate Vehicle & Prop. Ins. Co., CV H-19-3992, 2020 WL 6123131, at *3–4 (S.D. Tex. Aug. 20, 2020); Ortiz, 589 S.W.3d at 134.

[10] See, e.g., White, 2021 WL 4311114, at *5; Hinojos v. State Farm Lloyds, 619 S.W.3d 651, 658 (Tex. 2021); Trujillo, 2020 WL 6123131, at *6; Gonzalez v. Allstate Vehicle & Prop. Ins. Co., 474 F. Supp. 3d 869, 876 (S.D. Tex. 2020).

[11] See, e.g., Trujillo., 2020 WL 6123131, at *5.

[12] 619 S.W.3d at 656.

[13] White, 2021 WL 4311114, at *1.

[14] Id. at *2.

[15] Id.

[16] Id. at *3.

[17] Id.

[18] Id.

[19] White, 2021 WL 4311114, at *4, *6.

[20] Id. at *5–6.

[21] Id. at *6.

[22] Id.

[23] Id.

[24] Id. at *8.

[25] White, 2021 WL 4311114, at *8; see also Hinojos, 619 S.W.3d at 658.

[26] White, 2021 WL 4311114, at *8.

[27] Id. at *9.

[28] Id. (citing Tex. Ins. Code § 542A.007(a)).

[29] Compare, e.g., Pearson v. Allstate Fire & Cas. Ins. Co., No. 19-CV-693-BK, 2020 WL 264107, at *4 n.3 (N.D. Tex. Jan. 17, 2020) (granting summary judgment on attorney's fees because the plaintiff could not recover any damages) with Crenshaw v. State Farm Lloyds, 425 F. Supp. 3d 729, 741 (N.D. Tex. 2019) (denying summary judgment on attorney's fees because the insurer paid the insured only after suit was filed and the appraisal clause invoked).

[30] Trujillo, 2020 WL 6123131, at *1; Gonzalez, 474 F. Supp. 3d at 871.

[31] Trujillo, 2020 WL 6123131, at * 1; Gonzalez, 474 F. Supp. 3d at 871.

[32] Trujillo, 2020 WL 6123131, at *1; Gonzalez, 474 F. Supp. 3d at 871.

[33] Trujillo, 2020 WL 6123131, at *3–5; Gonzalez, 474 F. Supp. 3d at 875–76.

[34] Trujillo, 2020 WL 6123131, at *3; Gonzalez, 474 F. Supp. 3d at 875.

[35] Trujillo, 2020 WL 6123131, at *5; Gonzalez, 474 F. Supp. 3d at 876.

[36] Hinojos, 619 S.W.3d at 658. The court further explained that interest accrues only on the unpaid portion of the claim. Id.

[37] Id. at 656 n.34 (citing Mainali Corp. v. Covington Specialty Insurance Co., 872 F.3d 255 (5th Cir. 2017)).

[38] Id. at 658 (emphasis added).

[39] Id. at 658–59.

[40] Randel v. Travelers Lloyds of Tex. Ins. Co., 9 F.4th 264, 269 (5th Cir. 2021)

[41] Id.

[42] Sang Lee, 2021 WL 4502323, at *13.

[43] Id.

[44] Id. at *15.

[45] See Randel, 9 F.4th at 267 (citing Barbara Techs., 589 S.W.3d at 822 n.12).