Appraisal Determines the Amount of Loss and When Paid the Amount of Claim is Resolved
Appraisal under an insurance policy involves a contractual process by which the insurer and the insured select third parties to determine the amount of a claimed loss when the insurer and the insured cannot agree what the amount of the loss is. This appeal poses the question of how an insurer’s payment of an appraisal award triggers the deadlines and penalties of the act that requires insurers to timely process and pay insurance claims—the Texas Prompt Payment of Claims Act (the TPPCA or the Act).
In Sanford Crayton v. Homeowners Of America Insurance Company, No. 02-20-00037-CV, Court of Appeals Second Appellate District of Texas at Fort Worth (December 23, 2020) Sanford Crayton submitted a wind and hail claim on his homeowner’s policy against his insurer, Homeowners of America Insurance Company. Eventually, Crayton’s claims boiled down to the question of whether Homeowners violated the TPPCA by initially rejecting his claim but later paying an appraisal award on the claim after Crayton sued.
Two days after the claim was filed, an adjuster from an independent adjusting agency visited Crayton’s property and investigated the claim. The adjuster concluded that the damage to Crayton’s dwelling totaled approximately $300 calculated on the basis of both a replacement cost value and an actual cash value. The adjuster also assessed the damage to a fence and to an outbuilding as totaling approximately $2,200 calculated on both a replacement cost value and an actual cash value.
Within six days of the inspection, Homeowners notified Crayton by letter of the adjuster’s findings and of the fact that the estimated damages were less than his policy’s deductible. Homeowners’ letter told Crayton that he should notify Homeowners should additional damage be found or if a contractor doing repairs estimated the damage to be higher than the adjuster’s findings.
There was no more communication between Crayton and Homeowners until more than a year after Homeowners’ letter when, in January 2016, counsel for Crayton sent Homeowners a demand letter claiming that Homeowners had failed to adequately adjust and pay Crayton’s claim. The demand letter enumerated a number of alleged unfair settlement practices and misrepresentations of the insurance policy. The letter claimed that Crayton’s property had suffered $31,000 in damages and that he had incurred $3,900 in expenses and $30,000 in attorney’s fees to date.
There was no more communication between Crayton and Homeowners until more than a year after Homeowners’ letter when, in January 2016, counsel for Crayton sent Homeowners a demand letter claiming that Homeowners had failed to adequately adjust and pay Crayton’s claim.
Homeowners filed a motion for summary judgment raising grounds that Crayton could not establish a violation of the TPPCA. The trial court granted Homeowners’ motion.
The appraisers concluded that Crayton’s loss replacement cost was, before application of the deductible in Crayton’s policy, approximately $13,000 and that the loss actual cash value was approximately $11,000. Homeowners made an approximately $9,000 payment to Crayton “[i]n accordance with the appraisal award.”
Crayton responded to Homeowners’ summary-judgment motion, but he did not attach any controverting evidence to his response. Instead, Crayton noted recent authority from the Texas Supreme Court that the payment of an appraisal award did not insulate an insurer from a TPPCA claim. The trial court denied reconsideration and a new trial by written order. Crayton then filed a notice of appeal.
The TPPCA establishes a number of deadlines for insurance companies to process claims and penalizes a failure to meet its deadlines by assessing interest on the claim at the rate of eighteen percent per annum and the payment of the insured’s attorney’s fees.
This appeal deals with the interplay of the section of the Act requiring payment within sixty days, the Act’s enforcement provision, and whether that interrelation creates a fact issue that the timing of Homeowners’ payment of the appraisal award violated those provisions.
The end game of the TPPCA process is an investigation and evaluation by the insurer that culminates in a determination either that the claim is covered and the amount of loss exceeds the deductible, in which case the insurer must notify the insured that it will pay the claim, or that the claim is rejected, in which case the insured must notify the insured of the reasons—for example, because the loss is not covered, the amount of the loss does not meet the deductible, or for some other reason under the policy.
When an insurer rejects a claim, the insurer can only become liable under Section 542.060 if it later accepts the claim or is adjudged to have wrongfully rejected the claim. Here, the insured filed suit after the insurer investigated, evaluated, and ultimately rejected the claim. The insurer invoked the appraisal provision because the insured disputed the insurer’s determination that the amount of the loss was below the insured’s deductible, which resulted in rejection of the claim.
Homeowners did not accept Crayton’s claim by the manner in which it paid the appraisal award, a disparity between the original adjustment and the appraisal award is not probative of Homeowners’ and Homeowners did not violate Section 542.058 of the Act.
Without telling the court whether he seeks to establish a violation of Section 542.058 or Section 542.060, Crayton argues that “there is some evidence to support the adjudication of [Homeowners’] liability for [his] claim.”
Payment Of An Appraisal Award Does Not Trigger A Violation Of Section 542.058(A) Of The TPPCA.
In essence, to read the appraisal process into Section 542.058(a) requires the payment of an appraisal to be tied to the process of Section 542.055 by making the payment an act showing a failure of the insurer to act after having “all items, statements, and forms reasonably requested and required under Section 542.055.”
Homeowners made its payment by noting that it was doing so “[i]n accordance with the appraisal award.”
Homeowners’ payment of the appraisal did not constitute a retroactive acceptance of Crayton’s claim that triggered the TPPCA’s deadlines. Nor did the payment of the appraisal award have probative value as to whether Homeowners’ original claim decision was in error such that it raised a fact issue as to Homeowners’ liability. Finally, the court of appeal concluded that when an insurer pays an appraisal award after a sixty-day deadline contained in one of the Act’s provisions, there is not a violation of the TPPCA and that the insurer can free itself from that violation only by proving that it had no liability because the insured’s claim is “invalid.”
In a more than 50 page opinion the appellate court made clear that when an insurer denies a claim because its evaluation found the loss to be less than the insured’s deductible, it did not violate the statute or act wrongfully when it paid the claim in accordance with an appraisal award. Appraisal awards are subject to being made a judgment of the amount of loss and compel an insurer to pay on the judgment. By paying before it became a judgment Homeowners acted properly and deserved the favorable result after a long review of a Texas Supreme Court decision.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and email@example.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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