In Hinojos v. State Farm Lloyds, the Supreme Court of Texas addressed liability under the Texas Prompt Payment of Claims Act (the “TPPCA”) when an insurer timely pays only part of a claim.[1] As demonstrated in Hinojos, disputes as to TPPCA liability typically arise in the context of appraisal and the payment of an award.  

In a fairly short opinion, the Court held that timely payments less than the full amount of the ultimate insurance claim do not satisfy an insurer’s duties under the TPPCA. However, the Court also reiterated that payment of an appraisal award outside the TPPCA’s deadlines does not satisfy a policyholder’s burden to prove an actual TPPCA violation.  

Background

The underlying facts of Hinojos are straightforward. The policyholder made an insurance claim with State Farm for storm damage in 2013.[2] On June 12, 2013 (nine days after the claim was made), an adjuster inspected the claimed damage and determined that it was below the policy’s deductible.[3] The policyholder then requested a second inspection.[4] The adjuster at the second inspection found “covered damage” totaling $3,859.22.[5] So State Farm paid the claim (less the deducible and depreciation) based on the second inspection.[6] Litigation ensued.

Fifteen months after the lawsuit was filed by the policyholder, State Farm invoked appraisal.[7] The parties’ appraisers valued the loss at $38,269.95.[8] State Farm then paid the appraisal award (less the prior payment, deductible, and depreciation) and moved for summary judgment, which was granted by the trial court and affirmed by the court of appeals.[9] The court of appeals held that State Farm was immune from liability under the TPPCA because it made a “reasonable payment” within the TPPCA’s statutory deadlines.[10] The policyholder then petitioned the Supreme Court of Texas for review.  

The Court’s Decision

The Supreme Court of Texas reversed the court of appeals’ decision. In doing so, it heavily relied on its recent decisions that held payment of an appraisal award does foreclose TPPCA claims.[11] So an insurer’s payment of an appraisal award outside the statutory deadlines has no impact as to the viability of a policyholder’s TPPCA claims.[12]  

What is more, the Court held that a “reasonable payment” that is timely made under the TPPCA does not satisfy an insurer’s statutory duties.[13] The Court found that such a result would be inconsistent with the TPPCA.[14] To that end, the Court interpreted the TPPCA as requiring full payment of the amount owed and nowhere authorizing partial payments of an accepted claim.[15] But the Court explained that while a partial payment does not act as a complete bar to TPPCA liability, it does mitigate damages under the statute because the TPPCA only applies to the “unpaid portion of the claim.”[16]   

It is also notable that the Court did not render judgment for the policyholder under TPPCA. That is because an appraisal award does not establish an insurer’s liability under the TPPCA.[17] As the Court plainly stated, to prevail under the TPPCA, it is the policyholder’s burden to establish: “(1) the amount for which [the insurer] is contractually liable under the insurance policy; (2) that [the insurer] failed to comply with the [TPPCA’s] statutory deadlines; and (3) statutory damages based on the amount contractually owed less the amounts paid within the statutory deadline.”[18] 

Take Away

Texas case law previously favored appraisal over litigation. Policyholder and insurer disputes usually ended once the appraisal award was paid—whether or not the parties agreed with the result. That is no longer true as Hinojos demonstrates. As a result, we expect an uptick in TPPCA and appraisal-related litigation.

[1] No. 19-0280, __ S.W.3d __, 2021 WL 1080854 (Tex. Mar. 19, 2021).

[2] Id. at *2.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id. at *3.

[9] Id.

[10] Id.

[11] Id. (citing Alvarez v. State Farm Lloyds, 601 S.W.3d 781 (Tex. 2020); Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019)).

[12] Id.

[13] Id. at *4–5.

[14] Id.

[15] Id. at *4–5.

[16] Id. at *5.

[17] Id. at *6 n.45.

[18] Id.