Texas Law360
February 21, 2017

In recent years, the number of Texas lawsuits arising from hail-damage claims to residential and commercial properties has reached staggering levels, leaving the courts in several Texas counties struggling to keep up with unprecedented caseloads. The current hot spot for this onslaught of hail-damage litigation is Bexar County — a south-central Texas county comprised of San Antonio and several neighboring municipalities.

Over 500 hail-damage lawsuits were filed in Bexar County in 2016, almost double the number filed in the previous year. The total for 2017 is expected to grow much higher. More than 100 new hail-damage lawsuits were filed in January alone, and daily case reports in February show the traveling posse of hail lawyers continue to file lawsuits at the rate of five to 10 each day.

As this deluge of cases proceeds through the courts, state and federal judges in Bexar County will be asked to resolve a wide variety of questions commonly presented by hail-damage disputes. However, with respect to one such recurring question — the preclusive effect of a timely paid appraisal award — the answer is now clear.

In Garcia v. State Farm Lloyds,[1] the Fourth Court of Appeals — which exercises intermediate appellate jurisdiction over the state courts in Bexar County and 31 other Texas counties — recently held that an insurer’s timely payment of an appraisal award generally insulates the insurer from contractual and extracontractual liability with respect to the insurance claim at issue. In so holding, the Fourth Court of Appeals joined the United States Court of Appeals for the Fifth Circuit,[2] the four federal district courts sitting in Texas[3] and several Texas courts of appeals[4] — all of which have reached similar decisions. The Fourth Court of Appeals also rejected several arguments commonly advanced by hail lawyers challenging the preclusive effect of a timely paid appraisal award. The Garcia opinion thus provides a valuable set of guideposts for insurance law practitioners in Bexar County and the 31 additional counties within the Fourth Court of Appeals’ jurisdictional reach.

Factual Background

Garcia arose from an all-too-familiar fact pattern. The insured homeowner — Candelaria Garcia — submitted a claim to her property insurer — State Farm — for hail-related damage to her residence. Upon investigating the insured’s claim, State Farm concluded that the cost to repair the storm damage sustained by the insured’s home fell below the applicable policy deductible and, therefore, made no payment on the claim.

The insured filed suit against State Farm approximately one month later, alleging a laundry list of contractual and extracontractual claims, including breach of contract, breach of the common-law duty of good faith and fair dealing, and violations of the Texas Prompt Payment of Claims Act, the fair-claim handling provisions of the Texas Insurance Code and the Texas Deceptive Trade Practices Act. State Farm responded by demanding appraisal of the insured’s claimed loss, and the litigation was subsequently stayed pending completion of the contractually mandated appraisal process.

The parties’ designated appraisers promptly reached an agreement on the actual cash value of the hail damage to the insured’s home, and State Farm paid the appraisal award (less the applicable policy deductible) three business days later. Shortly thereafter, State Farm moved for summary judgment on all causes of action asserted by the insured, arguing that its full and timely payment of the appraisal award precluded the insured from recovering on her contractual and extracontractual claims. The insured responded by rejecting State Farm’s payment of the appraisal award and requesting that the award be set aside. The trial court granted summary judgment for State Farm, and the insured appealed.

Analysis 

In a matter of first impression for the Fourth Court of Appeals, the Garcia court affirmed summary judgment for State Farm, holding that State Farm’s timely payment of the applicable appraisal award barred the insured from prevailing on its contractual and extracontractual claims as a matter of law. And, in rendering its opinion, the Garcia court succinctly addressed and rejected four arguments commonly advanced by insureds aiming to avoid the preclusive effect of a timely paid appraisal award.

The insured cannot avoid summary judgment by refusing to accept insurer’s payment of appraisal award.

First, the insured argued she was not estopped from pursuing her breach of contract claim against State Farm because she did not accept State Farm’s payment of the appraisal award. The Garcia court flatly rejected this argument, noting the “[insured could not] defeat an otherwise valid and binding appraisal award simply by rejecting State Farm's payment of the award.”[5] In so holding, the court expressly endorsed State Farm’s position that, “if an appraisal award has been reached in accordance with the terms of the insurance policy and the insurer has timely tendered the full amount awarded by the appraisers, that conduct is legally sufficient to entitle the insurer to summary judgment on the breach-of-contract claim against it.” [6]

Discrepancies between insurer’s damage estimate and appraisal award will not support breach of contract claim.

The Garcia court likewise rejected the insured’s argument that a discrepancy between State Farm’s initial estimate of the insured’s hail-caused damage and the appraisal award issued seven months later was sufficient to create a fact issue on the insured’s breach of contract claim.

Citing Gabriel v. Allstate Texas Lloyds[7] and Breshears v. State Farm Lloyds,[8] the Garcia court held the insured’s breach of contract claim could not be supported by the fact that the appraisal award issued in September 2015 was higher than the loss estimate originally prepared by State Farm in February 2015.[9] This was especially true considering that “‘the contract [the insured] claim[ed] [was] breached provide[d] for resolution of disputes through appraisal.’”[10] The court thus affirmed the trial court’s dismissal of the insured’s breach of contract claim, noting that the language of the appraisal clause at issue, which expressly “describe[d] disagreement as to the amount of loss as a condition precedent to the appraisal process, render[ed] the asserted discrepancy [between State Farm’s initial damage estimate and the later-issued appraisal award] an immaterial fact issue for a breach of contract claim.”[11]

The insurer’s prompt payment of appraisal award bars insured’s claim for statutory penalties and attorneys’ fees under Texas Prompt Payment of Claims Act.

Next, in yet another strained attempt to revive her precluded causes of action, the insured relied on United States District Judge Jane Boyle’s anomalous holding in Graber v. State Farm Lloyds[12] to argue that her claims for statutory penalties and attorneys’ fees under the Texas Prompt Payment of Claims Act survived State Farm’s timely payment of the applicable appraisal award. The Garcia court rejected this contention as well.

As the court succinctly explained, Graber improperly relied on cases not involving appraisal to reach an unprecedented result directly at odds with the “long line of cases [holding] that full and timely payment of an appraisal award under the policy precludes an insured from recovering penalties under the [TPPCA] as a matter of law.”[13] Because the evidence conclusively established that State Farm fully and promptly paid the applicable appraisal award, the Garcia court sided with the Fifth Circuit,[14] all four federal district courts sitting in Texas,[15] and every Texas court of appeals to consider the issue to date,[16] holding that such payment precluded the insured from pursuing her TPPCA claims as a matter of law.

The insured’s bad faith claims failed without evidence of extreme conduct causing injury independent of insured’s claim for coverage under the policy.

Finally, the Garcia court rejected the insured’s argument that her claims for common-law and statutory bad faith survived State Farm’s timely payment of the appraisal award issued in connection with her hail-damage claim. In so doing, the Garcia court held that, because State Farm had not breached the relevant insurance policy, the insured could not maintain her common-law bad faith claims unless State Farm (1) failed to timely investigate the insured’s claim or (2) committed an act so extreme that it would cause independent injury of the policy claim.[17] Because the insured’s summary judgment evidence did not establish either of these extraordinary circumstances, but rather “a bona fide dispute about the amount necessary to compensate [the insured] for covered damage to her home,” the Garcia court concluded the insured’s common-law bad faith claim failed as a matter of law.[18] The Garcia court affirmed the trial court’s dismissal of the insured’s statutory bad faith claims with similar dispatch, noting that those claims required the same predicate for recovery as the insured’s common-law bad faith claims and, therefore, are reviewed under the same standard. Because the insured failed to present evidence sufficient to survive summary judgment on her claims of common-law bad faith, the court concluded that the insured’s statutory bad faith claims were likewise foreclosed.[19]

Conclusion

By clearly and concisely resolving a matter of first impression, the Fourth Court of Appeals’ recent opinion in Garcia provides valuable insight for litigants and lawyers who currently find themselves in the flood of hail-damage lawsuits filed in the San Antonio area. Garcia leaves no doubt that an insurer’s timely payment of an appraisal award generally protects the insurer from contractual and extracontractual claims in litigation. Indeed, Garcia assures that under most circumstances the appraisal process outlined in virtually every property insurance policy issued in Texas will continue to serve — as it was intended — as a valuable tool for resolving disputed claims on a nonjudicial basis.

What remains to be seen is whether the traveling posse of hail lawyers trolling homeowners and businesses across the state for hail-damage lawsuits (or, more accurately, the traveling posse of contractors and public adjusters trolling neighborhoods after hail events, signing up insureds and then flipping the matters to hail lawyers) will alter their case-intake procedures knowing that the likely invocation of appraisal by insurance companies will bar litigation and preclude the lawyers from lining their pockets with statutory attorneys’ fees.

Hopefully, the hail lawyers presently signing up Bexar County clients are advising insureds of the Garcia decision and disclosing that appraisal presents a simple, prompt and cost-effective alternative to filing suit. Hopefully, these hail lawyers are advising insureds that they need not give away 40 percent of their disputed insurance claim to a hail lawyer — a hail lawyer who, in light of Garcia, knows an appraisal demand is likely forthcoming, that he will not have to litigate the insured’s claims and that he need only sit back and await conclusion of an appraisal process performed by others to collect a 40 percent contingency fee.

Unfortunately, based on the sharp increase in recent Bexar County case filings, it appears hail lawyers are undeterred by Garcia and continue to sign up insureds by the hundreds. This leaves one to ponder the ethical issues raised by hail lawyers who sign up insureds on a 40 percent contingency fee basis knowing their clients’ alleged disputes will likely be resolved by appraisal with little (if any) work performed by the lawyer. But that’s a subject for another article.

[1] No. 04-16-00209-CV, 2016 WL 7234064, at *8-*15 (Tex. App. – San Antonio Dec. 14, 2016, no pet. h.).

[2] See Quibodeaux v. Nautilus Insurance Co., 655 Fed. Appx. 984, 987-88 (5th Cir. July 7, 2016) (affirming trial court’s ruling that insurer’s full and timely payment of appraisal award precluded insured’s claims for breach of contract, common-law bad faith, statutory bad faith under Chapter 541 of the Texas Insurance Code, and violation of Chapter 542 of the Texas Insurance Code); Blum’s Furniture Co. v. Certain Underwriters at Lloyds London, 459 Fed. App’x 366, 368-69 (5th Cir. 2012) (affirming summary judgment for insurer on contractual and extra-contractual claims).

[3] Reyna v. State Farm Lloyds, No. 7:14-CV-420, 2016 WL 3654761 (S.D. Tex. July 8, 2016) (holding that insurer’s full and timely payment of appraisal award precluded insured’s contractual and extra-contractual claims); Burks v. Metro. Lloyds Ins. Co. of Texas, No. H-14-591, 2015 WL 4126654, at *3-*5 n.25 (S.D. Tex. July 8, 2015) (same); McEntyre v. State Farm Lloyds, Civ. A. No. 4:15-CV-00213, 2016 WL 6071598, *3-*6 (E.D. Tex. Oct. 17, 2016) (same); Quibodeaux v. Nautilus Ins. Co., No. 1:10-CV-739, 2015 WL 1406375, at *9 (E.D. Tex. March 10, 2015) (same); Aguilar v. State Farm Lloyds, Civ. A. No. 4:15-CV-565-A, 2016 WL 3681449, at *2 (N.D. Tex. July 5, 2016) (same); Carter v. State Auto Prop. & Cas. Ins. Co., Civ. A. No. 6:14-CV-00468, 2016 WL 440129, *2-*4 (W.D. Tex. Jan. 6, 2016) (“Because compliance with the Policy's appraisal provision does not constitute a denial or underpayment of benefits, Carter's claims for breach of contract, breach of the duty of good faith and fair dealing, and breach of Texas Insurance Code §542.058 must be dismissed.”); Michels v. Safeco Ins. Co. of Indiana, No. A-12-CA-511-SS, 2013 WL 1207656, at *4-*5 (W.D. Tex. Mar. 13, 2013), affirmed by 544 Fed. Appx. 535 (5th Cir. 2013) (granting summary judgment for insurer on contractual and extra-contractual claims).

[4] See Anderson v. Am. Risk Insurance Co. Inc., No. 01-15-00257-CV, 2016 WL 3438243 (Tex. App.—Houston [1st Dist.] June 21, 2016, no pet.) (affirming trial court’s ruling that insurer’s full and timely payment of appraisal award precluded insured’s contractual and extra-contractual claims); Bernstien v. Safeco Ins. Co. of Illinois, No. 05-13-01533-CV, 2015 WL 3958282, at *1 (Tex. App. – Dallas, June 30, 2015, no pet. hist.) (same); In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556, 563 (Tex. App. – Houston [14th Dist.] 2010, no pet.) (same); Breshears v. State Farm Lloyds, 155 S.W.3d 340, 344 (Tex. App. – Corpus Christi 2004, pet. denied) (same).

[5] Garcia, 2016 WL 7234064 at *10.

[6] Garcia, 2016 WL 7234064 at *9.

[7] No. 7:13-CV-181, 2013 WL 7885700 (S.D. Tex. Nov. 1, 2013).

[8] 155 S.W.3d 340 (Tex. App.—Corpus Christi 2004, pet. denied).

[9] See Garcia, 2016 WL 7234064 at *10-*11.

[10] Garcia, 2016 WL 7234064 at *10 (quoting Breshears, 155 S.W.3d at 343).

[11] Garcia, 2016 WL 7234064 at *10.

[12] No. 3:13–CV–2671, 2015 WL 3755030 (N.D. Tex. June 15, 2015).

[13] Garcia, 2016 WL 7234064 at *12.

[14] See Quibodeaux, 655 Fed. Appx. at 987-88 (affirming summary judgment for insurer on TPPCA claims); Blum’s Furniture Co., 459 F. App’x 366 at 368-69 (same).

[15] See Burks, 2015 WL 4126654 at *4 n.25 (holding that “Plaintiff’s claim for noncompliance with [TPPCA’s] ‘prompt payment of claims’ requirement . . . [was] barred by Defendant's payment of the appraisal award”); Quibodeaux, 2015 WL 1406375 at *9 (holding that “no genuine issue of material fact exist[ed] on plaintiffs' ‘prompt payment act’ claims under [TPPCA] because the undisputed record evidence show[ed] that [insurance carrier] invoked the appraisal provision of the insurance policy and timely paid the appraisal award”); Michels, 2013 WL 1207656, at *4-*5 (granting summary judgment for insurer on TPPCA claims after payment of appraisal award).

[16] See Bernstien, 2015 WL 3958282 at *1 (holding that insurer’s “timely payment of an appraisal award under the policy precludes an award of statutory penalties under the [TPPCA]”); In re Slavonic, 308 S.W.3d at 563 (“Texas courts considering the issue have concluded that full and timely payment of an appraisal award under the policy precludes an award of penalties under the Insurance Code's prompt payment provisions as a matter of law.”); Amine v. Liberty Lloyds of Tex. Ins., No. 01-06-00396-CV, 2007 WL 2264477, at *4-6 (Tex. App. – Houston 1st Dist.] 2007, no pet.) (“where insurer makes timely payment pursuant to an appraisal award, there is no violation of the code's prompt payment deadlines”); Breshears, 155 S.W.3d at 344 (holding that insurer did not breach contract and insureds were not entitled to payment of penalty fees, “even though final payment was delayed until completion of appraisal process”).

[17] See Garcia, 2016 WL 7234064 at *13 (citing Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995)).

[18] Garcia, 2016 WL 7234064 at *14. Rather than pointing to an independent injury purportedly caused by State Farm’s alleged mishandling of her claim, the insured relied on two recent intermediate appellate court opinions – United National Insurance Company v. AMJ Investments, LLC, 447 S.W.3d 1 (Tex. App. – Houston [14th Dist.] 2014, pet dism’d) and USAA Texas Lloyd’s Company v. Menchaca, No. 13-13-00046-CV, 2014 WL 3804602 (Tex. App. – Corpus Christi July 31, 2014, pet. granted) – to argue that an independent tort is not required to prevail on a bad-faith claim. The Garcia court rejected this argument, noting that neither of the cases cited by the insured were appraisal cases. See Garcia, 2016 WL 7234064 at *13.

[19] See Garcia, 2016 WL 7234064 at *15.