Texas Courts Continue To Reject Extra-Contractual Claims When Valid Appraisal Awards Are Timely Paid; Florida Courts, Not So Much

by Zelle LLP

[author: G. Brian Odom]

Texas Hail Claims Bulletin
October 26, 2012

Disputes arising in the context of property insurance appraisals continue to be litigated across the country.  Nowhere is that more true than in Texas and Florida, where state and federal courts continue to wrestle with the proper scope of appraisal and, more narrowly, the impact timely compliance with the appraisal process has on an insured’s ability to assert extra-contractual claims.  However, two recent court opinions in those states highlight their differing approaches in this context.

In Trafalgar v. Zurich Insurance Company, C.A. No. 4D11-1376; 2012 WL 3822215 (Fla. App. 4 Dist. Sept. 5, 2012), a Florida District Court of Appeal recently held that an appraisal award entered in favor of the insured can constitute a “favorable resolution” of an underlying breach of contract dispute, a prerequisite for permitting a separate bad faith cause of action to proceed.  In that case, the insured property owner, Trafalgar, submitted a claim to its property insurer, Zurich, after sustaining damage to a shopping center as a result of Hurricane Wilma.  After completing its initial investigation, Zurich issued two payments totaling almost $581,000.  Trafalgar subsequently submitted a proof of loss in excess of $1.8 million.  Zurich responded to the proof of loss and advised that it was continuing to investigate the claim.  Zurich ultimately tendered an additional payment, bringing its total payments to just over $641,000, but not before Trafalgar filed suit alleging breach of contract for failure to pay all policy proceeds due.  Zurich promptly invoked the policy’s appraisal provision, which resulted in an appraisal award more than two times the amount of Zurich’s previous payments.  Zurich timely tendered payment for the balance of the appraisal award.

Based on its timely payment of the appraisal award, Zurich moved for and was granted summary judgment on Trafalgar’s breach of contract claim.  However, the trial court allowed Trafalgar to amend its complaint to assert a bad faith cause of action based on Zurich’s alleged improper denial of benefits and pattern of delay both before and after suit was filed.  Zurich argued the bad faith cause of action was also barred because Trafalgar’s breach of contract claim had been dismissed and, as a result, there had been no “favorable resolution” of that claim, a prerequisite to permitting bad faith causes of action to proceed under Florida law.  The trial court again agreed with Zurich and granted summary judgment dismissing Trafalgar’s bad faith cause of action.  Trafalgar appealed.

Florida’s Fourth District Court of Appeal ultimately held that the appraisal award itself constituted a “favorable resolution” of the breach of contract claim, stating specifically that “[a] judgment on a breach of contract action is not the only way of obtaining a favorable resolution.”  As a result, despite Zurich’s timely payment of the appraisal award and the trial court’s summary dismissal of Trafalgar’s breach of contract claim, the court allowed the bad faith claim to proceed.

Based on the Trafalgar holding, Florida has seemingly opened an express lane to the assertion of post-appraisal bad faith claims against insurers in that state.  Even in the absence of a breach of contract, Florida insurers could still face bad faith claims as a result.  Texas courts, on the other hand, continue to view timely payment of a valid appraisal award as a roadblock to an insured’s assertion of extra-contractual claims.  This trend recently continued with a decision by U.S. District Judge Melinda Harmon of the United States District Court for the Southern District of Texas.  In Mag-Dolphus, Inc. v. Ohio Casualty Insurance Company, C.A. No. 4:11-CV-1525; 2012 WL 4018001 (S.D. Tex. Sept. 12, 2012), Judge Harmon granted Ohio Casualty’s motion for summary judgment based on the insured’s invocation and the insurer’s timely compliance with the insurance policy’s appraisal provision, holding that the bad faith claims were precluded as a matter of law. 

The facts of the Mag-Dolphus case are typical.  The insured, Mag-Dolphus, Inc., sustained property damage as a result of Hurricane Ike and reported a claim to its insurer, Ohio Casualty.  Ohio Casualty inspected the damage and estimated the total claim value at just over $40,000.  After the parties failed to agree on the amount of loss, Mag-Dolphus invoked the policy’s appraisal provision.  Each party selected independent appraisers, and the appraisers subsequently selected an umpire.  The umpire awarded almost $192,000 in replacement costs, less depreciation, deductibles and previous payments.  Ohio Casualty promptly issued payment to Mag-Dolphus consistent with the award, and later issued a second check for the recoverable depreciation.  Several months later, Mag-Dolphus sued Ohio Casualty asserting causes of action for breach of contract, common law and statutory bad faith, fraud and violations of the Texas Insurance Code.

The U.S. District Court ultimately granted summary judgment in favor of Ohio Casualty on all of Mag-Dolphus’ claims.  The court ruled that Mag-Dolphus’ acceptance of timely payment of the binding and enforceable appraisal award estopped any assertion of its breach of contract claim.  Because the breach of contract claim failed as a matter of law, the court also ruled that Mag-Dolphus’ claims for bad faith must also fail in the absence of a showing that Ohio Casualty failed to timely investigate the claim or committed some act so extreme as to cause independent injury apart from the claim under the policy.  The court also ruled that Mag-Dolphus did not meet its burden of proof on the fraud and Insurance Code allegations.

The Mag-Dolphus ruling continues a line of Texas state and federal court cases supporting the proposition that an appraisal award is intended to resolve the amount of loss due under an insurance contract, not to serve as a basis for extra-contractual liability if the award happens to be larger than the insurer’s initial loss measurement.  This line of cases may not require the summary dismissal of extra-contractual claims where the evidence supports an insurer’s complete failure to timely investigate a claim or some extreme act by an insurer that causes independent injury.  However, these circumstances are the exception rather than the rule.  As a result, while it may not be the case in Florida, Texas property insurers still enjoy protection against extra-contractual liability when valid and enforceable appraisal awards are timely paid and accepted.

G. Brian Odom is a partner in Zelle Hofmann Voelbel & Mason LLP’s Dallas office.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Zelle LLP | Attorney Advertising

Written by:

Zelle  LLP

Zelle LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.