The Court’s opinion was measured, and it provides much needed clarification on the potential viability of a claim for statutory penalties under the Texas Prompt Payment of Claims Act, Tex. Ins. Code. Ch. 542 (the “TPPCA”) when an insurer rejects a claim and then subsequently invokes appraisal and pays the award. This is not a one-sided opinion for policyholders, nor does the decision “hobble” or “bury” appraisals as Justice Hecht’s dissent suggests. Instead, the opinion takes significant but cautious steps toward restoring a measure of balance in appraisal law – with the TPPCA resuming its critical role as traffic cop at the intersection of appraisal and litigation.
Appraisal Payments Do Not Absolve Insurers of TPPCA Liability
The most significant aspect of the opinion is the Court’s holding that payment of an appraisal award does not, as a matter of law, absolve an insurer of liability under the TPPCA. The ‘appraisal as absolution’ argument has over the past handful of years metastasized throughout intermediate court opinions in Texas. Analyzing the Breshears v State Farm Lloyds case line in detail, the court agreed with some of the reasoning, but “caution[ed] that to the extent these opinions could be read to excuse an insurer liable under the policy from having to pay TPPCA damages merely because it tendered payment based on an appraisal award, or to foreclose further proceedings to determine the insurer’s liability under the policy, we disapprove of these opinions.” The Court focused on statutory language; and, in reviewing the text of Chapter 542 at a granular level the majority explained there is no exception or extension to TPPCA prompt payment deadlines for appraisal.
Appraisal Payments Do Not Automatically Subject Insurers to TPPCA Liability
The Court rejected our argument that when an insurer pays an appraisal award, it necessarily accepts liability on the claim and pays the policy benefits as actual damages such that it is strictly liable for statutory penalties under the TPPCA. Instead, the Court concluded, “that payment of an appraisal award on a rejected claim does not subject the insurer to prompt pay damages under Section 542.060 unless and until the insurer either accepts liability under the policy or is adjudicated liable.”
The majority sought a middle ground between our position and State Farm’s, by rejecting the core arguments offered by both sides: “We hold that the invocation of the contractual appraisal provision to resolve a dispute as to a claim rejected in accordance with the TPPCA’s procedural requirement neither subjects an insurer to TPPCA damages nor insulates the insurer from TPPCA damages.” The Court declined to pick winners and losers in the appraisal process, and instead established a framework by which parties must obtain a ruling from a court or arbitration tribunal regarding the liability of an insurer for TPPCA damages after an appraisal award, at least for claims arising under Section 542.060.
Justice Boyd issued a concurring and dissenting opinion, and agreed with our position that “by voluntarily and unconditionally paying the benefits claimed, the insurer conceded both its liability and the claim’s validity.” Justice Hecht’s dissent, joined by Justices Brown and Blacklock, took an opposing view, concluding the 60-day time period contained in Section 542.058 does not commence until the amount of the claim is determined during the appraisal process.
What Remains Ahead
We intend to provide a more comprehensive analysis of the opinion in the coming days. In the interim, some may misinterpret the decision. And to be sure, insurance industry advocates will beat the drums of hyperbole and prophesize about the demise of appraisal or a groundswell of lawsuits. While the impact of this decision will be significant, it will not open the floodgates of litigation. But perhaps, Barbara Technologies will, in some circumstances, reopen the courthouse doors that have been closed for years to the resolution of TPPCA claims after an appraisal award, provided there is a demonstrable TPPCA violation on a claim for which the insurer is liable.
Many thanks to our appellate co-counsel Rick Thompson, Kirk Pittard, and Thad Spalding (and Justice Peter Kelly in absentia) at Durham, Pittard & Spalding for their outstanding work on the appeal. One thing we know for certain, State Farm and the insurance industry have more to say on the subject, and we can expect a motion for rehearing. Check back on our blog, as we will provide a more comprehensive analysis of the opinion in the coming days.