The Supreme Court of Texas released a 37-page opinion that addressed whether an insurer can be liable for Texas Prompt Payment of Claims damages for a claim it initially rejected but later paid in full according to the amount of loss determined through the policy’s appraisal process. The Court held that an insurer’s invocation of a contractual appraisal provision to resolve an insurance claim dispute it previously rejected, neither subjects an insurer to the Texas Prompt Payment of Claims Act’s statutory damages, nor does it insulate the insurer from the damages. However, an insurer may be liable for statutory damages under the Texas Prompt Payment of Claims Act after payment of an appraisal award if it 1) accepts liability or is adjudicated liable under the policy, 2) and it violated a statutory deadline or requirement.
The Court effectively distinguished an insurer’s request for an appraisal from the obligations an insurer is required to timely request/perform under the Texas Prompt Payment of Claims Act. Under the Texas Prompt Payment of Claims Act., an insurer’s use of the appraisal process to resolve a dispute has no bearing on any deadlines or enforcing any missed deadlines. The Court stated that the Texas Prompt Payment of Claims Act requires an insurer to base its rejection of a claim on all information the insurer deemed necessary, as well as the insurer’s investigation; “later invocation of the policy’s appraisal provision does not somehow start the investigation period anew.”
The Court explained that the absence of any mention of appraisals or how the invocation of an appraisal process affects the application of Act means that the Texas Legislature intended neither to impose specific deadlines for the contractual appraisal process nor to exempt the contractual appraisal process from the deadlines provided by the Act. Applying the literal statutory language of the Texas Prompt Payment of Claims Act, the Court explained that an insurer can only be “liable” on the claim within the meaning of § 542.060 when it (1) has completed its investigation, evaluated the claim, and come to a determination to accept and pay the claim or some part of it, or (2) been adjudicated liable by a court or arbitration panel.
Under the Texas Prompt Payment of Claims Act, “until an insurer is determined to owe the claimant benefits and thus is liable under the policy—either by accepting the claim and notifying the insured that it will pay, or through an adjudication of liability—the insurer is required to pay nothing, is subject to no payment deadline, and is not subject to damages for delayed payment.” However, if an insurer later accepts the insured’s claim after initially rejecting it, or if an insurer is adjudicated liable for a claim it previously rejected, the statutory deadlines and prompt-pay requirements will apply.
Invoking a contractual appraisal provision after having already rejected the claim does not determine liability on a claim. Further, an insurer’s payment of an appraisal award, although binding for the amount on the claim, is not a determination of the insurer’s liability. It does not represent actual damages for payment on the claim unless an insurer either accepted liability or is adjudicated liable. Consequently, the Court held that the invocation of the policy’s appraisal clause and its payment of the appraisal award did not exempt State Farm from Texas Prompt Payment of Claims Act damages.
In Oscar Ortiz v. State Farm Lloyds, the Supreme Court of Texas confirmed that an insurer’s payment of an appraisal award bars an insured’s breach-of-contract claim based on failure to pay the amount of the covered loss. The Court also held that an insurer’s payment of an appraisal award bars an insured’s common law and statutory bad faith claims to the extent the only actual damages sought are lost policy benefits. The Supreme Court however, held that an insured may proceed on a claim under the Texas Prompt of Claims Payment Act after an insured’s payment of an appraisal award.
Lastly, the Court held that an insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claim under the Texas Prompt of Claim Payment Act under its decision in Barbara Technologies—released contemporaneously with its opinion in Ortiz.
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