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Taking a Proactive Approach to Appraisal after Texas Supreme Court Limits Appraisal Defenses

What is left of the “Estoppel by Appraisal” doctrine after the Texas Supreme Court’s decisions in Ortiz, Barbara Tech, and Hinojos? On one hand, Ortiz was a very favorable ruling for insurers, holding that payment of an appraisal award effectively bars bad faith claims, absent the rare case proving “independent injury.” See Oscar Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 128 (Tex. 2019) (“We further hold that the payment bars the insured’s common law and statutory bad faith claims to the extent the only actual damages sought are lost policy benefits.”)

On the other hand, Barbara Tech and Hinojos limited the appraisal defense, holding that neither payment in full of an appraisal award nor a reasonable payment prior to appraisal is a defense as a matter of law against the Texas Prompt Payment of Claims Act. See Barbara Tech. Corp. v. State Farm Lloyds, 589 S.W.3d 806, 827 (Tex. 2019) (“We hold that invocation of the contractual appraisal provision to resolve a dispute as to a claim rejected in accordance with the TPPCA's procedural requirements neither subjects an insurer to TPPCA damages nor insulates the insurer from TPPCA damages.”); Hinojos v. State Farm Lloyds, 619 S.W.3d 651, 653 (Tex. 2021):

Applying Barbara Technologies and Alvarez, we hold that payment of an appraisal award does not absolve the insurer of statutory liability when an insurer accepts a claim but pays only part of the amount it owes within the statutory deadline. Because the insurer, in this case, did not pay the amount that “must be paid” on the claim before the statutory deadline, it was not entitled to summary judgment.

The result is that the perception of appraisal has morphed. What was thought to be an invincible shield to extra-contractual claims may now be a sword to recover penalty interest and fees for delayed payment even after full payment of the award. But how much is perception versus reality?

It is obvious that appraisal demands are on the rise among the plaintiffs’ bar, including post-suit appraisal demands. Further, litigation costs have increased in light of Barbara Tech’s rejection of summary judgment as a means to determine liability or lack thereof under the Prompt Payment Act. Possible liability for additional attorney’s fees to litigate such fees and interest may be a calculation in settlement negotiations.

However, an appraisal is not “one size fits all” for either side. From the outset of a claim, adjusters should consider how and whether appraisal will factor into the claim. Doing so will likely avoid surprises and additional costs later. Questions to ask include whether the dispute is over coverage versus the extent of covered damage. Likewise, could allocation be an issue? If so, an appraisal may not resolve the coverage dispute. See, e.g., Texas Windstorm Ins. Ass’n v. Dickinson Indep. Sch. Dist., 561 S.W.3d 263, 278 (Tex. Ct. App. – Houston [14th Dist.] 2018, pet. denied) (“[T]he Appraisal Award simply does not provide sufficient evidence from which a court may determine as a matter of law which Appraisal Award damages, if any, were caused by a covered peril.”).

A proactive appraisal mindset should also focus on the post-appraisal strategy. Even if an appraisal is invoked by the other side, coverage cannot be determined by appraisers, as recent courts have confirmed.  See Ortiz, 589 S.W.3d at 132. However, because some causation findings can and must be made by appraisers, the type of challenge depends on the specific type of coverage dispute.  Compare, e.g., In re Auto Club Indem. Co., 580 S.W.3d 852, 857 (Tex. App.—Houston [14th Dist.] 2019) (original proceeding) (abuse of discretion to set aside appraisal award where appraisers had the authority to determine pre-existing damage), with, Tippett v. Safeco Ins. Co. of Ind., 2020 Tex. App. LEXIS 1453, *34 (Tex. App.—Fort Worth 2020, no pet.) (Appraisers without authority to determine coverage exclusion for cosmetic damage, although appraisers may allocate wear and tear damage).

So, when it comes to disputed claims, do not consider appraisal either a weapon or a shield. Rather, an appraisal is simply a tool to set a number on damages. Consider (1) whether appraisal advances resolution given the specific dispute at issue and (2) implement an effective post-appraisal strategy if the other side invokes appraisal.