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by Claire Fialcowitz

The Houston Division of the Southern District of Texas recently delivered a pointed reminder to policyholders that they are not entitled to recover the replacement cost value of an executed appraisal award. In Larry Hemingway & Kellie Hemingway v. American Economy Insurance Company, et. al., United States District Judge David Hittner granted summary judgment in favor of American Economy Insurance Company (“American”) on the insureds’ claims for breach of contract, breach of the duty of good faith and fair dealing, mental anguish, and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act. No. H-25-5626, 2026 WL 2280775, at *1 (S.D. Tex. Aug. 7, 2026).

After American initially determined that a wind/hail event did not cause damage to insured residential property, its insureds invoked appraisal of their claim. See id. On July 12, 2025, the parties received an executed appraisal award totaling $51,549.11 on a replacement cost value basis and $32,753.77 on an actual cash value basis. See id. On December 3, 2025, American advised the insureds of its intent to pay the award. See id. at *4. American issued an ACV payment to the insureds that same day in the amount of $32,184.57, less the applicable $7,000.00 deductible, and added $6,430.80 in statutory interest through American’s December 3, 2025 payment. See id. The insureds then filed suit, alleging that American breached the policy by failing to pay the full amount of the replacement cost value of the appraisal award and by issuing payment nearly five months after receiving the executed appraisal award. See id. at *3–4.

As to the insureds’ first allegation, the Court noted that the applicable policy provided that “’[i]f the cost to repair or replace is $2,500 or more, we will pay the difference between actual cash value and replacement cost only when the damaged or destroyed property is repaired or replaced.’” Id. at *3 (emphasis in original). As there was no evidence that the insureds completed repairs at the property as outlined in the appraisal award, the Court held that American properly withheld the recoverable depreciation and issued the appropriate amount to the insureds—the actual cash value of the award less the policy’s applicable deductible. See id.

The insureds then asserted that the following policy provision required American to issue payment on the appraisal award within five business days of its receipt of the award: “’[i]f we [Defendant] notify you that we will pay your claim, or part of your claim, we must pay within 5 business days after we notify you.’” Id. at *4 (emphasis in original). The Court explained that this policy language only requires American to issue payment within five business days of notifying the insureds that it will issue payment on the claim—not that American has to issue payment within five business days of its receipt of any appraisal award. See id. As American notified the insureds of its intent to pay the actual cash value of the appraisal award plus statutory interest on December 3, 2025, the Court held that American’s subsequent payment that same day was timely. Accordingly, the Court granted summary judgment in favor of American on the entirety of the insureds’ breach of contract claim. See id.

Having found that all of the insureds’ remaining causes of action stemmed from American’s alleged breach of the policy and denial of policy benefits, the Court held that the insureds’ extra-contractual claims failed as a matter of law. See id. at *4–5.

The Southern District of Texas’ reinforcement that “recoverable depreciation” provisions are enforceable as written and of what constitutes “timely” payment provides a useful template for carriers to use when defending similar claims. For those policyholders and counsel out there that continue to send post-appraisal demands using the replacement cost value of an award and calculating statutory interest based on replacement cost value, give the Hemingway case another read.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.