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Scope Of Appraisal Continues To Be Problematic In Texas

Texas Law360
November 6, 2013

By Jennifer L. Gibbs
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Despite the statement by the Texas Supreme Court in State Farm Lloyds v. Johnson that the scant precedent involving disputes about the scope of appraisal suggests that appraisals generally resolve such disputes,”[1] both policyholders and insurers continue to struggle with the scope of appraisals in Texas.

To that end, since the court rendered its opinion in Johnson in 2009, hundreds of trial and appellate court pleadings have been filed seeking guidance and clarification as to the proper scope of appraisal post-Johnson, with no apparent definitive answer in sight.

An illustrative case is In re Texas Windstorm Insurance Association.[2] In that case, the insurance carrier filed a petition for mandamus from a ruling by the 412th District Court in Brazoria County in response to the trial court’s denial of the carrier’s motion to compel appraisal.

The underlying claim involved damages allegedly resulting from an April 4, 2012, wind and hail event in the Alvin, Texas, area. Homeowner Joseph Hayden was insured by a property insurance policy issued by Texas Windstorm Insurance Association. In response to the reported claim, TWIA hired an independent claim-adjusting company to inspect the property.

During that inspection, the adjusting company found minor wind damage to the roof but no hail damage to the roof or any exterior elevations. An estimate was created to repair a torn shingle in the amount of $470.26 on a replacement cost basis, which fell below the insured’s deductible.

Notably, the insured claimed he was not provided a copy of the adjusting company’s report identifying shingle damage until long after TWIA compelled appraisal and the parties were actively litigating the issue of whether the claim was subject to appraisal.[3]

On April 24, 2012, TWIA sent a letter to the insured advising that the adjuster had found no hail damage, that neither wind nor hail had created an opening in the exterior of the building, and that there was no evidence of damage caused by wind-driven rain. TWIA then advised that because the reasonable cost to repair any damage by windstorm did not exceed the policy deductible, no payment would be made to the insured at that time.[4]

On June 29, 2012, Hayden’s insurance agent reported to TWIA that a roofing contractor had inspected Hayden’s roof and found additional damage resulting from the April 4, 2012, storm. In response, TWIA inspected the property on Aug. 17, 2012, with the assistance of an engineer.

TWIA’s engineer, BSC Forensics, observed marks consistent with hailstone impacts, but no damage resulting from hail. BSC determined that water damage to the back porch had resulted from a construction defect. BSC then issued a report concluding that the property had sustained no wind or hail damage, but damage from various other causes, such as tree rub, debris accumulation, weathering, bird droppings and prior repair efforts.

After TWIA received the engineer’s report, it advised Hayden that the insured property had no additional damage related to wind or hail and no further payments would be forthcoming.[5]

Hayden notified TWIA on Oct. 31, 2012, that he intended to file suit.[6] Seven days later, TWIA demanded appraisal.[7] Hayden refused to participate in appraisal, arguing that appraisal was not appropriate because the dispute was not about the amount of loss, but only causation; and even if the dispute did involve the amount of loss, TWIA had waived its right to invoke the appraisal process.

The trial court denied TWIA’s motion to compel appraisal. TWIA then filed a petition for writ of mandamus to the Houston appeals court.

The appeals court first addressed Hayden’s waiver argument. The court found that “waiver based upon the delay before demanding appraisal is determined from the point of impasse.” To determine when the “point of impasse”[8] occurs, the court will examine when the parties were aware that there was a disagreement and that further negotiations would be futile.[9]

In this instance, TWIA demanded appraisal seven days after it received the insured’s notice that he intended to sue. The appellate court found that because the Texas Supreme Court in In re Universal Underwriters of Texas Insurance Co.,[10] found no unreasonable delay where the insurer demanded appraisal one month after date of impasse, it would follow that ruling to find that TWIA had not waived its right to appraisal with regard to Hayden’s claim.[11]

In addressing the insured’s contention that the dispute did not involve the amount of loss, the court examined the record and found that in addition to disputing the cause of the loss, TWIA also disputed the amount of the loss when it determined that the loss did not exceed the policy deductible. Thus, the appeals court held that the claim was subject to appraisal and issued the writ of mandamus.[12]

A review of the claim file materials in this case is interesting and illustrates the confusion as to the proper scope of appraisal.

For example, the initial denial letter that TWIA sent to Hayden contained the following statements:

  • The inspection by the independent adjusting company engaged by TWIA indicates the damage was not caused by hail.
  • The inspection by the independent adjusting company engaged by TWIA revealed     no opening to the exterior of your building caused by wind or hail, and no evidence that the loss was caused by “wind-driven rain.”
  • We have determined that the reasonable cost to repair any damage by windstorm     does not exceed your policy deductible.[13] 

However, following the August 2012 reinspection of Hayden’s property, TWIA advised that its engineer had found no additional damage related to wind or hail and enclosed a copy of its report. The report prepared by BSC Forensics listed the following three conclusions:

  • No hail and/or wind damages were observed on the subject roofing or the remainder of the property.
  • The reported water intrusion and observed water stains on the back porch were the result of water intrusion through an opening at the base of intersecting roof valleys upslope from the damage. The opening was characterized as cracking sealants from an apparent previous repair attempt, caused by exposure to normal weathering and/or deterioration of the sealant material.
  • Exposed decking was observed in the opening with no visible underlayment. The lack of underlayment was a construction deficiency that necessarily contributed to the observed water damage on the back porch ceiling.[14]

Based upon these statements, it is not surprising that Hayden argued that the dispute was not about the amount of loss, but only about causation. Did the court get it right?

--By Jennifer L. Gibbs, Zelle Hofmann Voelbel & Mason LLP

Jennifer Gibbs is an associate in the firm's Dallas office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Id. at 894.

[2] No. 14-13-00632-CV, 2013 WL 4806996 (Tex. App.—Houston [14th Cir.], Sept.
10, 2013).

[3] See Plaintiff’s Response to TWIA’s Motion for Reconsideration, page 3 of 10, Cause No. 71097 in the 412th District Court of Brazoria County, Texas.

[4] Id. Exhibit E.

[5] Id.

[6] 2013 WL 4806996 at *1.

[7] Id.

[8] Id. at *2 (citing In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556 (Tex. App.—Houston [14th Dist.] 2010) (orig. proceeding).

[9] Id.

[10] 345 S.W.3d 404, 410 (Tex. 2011) (orig. proceeding).

[11] 2013 WL 4806996 at *2.

[12] Id. at *3.

[13] Plaintiff’s Response to TWIA’s Motion for Reconsideration, Exhibit E, Cause No. 71097 in the 412th District Court of Brazoria County, Texas.

[14] Id.

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