Main Menu
Related Practices

Waiving the Right to Appraisal Just Got Easier in Texas

Texas Law360
October 8, 2015

By Kristin C. Cummings
To read this article in PDF format, please click here.

Any Texas lawyer with even a passing interest in insurance law knows that if you want to see sparks fly, just utter the word “appraisal” near a couple of insurance lawyers. If you really want fireworks, make sure one represents policyholders and the other represents insurance companies.

Since 2009, when the Texas Supreme Court issued its momentous opinion in State Farm Lloyds v. Johnson, significantly broadening the scope of appraisal, insurance lawyers on both sides of the bar find themselves spending more and more time engaged in this seemingly straightforward contract-based remedy for resolving disputes over the amount of loss.[1] However, in the six years since Johnson was decided, it has become clear that appraisal is anything but straightforward. While much has been written about the chaos caused by Johnson and the intricacies in the law created by courts trying to apply Johnson to the surge of cases pouring from its floodgates, one thing has been clear: Texas courts are pro-appraisal. However, a recent decision from a Dallas Court of Appeals suggests that courts may be starting to take a closer look at the parties’ actions before granting a motion to compel appraisal.[2]

Waiver: The Impossible Hurdle

Two years after Johnson, in In re Universal Underwriters of Texas Insurance Co., the Texas Supreme Court examined what is required for a party to waive its right to appraisal.[3] Not surprisingly, like all good appraisal cases, In re Universal arose out of a hail damage claim. Following a hailstorm, the insured submitted a claim for damage to buildings at its insured car dealership. After inspecting the property, Universal paid approximately $4,000 for covered damage. The insured requested that Universal reinspect the property, which Universal did and found additional damage of $3,000, which it paid. Four months later, the insured sued Universal for breach of contract arising out of underpayment of its claim, breach of the duty of good faith and fair dealing and violations of Deceptive Trade Practices Act, Insurance Code and Prompt Payment Statute.

In response to the lawsuit, Universal invoked the policy’s appraisal provision which provided:

If YOU or WE can't agree on the value of the property or the amount of YOUR property LOSS, either of us can demand in writing, an appraisal within 20 days of such demand. Then, each will select a competent and disinterested appraiser who will, in turn, select a competent and disinterested umpire. ...

The appraisal shall be then made at a reasonable time and place. Each appraiser will state his appraisal of the value or LOSS. If they can't agree, they will submit their differences to the umpire. The value of the property or amount of the LOSS will be determined by a written agreement of any two of them. Such an agreement is binding.

When the insured disagreed, Universal moved to compel appraisal and abate the litigation. The insured argued that Universal waived its right to appraisal by not invoking it sooner. The trial court denied Universal’s motion and Universal unsuccessfully sought mandamus relief from the court of appeals. Universal then petitioned the Texas Supreme Court who conditionally granted the writ of mandamus and directed the trial court to grant Universal’s motion to compel appraisal.

In examining whether Universal had waived its right to invoke the appraisal provision, the court explained that while an unreasonable delay is a factor in finding waiver, reasonableness must be measured from “the point of impasse.” The court explained that determining the point of impasse required an examination of the circumstances and the parties’ conduct and not merely a measure of the amount of time.

The court also explained that an impasse is not the same as a disagreement over the amount of loss. Rather, an impasse is reached when both parties are aware that further negotiations would be futile. The court specifically held that “ongoing negotiations, even when the parties disagree, do not trigger a party’s obligation to demand appraisal.”

Looking at the facts before it, the court held that Universal invoked appraisal within a reasonable time after the parties reached an impasse. The court relied on the fact that Universal had never denied liability for the loss, but that the last communication from Universal to the insured invited the insured to contact Universal if the insured disagreed with Universal’s decision. The insured did not contact Universal until it filed the lawsuit. The court held that invoking appraisal within one month after the insured sued was a reasonable time after the parties reached an impasse.

Perhaps more important was the court’s discussion of prejudice. Finding that Universal’s delay was not unreasonable, the court could have ended its analysis there. However, the court went on to state: “Even if Universal had waited to request appraisal, mere delay is not enough to find waiver; a party must show it has been prejudiced.”

Although the court in In re Universal noted that “prejudice to a party may arise in any number of ways that demonstrate harm to a party’s legal rights or financial position,” In re Universal is usually cited to for this comment:

It is difficult to see how prejudice could ever be shown when the policy, like the one here, gives both sides the same opportunity to demand appraisal. If a party senses that impasse has been reached, it can avoid prejudice by demanding an appraisal itself.[4]

Under this analysis, as long as both parties have the same right to demand appraisal (as is the case under the standard appraisal provision in insurance policies), there is no prejudice.

Courts throughout Texas have since relied on this statement to find no waiver in a variety of circumstances. For example, a United States District Court for the Southern District of Texas found that an insured had not waived his right to appraisal when he filed suit, failed to respond to written discovery requests, failed to appear for his deposition, failed to allow inspection of the property and failed to designate experts, and then demanded appraisal 10 months after suit was filed.[5] The court rejected the insurer’s argument that it was prejudiced by the significant litigation activities that took place prior to the appraisal demand, pointing out “the defendant could have avoided any putative prejudice by demanding appraisal, but did not.”

Similarly, another United States District Court for the Southern District of Texas found that an insurer had not waived its right to appraisal when it demanded appraisal 11 months after being sued by its insured.[6]

Waiver: The Bar is Lowered

More recently, courts seem to be focusing on the statement in In re Universal that “prejudice to a party may arise in any number of ways.” For example, a court for the Northern District of Texas held earlier this year in Chik-Kin v. Axis Surplus Insurance Co., that where discovery had been completed, expert reports submitted and depositions taken, the insured had waived its right to demand appraisal.[7] Specifically, the court found that defendants had “expended a significant amount of resources in this case.” There was no mention of the language from In re Universal, suggesting that if the insurer had demanded appraisal first, it could have avoided such expenses.

The Dallas Court of Appeals just recently came to the same conclusion. In In re Guideone National Insurance Co., the insured filed suit in September 2014 after Guideone denied its hail claim. In April 2015, the parties attended a court-ordered mediation, which was not successful. A week after the mediation, the insurer demanded appraisal, arguing that it was only after the failed mediation that the insurer determined the parties were at an impasse. The court rejected this argument, citing the lack of any evidence that there had been any ongoing negotiations from July 2014 when the claim was denied through the date of mediation. Moreover, although the court didn’t specifically use the word “prejudice,” the court found:

During the time [between the filing of the lawsuit and the appraisal demand] Sherman Hospitality was required to incur the costs of hiring experts to assess and value its damages for litigation purposes, thereby reducing or eliminating entirely the efficiencies appraisal is intended to provide.

As a result, the Dallas Court of Appeals held that the insurer had waived the right to appraisal.


Since the Texas Supreme Court issued its decision in In re Universal, the prejudice requirement has been a bit of a “free-pass” that has allowed parties, both insureds and insurers, to wait well into litigation to demand appraisal. However, recent decisions indicate Texas courts may be taking a closer look at the “number of ways” delay in demanding appraisal can cause prejudice to the other party. One such way is utilizing appraisal as a litigation tactic, invoking appraisal long after suit is filed and only after it appears litigation is not going well. Accordingly, insurers and insureds both should evaluate the prospect of appraisal either before litigation commences or as early as possible to prevent a finding of waiver.

—By Kristin C. Cummings, Zelle Hofmann Voelbel & Mason LLP

Kristin Cummings is a senior associate in Zelle Hofmann'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] 290 S.W.3d 886 (Tex. 2009).

[2] In re Guideone National Insurance Co., No. 05-15-00981-CV, (Tex. App. – Dallas Aug. 27, 2015, no petition).

[3] 345 S.W.3d 404 (Tex. 2011).

[4] Id. at 412.

[5] Heller v. ACE European Group Ltd., No. 7:12-CV-422, (S.D. Tex. Dec. 16, 2013).

[6] SCVT, Ltd. v. National Fire and Marine Insurance Co., Civ. A. No. V-13-069, (S.D. Tex. Aug. 18, 2014).

[7] 3:13-cv-2804-N, (N.D. Tex. Jan. 21, 2015).

Back to Page