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Establishing Waiver of the Right to Appraisal in Texas

Texas Law360
October 9, 2018

By Kristin C. Cummings
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Most property insurance policies contain an appraisal provision which provides an alternative to litigation when the insurer and insured cannot reach agreement regarding the amount of a covered loss. The Texas Supreme Court has made clear that that appraisal provisions are to be enforced, absent illegality or waiver.[1] While arguments regarding the “illegality” of an appraisal provision are rare, “waiver” has been a point of considerable contention. As discussed below, the party seeking to avoid appraisal has a high burden to establish waiver. It is the burden of the party challenging the validity or enforceability of an appraisal provision to establish waiver.

It is well-settled under Texas law that a party’s mere delay in seeking appraisal is not enough to find waiver of the right to appraisal; rather, in order to establish waiver of the right to appraisal, a party must show that an impasse was reached and that any failure to demand appraisal within a reasonable time prejudiced the opposing party.

Delay, as a consideration in determining waiver, is measured from the point of impasse — the point at which the parties have mutual understanding that neither will negotiate further.[2] And as elaborated upon below, courts must analyze whether or not a party engages in intentional conduct inconsistent with claiming the right to invoke appraisal.[3]

A recent decision issued by the United States District Court for the Eastern District of Texas, Sherman Division, details the appropriate analysis for identifying waiver of the right to invoke appraisal. In Rogers v. Nationwide General Insurance Co.,[4] the insured argued that Nationwide unreasonably delayed invoking appraisal for six months after impasse, and four months into active litigation, and that he suffered prejudice as a result of that delay. Judge Mazzant acknowledged that the inherent benefits of appraisal are lost if a party is permitted to delay invoking the appraisal, but ultimately found that Nationwide had not waived its right to invoke appraisal.

First, Judge Amos Mazzant identified the parties’ point of impasse. The record indicated that on Dec. 19, 2017, the insured’s counsel sent Nationwide an offer of settlement, and on Dec. 21, 2017, Nationwide rejected the offer. Based on this, Judge Mazzant held that the parties reached impasse by Dec. 21, 2017 when the settlement offer was rejected without a counter-offer. After the plaintiff’s offer was rejected, no settlement discussions took place, even after the lawsuit was filed in February 2018. Accordingly, the key date considered under the waiver analysis was Dec. 21, 2017 — the date the parties reached an impasse.

Nationwide invoked appraisal on June 27, 2018, approximately six months after impasse. Judge Mazzant rejected the idea that a six-month delay is per se invalid, noting that the insured had failed to provide any support for such a position. In fact, Texas courts have held that even if appraisal is invoked after suit is filed, this might not constitute an unreasonable amount of time between the impasse and the invocation.[5] Instead, the focus of Judge Mazzant’s analysis was whether Nationwide’s actions constituted “intentional conduct inconsistent with its right to invoke … appraisal.”

As part of the waiver analysis, Judge Mazzant distinguished Nationwide’s conduct from conduct by the insurer in a recent case decided by the Fort Worth Court of Appeals, In re Allstate Vehicle & Property Insurance Co.[6] In that case, the appellate court found an appraisal demand was unreasonably delayed because the insurer’s “conduct clearly constituted intentional conduct inconsistent with its right to invoke the contractual right of appraisal…” Judge Mazzant explained that the facts of In re Allstate indicated Allstate verbally expressed to the trial court Allstate’s intent to go to trial despite its failure to satisfy the appraisal clause condition precedent, including specific representations by Allstate to the trial court that a seventh inspection was needed for Allstate to prepare for the upcoming jury trial. Contrasting Allstate’s conduct with the conduct of Nationwide, Judge Mazzant found that Nationwide did not evidence intentional conduct that would result in Nationwide’s waiver of its right to invoke appraisal.

Judge Mazzant also considered an additional provision in the Nationwide policy in reaching his conclusion. The Nationwide policy included a “nonwaiver clause” that stated “[a] waiver or change of a part of this policy must be in writing by us to be valid. Our request for an appraisal or examination does not waive our rights.” Judge Mazzant averred that under Texas law, such nonwaiver clauses are binding and enforceable.

Finally, Judge Mazzant held that even if Nationwide waived both the nonwaiver clause and the right to seek an appraisal, the insured was required to show that the delay in demanding appraisal prejudiced the insured. In In re Universal Underwriters Texas Insurance Co., the Texas Supreme Court explained that prejudice may be established when a party engages in conduct triggering additional expenses, constituting inherent unfairness, constituting purposeful manipulation of the appraisal process or giving the party requesting appraisal an unfair tactical advantage. More specifically, the Texas Supreme Court explained:

[P]rejudice to a party may arise in any number of ways that demonstrate harm to a party’s legal rights or financial position. Perry Homes v. Cull, 258 S.W.3d 580, 597 (Tex. 2008) (defining prejudice for purposes of waiver of arbitration as “the inherent unfairness in terms of delay, expense, or damage to a party’s legal position;” see also In re Tyco Int'l Ltd. Sec. Litig., 422 F.3d 41, 47 n.5 (1st Cir. 2005) (“[A] party should not be allowed purposefully and unjustifiably to manipulate the exercise of its arbitral rights simply to gain an unfair tactical advantage over the opposing party.” (quoted in Perry Homes, 258 S.W.3d at 597)); Menorah Ins. Co., Ltd. v. INX Reinsurance Corp., 72 F.3d 218, 222 (1st Cir. 1995) (finding prejudice where party “incurred expenses as a direct result of [opponent’s] dilatory behavior”).

The purported prejudice in Rogers was the “financial burden” incurred by the insured in retaining an expert to inspect the property and opine on damage. The court held the insured failed to provide sufficient evidence of prejudice. Judge Mazzant further stated that it would be “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 an impasse has been reached, it can avoid prejudice by demanding an appraisal itself...” 

Even more recently, in In re Acceptance Indemnity Insurance Co.,[7] the Court of Appeals of San Antonio conditionally granted Acceptance Indemnity’s petition for a writ of mandamus[8] and determined the trial court erred in denying Acceptance Indemnity’s motion to compel appraisal and abate. At the trial court level, the insured had claimed that Acceptance Indemnity waived the right to invoke appraisal; however, to support the claim, they would have been required “to prove waiver — an impasse followed by an unreasonable delay in requesting appraisal — and prejudice resulting from the waiver.”[9]

The appellate court explained that the point of impasse was not, as the insured argued, mere disagreement by the parties. And while the demand letter evidenced disagreement, the court held it was not proof of impasse because sending such a letter implies further negotiation, and thus, no impasse. The insured further contended that Acceptance Indemnity breached the policy by failing to pay the overhead and profit and the taxes, but this assertion “put the cart before the horse.” The court explained the dispute was over the amount owed and again reiterated the core principal of the waiver analysis — appraisal clauses are enforceable absent illegality or waiver, and precipitous breach was not included by the Texas Supreme Court as a ground for unenforceability.[10]

Fundamentally, appraisal clauses are enforceable absent waiver or illegality, and as the foregoing demonstrates, a party faces a high burden to establish waiver. The opinions in both Rogers and In Re Acceptance Indemnity Insurance Co. highlight key points underlying a court’s analysis in determining waiver: (1) delay is measured from the point of impasse, and impasse is the breakdown of negotiations — not mere disagreement between the parties; (2) delay alone is insufficient to establish waiver as a party must meet the high burden of establishing the delay prejudiced the opposing party; and (3) nonwaiver clauses apply with force to appraisal provisions because nonwaiver clauses are binding and consistently enforced by Texas courts.

Regardless of this high burden to establish waiver, the fundamental purpose of appraisal — to promptly resolve disputed claims without the need for litigation — is best served when appraisal is invoked by an insured prior to filing a lawsuit and by an insurer soon after a lawsuit is filed.

Kristin C. Cummings is a partner at Zelle LLP.

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] In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 405 (Tex. 2011).

[2] Dike v. Valley Forge Ins. Co., 797 F. Supp. 2d 777 (S.D. Tex. 2011); In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404.

[3] In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d at 410–11.

[4] No. 18-CV-00213, 2018 WL 3840940 (E.D. Tex., Aug. 13, 2018).

[5] See, e.g., In re Century Surety, No. 07–15–00386–CV, 2015 WL 6689532, at *1–3 (Tex. App.—Amarillo, Nov. 2, 2015) (conditionally granting petition for mandamus and ordering trial court to vacate order denying motion to compel appraisal even after suit was filed and parties engaged in discovery and participated in mediation).

[6] 549 S.W.3d 881 (Tex. App.–Fort Worth 2018).

[7] No. 04-18-00231-CV, 2018 WL 4608216 (Tex. App.—San Antonio, Sept. 26, 2018) (orig. proceeding).

[8] Mandamus is available to remedy the improper denial of a motion to compel appraisal. In re Am. Nat’l Prop. & Cas. Co., No. 04-18-00138-CV, 2018 WL 3264932, at *2 (Tex. App.— San Antonio July 5, 2018, orig. proceeding) (citing In re Allstate Cnty. Mut. Ins. Co., 84 S.W.3d 193, 196 (Tex. 2002) (orig. proceeding)).

[9] In re Acceptance Indem. Ins. Co., 2018 WL 4608216 at *3.

[10] Id. at *5 (citing In re Universal Underwriters, 345 S.W.3d at 407).


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