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by Marsheldondria "Dondria" Johnson

In Chester & Sherry Hurst v. Liberty Mut. Ins. Co., No. 1:22-CV-1093-DAE, 2024 WL 3812295, the court granted the Defendant’s Motion for Summary Judgment, highlighting several critical points in breach of contract and Texas Insurance Code violation disputes arising after late appraisal payments subsequent to the Plaintiff filing suit.

The dispute arose from hailstorm damage to the Plaintiffs' home. Defendant Liberty Mutual initially determined the damage was below the deductible and did not issue any payment. Following this, the Plaintiffs invoked the policy's appraisal provision. The policy required each side to select an appraiser within 20 days of receiving a written request. Liberty delayed responding to the Plaintiffs’ request and exceeded the 20-day deadline. Nevertheless, each designated appraisers, who ultimately could not agree on the value of the claim, and an umpire was appointed. The umpire determined the damage's Actual Cash Value (ACV) to be $248,696.05. Despite this appraisal award, Liberty Mutual informed the Plaintiffs that the damage was not covered under the policy and that the company would continue to deny the claim.

Plaintiffs filed suit, including alleging breach of contract, violations of the Deceptive Trade Practices Act, violations of Chapters 541, 542, and 542A of the Texas Insurance Code, misrepresentations, and breach of the duty of good faith and fair dealing. After Plaintiffs filed suit and 500 days after the original appraisal award was determined, Liberty Mutual tendered the full appraisal payment. Plaintiffs refused to accept the tender and decided to proceed with their case. Liberty Mutual filed a Motion for Summary Judgment arguing the appraisal payment resolved the dispute. The court agreed and discussed the following legal issues.

Impact of Appraisal Award on Breach of Contract Claims:

The court noted that the payment and acceptance of an appraisal award generally bars breach of contract claims. Despite Plaintiffs’ argument that Liberty Mutual’s late payment (500 days after the award) should prevent summary judgment, the court held that tendering the full amount as per the appraisal clause stops the Plaintiffs from raising a breach of contract claim.

Timeliness of Payment:

Plaintiffs argued that Liberty Mutual’s delay in payment justified their breach of contract claims. However, the court found that the payment of the appraisal award, even if delayed, barred the breach of contract claim. The court did acknowledge that Plaintiffs might be entitled to interest under the Texas Prompt Payment of Claims Act (TPPCA) for the late payment but ruled that this does not negate the effect of the appraisal payment on breach of contract claims.

Evaluation of Independent Damages:

The Plaintiffs’ claims for bad faith and attorney's fees were also scrutinized. The court referenced the Texas Supreme Court’s ruling in Rodriguez v. Safeco Ins. Co. of Indiana, 684 S.W.3d 789 (Tex. 2024), which limits bad faith claims and the recovery of attorney's fees if the insurer has fully discharged its obligations by paying the appraised amount and statutory interest. Since Liberty Mutual paid the full appraisal amount plus any potential statutory interest, the court ruled that Plaintiffs could not sustain a bad faith claim or recover attorney's fees.

Insufficiency of Payment

Plaintiffs challenged the appraisal award, arguing it was insufficient and did not cover interior damages. However, the court found no substantial evidence that the appraisal was incomplete or that the umpire failed to consider all relevant damages. Plaintiffs’ arguments lacked evidence to dispute the thoroughness of the appraisal.

Key Takeaways:

Appraisal Clause Compliance: Adherence to the policy’s appraisal clause and timely payment of appraisal awards is crucial. Failure to comply with these requirements can lead to significant legal consequences. Still, the payment of the full appraisal amount, even after suit is filed, generally precludes breach of contract claims.

Timeliness vs. Compliance: While timely payment is essential, delays in payment do not necessarily defeat a breach of contract claim if the insurer ultimately pays the full appraisal amount. However, it may trigger interest obligations under the TPPCA.

Independent Injury and Bad Faith Claims: To sustain a bad faith claim, there must be independent damages beyond the benefits owed under the policy. Costs incurred in pursuing the claim or repair expenses related to the denial are generally not considered independent injuries.

Attorney’s Fees: Recovery of attorney's fees is not guaranteed and often depends on whether the insurer has fulfilled its obligations under the policy. The general rule remains that parties bear their own legal costs unless an exception applies.

The Lowdown:

This case allows insurance companies room to investigate claims further after the suit is filed and, if warranted, reconsider their initial position on coverage without the fear of additional penalties. 

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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.