The Texas Court of Appeals has reaffirmed established Texas law, holding that the entry of an appraisal award in favor of the policyholder does not, by itself, establish that the insurer is obligated to pay the award or that the policyholder is entitled to judgment in the amount of the award. Security National Ins. Co. v. Waloon Investments, Inc., 2012 Tex. App. Lexis 8439 (Tex Ct. App., 14th Dist. 10/9/12). This decision is significant in that it confirms that an appraisal award may fix the amount recoverable if the claim at issue is covered, but does not resolve coverage issues.
In Waloon, the insured submitted a claim for property damage to a hotel caused by Hurricane Ike, and demanded appraisal. The insurer filed a declaratory judgment action against the insured (the nature of which was not described in the court’s decision), and the insured filed counterclaims for breach of contract and extracontractual relief. The insurer then moved to compel appraisal, which the trial court denied. The appellate court then issued a writ of mandamus, directing the trial court to grant the insurer’s motion to compel appraisal.
The appraisal resulted in an award to the policyholder of approximately $3 million. The insured then filed two motions in the trial court. In the first motion, the insured sought “confirmation and enforcement” of the appraisal award. In the second motion, filed several weeks later, the insured requested that the trial court order the insurer to pay the full appraisal award by a specific date. The trial court granted the second motion, ordering the insurer to pay the appraisal award by a date certain. The insurer indicated it planned to file a writ of mandamus challenging that order, but the next day, the insured filed yet another motion styled as a “motion for entry of judgment on contractual claims.” In that motion, the insured argued that because the trial court had ordered the insurer to pay the appraisal award, final judgment in favor of the insured should be entered on its breach of contract claim. The trial court granted that motion, entering judgment in favor of the insured. Following some additional procedural maneuvering, the appellate court determined that the entry of judgment against the insurer constituted a final judgment from which an appeal could lie. Accordingly, the appellate court considered the insurer’s argument that the trial court erred in entering judgment in favor of the insured based upon the appraisal award.
On appeal, the appellate court first held that judgment could only be entered in favor of the insured after a summary judgment proceeding, a trial, or based upon a stipulated judgment. As part of that discussion, the court observed that under Texas law, an appraisal award is significantly different from an arbitration award. The court specifically noted that:
An arbitration may encompass the entire controversy between the parties or it may be tailored to certain legal or factual disputes. By contrast, an appraisal determines only the amount of loss, without resolving issues such as whether the insurer is liable under the policy.
Because the court determined that an appraisal award fixed only the amount of the loss, but did not establish whether the claim was covered in the first instance, the appellate court next considered whether the trial court erred by entering judgment for the insured on its breach of contract claim. The court ultimately determined that none of the series of motions filed by the insured in the trial court constituted a summary judgment motion. As a result, the appellate court concluded that the trial court erred in entering judgment for the insured, and remanded the case to the trial court for disposition by trial, a full summary judgment proceeding, or settlement.
This case is important not for its odd procedural history, but because it establishes that under policies with standard-form “appraisal” provisions, the rendering of an appraisal award is not the final word. Both the insurer and the insured retain all rights and defenses, and coverage litigation may follow an appraisal award, to determine whether the claim giving rise to the award is in fact covered, at least in Texas.