Recent trends of insurers revising the appraisal provisions in insurance policies have clouded the original effect of the appraisal process as an alternative dispute resolution process in lieu of litigation. For many years the insurers reaped a benefit of an appraisal award as a bar to the insured’s breach of contract case after payment of the award pursuant to the policy’s appraisal provision.
We have seen many new revisions to the appraisal provisions, including adding language that the insurer will retain its right to deny liability, even after a binding award has been rendered under the terms of the policy’s appraisal provision. The early revisions reviewed clearly benefited only the insurer and the language was stricken by some courts as being one-sided and against public policy.1
With the continuous revisions of the appraisal provisions, you may find yourself in murky waters trying to determine, what, if anything, truly will be resolved through the appraisal process. And, further, in deeper, darker waters trying to determine which “liability” insurers are, or will be, retaining the right to deny, even though in State Farm Lloyds v. Johnson,2 and its progeny, the Texas Supreme Court defined the scope of the appraisal process and the binding effect on the amount of loss as determined through that process.
But, still, there is some good news. Though the appraisal provision itself appears to be floating out to sea into something less than a full alternative dispute resolution, on June 19, 2020, in Marchbanks3 the Texas Supreme Court again clarified the effect of the payment of an appraisal award by the carrier:
Marchbanks filed a petition asking this Court to decide whether payment of an appraisal award extinguishes TPPCA liability as a matter of law. Meanwhile, we decided two cases relevant to the issues Marchbanks raises in his petition. In Barbara Technologies Corp. v. State Farm Lloyds, we held that “payment in accordance with an appraisal is neither an acknowledgment of liability nor a determination of liability under the policy for purposes of TPPCA damages under section 542.060.” 589 S.W.3d 806, 820 (Tex. 2019). On the same day, we restated in Ortiz v. State Farm Lloyds that “an insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claims under the Prompt Payment Act.” 589 S.W.3d 127, 135 (Tex. 2019).
The court of appeals concluded that, as a matter of law, Marchbanks could not maintain his TPPCA claim due to Liberty’s payment of the appraisal award. Under Barbara Technologies and Ortiz, this was error. Without hearing oral argument, see TEX. R. APP. P. 59.1, we reverse the judgment of the court of appeals and remand the case to the trial court to consider Marchbanks’s TPPCA claim in light of those decisions.
So, one thing remains clear in Texas: The insurer’s payment of an appraisal award does not bar an insured’s claims under the Texas Prompt Payment Act.
1 Salas Realty, LLC v. Transportation Ins. Co., No. 3:19-cv-1572-N (N.D. Tex. Dec. 2, 2019).
2 State Farm Lloyds v. Johnson, 290 S.W.3d 886, 889 (Tex. 2009).
3 Marchbanks v. Liberty Ins. Corp., No. 18-0977 (Tex. June 19, 2020).