If you’re unfamiliar with the insurance process, there are two questions one must address after a loss: (1) whether the damage is covered under the insurance policy; and (2) whether the amount of damage exceeds the deductible. If you answer yes to both of these questions, your insurer should send you a check for your damages.
On several occasions, I have worked with clients who were told by their insurance companies that although their property sustained damage caused by a loss covered by their insurance policy, the amount of damage was below the deductible. Policyholders in this situation come to me when they sense something fishy going on, namely, that the amount of damage is more than the insurance company estimates. Unlike their insurers, policyholders know their properties intimately; they know what their property was like before the loss and can better assess the full extent of damage.
Most property insurance policies have an appraisal provision that gives the parties a method to resolve a dispute over the amount of damages. Depending on the circumstances, I sometimes suggest that my clients invoke the appraisal provision. An appraisal will not guarantee that an insured will receive insurance proceeds. Sometimes the appraisal process results in a $0 award. However, in other instances, an insured is awarded a large sum through the appraisal process, even as high as hundreds of thousands, and yes, even millions of dollars. When this happens, clients often ask whether the large appraisal award can be used as evidence that their insurer breached their contract when they represented the amount of damages was below the deductible. Their argument makes sense intuitively: in their eyes, their insurer lied to them about the damage or amount of loss. But are Texas courts persuaded by this argument? No.
When presented with this argument in Breshears v. State Farm Lloyds, the Texas Court of Appeals for Corpus Christi—Edinburg stated the following:
The Breshears argue that because the appraisal award was greater than the initial payment made by State Farm, State Farm was in breach of the contract as a matter of law. However, they overstate the effect of appraisal decisions: an appraisal decision is intended “to estop one party from contesting the issue of the value of damages in a suit on the insurance contract, not to facilitate this type of liability. The Breshears may not use the fact that the appraisal award was different than the amount originally paid as evidence of breach of contract, especially when the contract they claim is being breached provides for resolution of disputes through appraisal.1
The U.S. District Court for the Southern District of Texas recently cited this portion of Breshears in Mag-Dolphus, Inc. v. Ohio Casualty Company,2 indicating agreement with the Texas appellate court. Based on these and other similar cases, it’s pretty clear that an insured cannot use the outcome of an appraisal award as evidence that their insurer breached their policy.
1 Breshears v. State Farm Lloyds, 155 S.W.3d 340,343 (Tex.App.Corpus Christi 2004, no pet.) (internal citations omitted).
2 Mag-Dolphus, Inc. v. Ohio Cas. Co., No. 4:11-CV-1525, 2012 WL 4018001 (S.D. Tex., Sept. 12, 2012).