The majority of insurance policyholders do not realize that their property insurance policy may contain an appraisal provision. Insurance companies attempt to use appraisal provisions to impose unnecessary burdens on insureds and to eliminate the insureds potential to file a lawsuit against the insurance company and its adjusters for violations of the Texas Insurance Code, among other causes of action.
The other day I received a call by the Superintendent of a school district in Texas that sustained Hurricane Harvey damages. The insurance company responsible for handling their Hurricane Harvey claim said it intended to invoke the appraisal provision of the insurance policy. The Superintendent was confused. He thought that the insurance company had already sent a person to appraise the property damages, he wanted to know what he needed to do, and if I could help him.
As with every call like this for a potential new client, I told him I need to review various documents, including his insurance policy, his correspondence with the insurance carrier and its adjusters, among other necessary items. Upon review of the school district’s insurance policy, I noticed it contained an appraisal provision.
Appraisal is a process for resolving property insurance claim disputes about the cost of repairing or replacing the damaged property.
Appraisal provisions in property insurance policies have become more of a commonality in Texas over the past few years. Back when I handled cases related to Hurricanes Ike & Dolly that occurred in 2008, and even those related to the Hidalgo County Hail Storms in 2012, we rarely if ever saw appraisal provisions in insurance policies, and if the policy included such a provision they were rarely enforced.
Today, insurance carriers across the board are moving to add appraisal provisions into property insurance policies in Texas. A standard appraisal provision includes language along these lines:
If you and we fail to agree on the amount of loss, either can make a written demand for appraisal. Each party will then select a competent, disinterested appraiser…The two appraisers will choose an umpire…Each party will pay its own appraiser and bear the other expenses of the appraisal and umpire equally….
The insurance companies use these appraisal provisions as both a sword and a shield – basically this discourages insurance companies from conducting a reasonable investigation of claims at the outset at the risk that most policyholders do not understand the appraisal provision and will not invoke it, or alternatively, that policyholders will not have the resources or the desire to pay their own appraiser and the fee of the umpire.
Some insurance policies require appraisal before a policyholder can file a lawsuit against the insurance company and its adjusters. This means that if the insurance company wholly fails to investigate the claim, commits bad acts in claims handling including misrepresentations, underpaying the claim, etc., that the insured – who has already likely gone through the traumatic event and incurred damage to its property that may not be covered by the insurance policy – is forced to spend its own funds on appraisal when the claim should have just been handled right the first time.
To add insult to injury, insurance companies repeatedly argue in courts throughout Texas that once appraisal has occurred, the damaged policyholder property owner cannot bring claims against the insurance company and its adjuster for their bad acts that legally constitute violations of the law!1 Essentially, this means that once the insurance company pays the appraisal award (which may not be the policyholders actual claimed amount) that the insured is precluded from recovering penalties under the Texas Insurance Code.2
This is a hot topic under review by Texas Courts, the Texas Department of Insurance, and the Texas House of Representative’s Insurance Committee. Just last week the Texas House of Representative’s Insurance Committee held a hearing where various industry professionals testified and made presentations on the pitfalls of appraisal under insurance policies.3 The Texas Department of Insurance prepared a presentation for the hearing that stated among other items, that:
Appraisal is intended to take place before suit is filed. However, if a lawsuit is filed, and one party properly demands appraisal, the lawsuit may be abated. Whether it is abated depends if the policy provision requires it.
Appraisal only determines the amount of the loss; it does not affect other causes of action under Insurance Code Chapter 541 (Unfair Methods of Competition and Unfair or Deceptive Acts or Practices) of the Deceptive Trade Practice Act. For example, a policyholder may still bring suit for other issues including:
•Unfair deceptive acts or practices;
•Unfair competition; or
In a rare departure from the norm, the Texas Department of Insurance appears to be attempting to implement law favorable to injured, mistreated, and aggrieved policyholders. The lobbyists that push the insurance company agendas will have something to say about this, but I hope in the aftermath of Hurricane Harvey voting Texans will realize these companies are not there to protect you; they do not act like good neighbors; and they are not on your side. Their goal is to make money, and the less money they pay out on claims means the more money they make at the end of each year.
As always, it is imperative for Texas Policyholders to know their rights under their insurance policy. If you believe that the insurance company has failed to comply with the law or the insurance policy, there are steps a policyholder can take to hold the insurance company accountable.
For example, a policyholder can file a complaint with the Texas Department of Insurance at https://www.tdi.texas.gov/consumer/complfrm.html, and as always, policyholders can and should contact an experienced insurance attorney for guidance.
1 See also Anderson v. Am. Risk Ins. Co., Inc., 01-15-00257-CV, 2016 WL 3438243, at *5 (Tex.App.–Houston [1st Dist.] June 21, 2016, no pet.) (“The fact that State Farm did not pay the amount of the award earlier, alone, does not raise a fact issue on Anderson’s claim for breach of contract.”); Graber v. State Farm Lloyds, No. 3:13-CV-2671-B, 2015 WL 3755030, at *4 (N.D. Tex. June 15, 2015) (concluding insured “estopped from relying on the appraisal award to demonstrate that [insurer] breached the Policy when it initially issued payment to [insured] for an amount less than the appraisal”); Scalise, 2013 WL 6835248, at *5 (“[W]here the parties disagree on the amount of loss and submit to the contractual appraisal process to resolve that dispute, and the insurer pays all covered damages determined by the award, the insured may not then argue that the initial failure to pay those damages equates to a breach of contract.”).
2 In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556, 563-64 (Tex.App.–Houston [14th Dist.] 2010, orig. proceeding) (citing Texas cases) (noting Insurance Code does not expressly provide deadline for completion of appraisal process and that “Texas courts considering the issue have concluded that full and timely payment of an appraisal award under the policy precludes an award of penalties under the Insurance Code’s prompt payment provisions as a matter of law.”); see also Waterhill Cos. Ltd. v. Great Am. Assur. Co., No. Civ. A. H-05-4080, 2006 WL 696577, at *3 (S.D. Tex. Mar.16, 2006); Breshears v. State Farm Lloyds, 155 S.W.3d 340 (Tex.App. 2004); Anderson, 2016 WL 3438243, at *5; Bernstien v. Safeco Ins. Co. of Illinois, 05-13-01533-CV, 2015 WL 3958282, at *1 (Tex.App.–Dallas June 30, 2015, no pet.); Amine, 2007 WL 2264477, at *4-5.