Several weeks ago, the Texas Supreme Court issued a trilogy of per curiam opinions: TopDog Properties v. GuideOne National Insurance Company,1 Alvarez v. State Farm Lloyds,2 and Lazos v. State Farm Lloyds,3 and remanded these cases because the trial courts and appellate courts failed to follow the Texas Supreme Court’s opinions in Barbara Technologies Corp. v. State Farm Lloyds,4 and Ortiz v. State Farm Lloyds.5 Except for TopDog which has a unilateral appraisal clause in its policy, all three cases have nearly identical facts.
TopDog, nevertheless, illustrates well the facts, arguments, and outcome of all three cases. In TopDog there was significant wind and hail damage to apartment buildings owned and operated by TopDog, a commercial property owner. GuideOne issued the policy that covered the loss. During claims handling, it was TopDog’s position that GuideOne, in order to preclude payment of the claim, had intentionally undervalued the repair costs below TopDog’s policy deductible of $5000. TopDog requested a second reevaluation which confirmed its conclusion about GuideOne’s tactics. After GuideOne declined a third request for a reevaluation, TopDog attempted to evoke the appraisal process in its policy. GuideOne, however, refused appraisal because the policy contained a unilateral appraisal clause which allowed only GuideOne to evoke it. The unilateral appraisal clause stated:
If the Named Insured and the Company fail to agree on the amount of the loss, the Company can demand that the amount of loss be set by appraisal. If the company makes a written demand for appraisal, each party shall select a competent independent appraiser. Each party shall notify the other of the selected appraiser’s identity within 20 days of the receipt of the written demand.
Unable to evoke the appraisal clause, TopDog was forced to incur the expense of filing suit against GuideOne for breach of contract, common law and statutory bad faith, and violations of the Texas Insurance Code, Chapters 541 and 542, the latter entitled the Texas Prompt Payment of Claims Act (“TPPCA”). After TopDog had filed suit, GuideOne decided to invoke appraisal. GuideOne’s appointed appraiser agreed with TopDog that GuideOne had undervalued the loss by 98%. The loss through the appraisal process was set at $168,808, and GuideOne paid the appraisal award. Thereafter, both parties moved for summary judgment. The trial court granted GuideOne’s summary judgment on all of TopDog’s causes of action based on GuideOne’s payment of the appraisal award and denied TopDog’s summary judgment.
The court of appeals affirmed the trial court’s granting of summary judgment for GuideOne based on the following reasons:
(1) TopDog failed to raise a fact issue on damages for breach of contract because GuideOne paid all benefits available under the policy when it paid the appraisal award, and (2) TopDog’s bad faith and TPPCA claims failed because it did not allege an injury independent from the policy benefits and did not demonstrate policy benefits were withheld after the appraisal award was paid.
TopDog petitioned the Texas Supreme Court and the case was accepted. Shortly thereafter, the supreme court issued Barbara Technologies finding that a plaintiff’s TPPCA damages are not foreclosed by the payment of an appraisal award, but not deciding whether payment of an appraisal award was an acknowledgment or a determination of liability under the policy for purposes of TPPCA damages. And in Ortiz, the court reiterated its holding in Barbara Technologies and further held that payment of an appraisal award does foreclose a plaintiff’s breach of contract and statutory and common law bad faith unless a plaintiff can show an independent injury.
TopDog argued to the Texas Supreme Court that GuideOne was liable under Barbara Technologies and therefore, it was entitled to damages under Section 542.060 of the TPPCA. Alternatively, TopDog argued that Section 542.058 did not require a finding of liability before an insurer must pay TPPCA damages, urging the supreme court to address the question left open in Barbara Technologies.
Concerning TopDog’s claims for breach of contract and bad faith, TopDog argued that the court should find an exception to the independent injury rule found in Ortiz and find instead that an insured need not establish an independent injury to recover for breach of contract and bad faith where an insurer relies on a unilateral appraisal clause to force the insured to file suit, compel appraisal, and then pays the appraisal award. In that situation, TopDog argued, the payment of the appraisal award itself constitutes actual damages. TopDog also argued that the unilateral appraisal clause was illusory and unenforceable, but the supreme court did not address that argument.
The Texas Supreme Court found that the trial courts and affirming appellate courts had erred in all three cases under Barbara Technologies and Ortiz by holding that the insured plaintiffs could not maintain their TPPCA causes of action and that TopDog’s breach of contract and bad faith claims were barred. The supreme court reversed TopDog, Alvarez, and Lazos sending them back to the trial court to correct the errors and noting that Ortiz did not involve a unilateral appraisal clause. For TopDog, therefore, the supreme court requested the trial court also address whether an insurer’s payment of an appraisal award after evoking a unilateral appraisal clause to force the insured to file suit, constitutes actual damages sufficient to support claims for breach of contract and bad faith.
Before TopDog, Alvarez, and Lazos, these cases would have ended with the insurers finally paying only the appraiser’s loss valuation even though the insureds had to go through the lengthy claims process, and file a lawsuit, and thereby incur further losses including appraisal costs, attorney’s fees and other expenses just to get their legitimate policy payment. Insurers came out ahead in this situation because they ended up usually paying no more than if they had paid the true value of the loss in the first place, but they had caused a big delay and more expense for the insured in doing so.
After TopDog, Alvarez, and Lazos, only “pay-the-appraisal-amount” tactic is possibly no longer a defense for Texas insurers which now face additional damage claims for obviously covered losses. Policyholders can now recover damages other than just the amount of the covered loss, including attorney’s fees, and prompt payment penalties.
With the remand to the trial courts, we have not heard the last from TopDog, Alvarez or Lazos, but these cases so far are a remarkable departure in Texas where insurers generally have been heavily favored.
1 Top Dog Properties v. GuideOne National Ins. Co., Cause No. 18-0911, 2020 WL 1898538 (Tex. April 17, 2020).
2 Alvarez v. State Farm Lloyds, Cause No. 18-0127, 2020 WL 1898528 (Tex. April 17, 2020).
3 Lazos v. State Farm Lloyds, Cause No. 18-0225, 2020 WL 1898534 (Tex. April 17, 2020).
4 Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806, 823, 829 (Tex. 2019, rehearing denied).
5 Ortiz v. State Farm Lloyds, 589 S.W.3d 127,131 (Tex. 2019, rehearing denied).