When Hurricane Ike hit Texas in September of 2008, many individuals and business were devastated by the destruction. What they were truly in need of was a swift response from their insurance companies to provide benefits so that they could repair and rebuild. Unfortunately for some like Blum’s Furniture Company, the claim process was anything but quick and efficient.

In Blum’s case, the business filed its claim for damages immediately after the storm and its insurance company, Certain Underwriters at Lloyds London, started its inspection within days. About a month later, Lloyds paid $50,000 in benefits to Blum’s. It then took Lloyds almost another full year to pay an additional $300,000. Blum’s accepted this payment but disagreed with the amount, demanded appraisal, and filed suit against Lloyds for breach of contract. The appraisal process lasted more than a year, with the ultimate determination of damage coming in at over $1,000,000. Lloyds paid the award within the time allowed under the policy. Although it took legal action and over two years for Lloyds to ultimately pay what it should have paid in the beginning, the trial and appellate courts both saw things differently and agreed that by paying the appraisal award timely, Lloyds had not breached its contract and could not be held liable for bad faith. The Fifth Circuit Court of Appeals had this to say:

Here, it seems clear that Lloyds did not breach its contract with Blum’s. Blum’s made a claim, Lloyds inspected the property, obtained estimates on the amount of damage, and made an initial payment to Blum’s. When Blum’s disputed the amount paid, it invoked the appraisal process to have independent appraisers determine the amount of covered loss. Upon the conclusion of the appraisal process, Lloyds paid the difference between the appraisal award and the initial payment. Furthermore, the district court found that “it is undisputed that Lloyds paid the appraisal amount in a timely manner after the award was issued,” and that “Blum’s accepted that payment.” [Citation Omitted]. Therefore, we find that Blum’s has failed to present any evidence which would establish a genuine issue of material fact regarding its breach of contract claim against Lloyds.

Blum’s Furniture Co., Inc. v. Certain Underwriters at Lloyds London, 11-20221, 2012 WL 181413 (5th Cir. Jan. 24, 2012).  The Court specifically noted that Lloyds never disputed coverage; only the amount of payment was at issue.

This is an unfortunate decision for policyholders in Texas because it essentially paves the way for insurance companies to make lowball initial payments and require policyholders to work for the benefits that were agreed upon when their policies were purchased, with no repercussions for the insurers. If policyholders end up getting more than the original lowball payments, insurance companies suffer no penalties or accountability for low and slow payments. The one saving grace in this opinion is that the Fifth Circuit decided not to publish this opinion in the Federal Reporter, which might limit its applicability to other cases.