A Disagreement Is All It Takes to Trigger Appraisal, and the Possibility of a Coverage Dispute Is Not Enough to Avoid Appraisal

In 2009, the Supreme Court of Texas issued one of the most significant property insurance decisions in Texas history. In State Farm Lloyds v Johnson, the court clarified the types of disputes appropriate for determination by an appraisal panel. 1 Chip Merlin wrote about that decision in “Appraisal in Texas is Still Going to be Debated and Part of the Wild West of Insurance Coverage Disputes,” and noted it was destined to spark debate for years to come.

He was right.

More than fifteen years later, the Texas Supreme Court has spoken again. On May 8, 2026, the court issued its opinion in In re ACE American Insurance Company. 2 The case involved a ruptured water main at a Dallas food-distribution warehouse. The policyholder 3 and the insurers 4 could not come to an agreement. The policyholder completed repairs. The insurers demanded appraisal, but the policyholder refused to participate. The insurers filed suit to compel appraisal. The trial court sided with the policyholder. The court of appeals agreed. The Texas Supreme Court reversed them both.

The message from the Texas Supreme Court is clear. When a policyholder and its insurer disagree, and it cannot be said that the “amount of loss” determination will never be needed, then appraisal is not optional. But first, allow me to provide some background.

In June 2022, a fire-suppression water line ruptured beneath a commercial warehouse in Dallas, which caused severe damage. The policyholder reported the claim. The insurers sent out an independent adjuster. Ultimately, the policyholder completed repairs and disagreed with the insurers’ adjustment and payment of the claim. For example, the insurers paid approximately $1.2 million toward mold remediation, taking the position that this represented the full value of that portion of the claim. The policyholder believed it was entitled to the policy’s full mold sublimit of $10 million. There were additional disputes over the scope and cost of repairs, the construction methodology, and whether compliance with Dallas County building codes triggered additional coverage.

In January 2023, the insurers formally invoked the policy’s appraisal provision, stating that the parties were at an impasse regarding the remaining scope of damage and costs related to the claim. The policyholder refused, calling the demand premature and unwarranted. The parties entered a standstill agreement and continued negotiations, but nothing was resolved. In June 2024, the insurers renewed their appraisal demand. The policyholder refused again.

The insurers filed suit to compel appraisal. The policyholder counterclaimed, alleging bad faith, failure to investigate, and that the insurers invoked appraisal as a tool to coerce the policyholder into accepting a lowball settlement offer. The trial court denied the motion to compel. The Texas Supreme Court granted mandamus relief and ultimately reinforced principles that should carry significant weight for every policyholder and insurer in Texas.

Johnson Then and Now

Chip Merlin wrote about State Farm Lloyds v. Johnson back in 2009 because it mattered. It still does, and you should read Chip’s blog post for a more in-depth discussion.

In Johnson, a hailstorm caused roof damage. State Farm’s inspector assessed damage only to the ridgeline and determined the damage was less than the deductible. Johnson believed the entire roof required replacement and demanded appraisal under her policy. State Farm refused, arguing the dispute was about causation, not the amount of loss, and therefore outside the scope of the appraisal clause.

The Texas Supreme Court disagreed. Appraisers may appropriately decide the “amount of loss.” Courts decide liability. Those two issues are distinct, and the fact that appraisers must sometimes consider causation as part of their work (for instance, separating damage from a covered peril from pre-existing conditions) does not remove the dispute from the appraisal process. The court’s bottom line in Johnson was practical and powerful: “unless the ‘amount of loss’ will never be needed (a difficult prediction when litigation has yet to begin), appraisals should generally go forward without preemptive intervention by the courts.” 5

In re ACE American builds on Johnson. The court explicitly acknowledged that a party seeking to avoid appraisal by claiming the dispute falls outside the appraisal provision’s scope “must clear a significant hurdle.” 6 The policyholder in ACE American tried hard to clear that hurdle. It argued that the parties’ disagreements were fundamentally about coverage, causation, and “the very existence” of damage—not the amount of loss. The court was unpersuaded. For example, the parties were arguing about whether $1.2 million or $10 million was owed for mold remediation. The insurers argued the completed repairs were more extensive than necessary to return the property to its pre-loss condition. Central to the dispute was the cost of construction, construction methods, and the scope of code compliance. The court found these disputes to be squarely within an appraiser’s purview. 7

As the court put it, echoing Johnson, an insured “cannot avoid appraisal at this point merely because there might be a causation question that exceeds the scope of appraisal.” 8

The policyholder also argued that no “genuine disagreement” existed about the amount of loss—a threshold requirement to trigger the right to demand appraisal—because the insurers’ position had been inconsistent and constantly shifting. The court rejected that argument with a dictionary definition:

To ‘disagree’ is, quite simply, ‘to fail to agree.’ Disagree, MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY (11th ed. 2003). . . . The appraisal provision requires nothing more. 9

Policyholders and insurers (with some degree of frequency) will avoid or delay their obligation to participate in appraisal by arguing the appraisal demand is premature because there is no dispute. The court ended this tactic. The “dispute” trigger does not require the parties to have exhausted every possibility of resolution or to have conclusively proven that no agreement is possible. To disagree is simply a failure to agree.

Alignment with the Proposed TDI Rules

This ruling does not exist in a vacuum. As we wrote recently, 10 the Texas Department of Insurance has proposed new appraisal rules that will apply to residential and auto policies issued or renewed on or after September 1, 2026. Those proposed rules include a provision that appraisal is mandatory once invoked, and that the right to demand appraisal is not conditioned on reaching an impasse. A “dispute” means a disagreement. Nothing more is required.

The Texas Supreme Court’s opinion in In re ACE American reflects the same understanding. This alignment is meaningful. When the policyholder and the insurer disagree on the amount of the loss, the appraisal process exists precisely for that moment. The door to appraisal opens at disagreement.

The decision is a reminder that appraisal is a powerful and mandatory right that is available to both policyholders and insurers. The question is not who invokes it first, but whether the process is used fairly, with qualified appraisers, within a reasonable timeframe, and for the purpose for which it was designed: putting a fair number on a loss.

Johnson said it in 2009. The Texas Supreme Court has said it again in 2026. And the Texas Department of Insurance, through its proposed rules, is now writing it into the regulatory framework.

1 State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009).

2 In re ACE American Ins. Co., No. 25-0461, 2026 WL 1261448 (Tex. May 8, 2026) (orig. proceeding).

3 Teachers Insurance and Annuity Association of America, Nuveen Alternatives Advisors, LLC, and USCIF Pinnacle Building B LLC.

4 ACE American Insurance Company; Endurance American Specialty Insurance Company; GuideOne National Insurance Company; Certain Underwriters at Lloyd’s, London and Company Market; StarStone Specialty Insurance Company; Starr Specialty Lines Insurance Agency, LLC; and Shelf OPCO Bermuda Ltd. for and on behalf of Fidelis Insurance Bermuda, Ltd.

5 Johnson, 290 S.W.3d at 895.

6 In re ACE Am. Ins. Co., 2026 WL 1261448, at *3.

7 Id. at *3–5.

8 Id. at *4 (quoting Johnson, 290 S.W.3d at 893) (emphasis added).

9 Id.

10 William “Trey” Flournay. TDI’s Proposed Appraisal Rules: A Step Forward but with a Few Rough Edges. Property Insurance Coverage Law Blog (Apr. 29, 2026).