In Dike v. Valley Forge Insurance Company,1 U.S. District Judge Lee Rosenthal ruled that the insurer’s compliance with the policy’s claims handling provisions and with provisions of Texas Insurance Code were not conditions precedent for compelling appraisal; and the carrier’s delay in seeking appraisal did not waive insurer’s right to appraisal.
In Dike, the insured brought an action in state court seeking recovery of insurance proceeds for hurricane damage to insured property – from which insured operated his accounting business – for business interruption and loss of rental income. The case was removed to federal court and the insurer moved to compel appraisal.
In her analysis, Judge Rosenthal reasoned that the failure of Valley Forge to comply with the “Claims Handling” provisions of the insurance policy and with provisions of the Texas Insurance Code did not prevent it from seeking appraisal, because compliance with the “Claims Handling” provisions and the Texas Insurance Code is not a condition precedent to exercising appraisal rights.
In order to determine whether a condition precedent exists, the intention of the parties must be ascertained; and that can be done only by looking at the entire contract . . . . In order to make performance specifically conditional, a term such as ‘if’, ‘provided that’, ‘on condition that’, or some similar phrase of conditional language must normally be included . . . . While there is no requirement that such phrases be utilized, their absence is probative of the parties intention that a promise be made, rather than a condition imposed.2
The appraisal clause in Dike’s policy did not use conditional language and Dike did not identify any provision in the contract showing the parties intended that Valley Ford fully comply with the “Claims Handling” provisions and Texas Insurance Code before seeking appraisal.3 Compliance with the “Claims Handling” provisions and the Texas Insurance Code is not a condition precedent to compelling appraisal.
Regarding whether the carrier waived its right to appraisal, Judge Rosenthal relied on the acts of the parties to determine their intentions. Based on prior rulings by the 5th Circuit, Judge Rosenthal confirmed that the contractual right to appraisal may be waived.4 Waiver is defined as the “intentional relinquishment of a known right.”5 Courts applying Texas law follow the standard articulated long ago in Scottish Union & Nat. Ins. Co. v. Clancy,6 to determine whether an insurer’s acts amount to waiver:
To constitute waiver, the acts relied on must be such as are reasonably calculated to induce the assured to believe that a compliance by him with the terms and requirements of the policy is not desired, or would be of no effect if performed. The acts relied on must amount to a denial of liability, or a refusal to pay the loss.7
“While an unreasonable delay is a factor in finding waiver, reasonableness must be measured from the point of impasse.”8
Determining whether the parties have reached an impasse “requires an examination of the circumstances and the parties’ conduct, not merely a measure of the amount of time involved in seeking appraisal.” . . . . “An impasse is not the same as a disagreement about the amount of loss. Ongoing negotiations … do not trigger a party’s obligation to demand appraisal. Nor does an insurer’s offer of money to cover damages necessarily indicate a refusal to negotiate further….” . . . . “[M]ere delay is not enough to find waiver; a party must show that it has been prejudiced.”9 “Prejudice to a party may arise in any number of ways that demonstrate harm to a party’s legal rights or financial position.”10 The Texas Supreme Court has observed that “it is difficult to see how prejudice could ever be shown when the policy … gives both sides the same opportunity to demand appraisal. If a party senses that an impasse has been reached, it can avoid prejudice by demanding an appraisal itself.”11
The Texas Supreme Court has explained that:
[To] constitute waiver the acts relied on must be such as are reasonably calculated to induce the assured to believe that compliance by him with the terms of the policy … is not desired, or would be of no effect if performed. The acts relied on must amount to a denial of liability or refusal to pay the loss.12
“Or,” as the court “more recently concluded, ‘[w]aiver requires intent, either the intentional relinquishment of known right or intentional conduct inconsistent with claiming that right.’ ”13
When making a case for waiver of a contractual right in Texas, it is important to note that sometimes whether certain circumstances constitute waiver is a question of law. Waiver is typically a fact question; however, when the relevant facts are undisputed and clearly established, a court may decide whether a party has waived its contractual right to appraisal as a matter of law. Moreover, Judge Rosenthal confirmed that regardless of the length of delay, mere delay is not enough to find waiver. A party must show that it has been prejudiced.
1 Kenneth O. Dike, et al., v. Valley Forge Ins. Co.et al., 797 F. Supp. 2d 777 (S.D. Texas –Houston Division) June 23, 2011.
2 Solar Applications Eng’g, Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 109 (Tex.2010) (quoting Criswell v. European Crossroads Shopping Ctr., Ltd., 792 S.W.2d 945, 948 (Tex.1990)).
3 See also Butler v. Prop. and Cas. Ins. Co., Civ. A. No. H–10–3613, 2011 WL 2174965, at *1 (S.D. Tex. June 3, 2011) (finding that a similar insurance-policy appraisal provision does not require compliance with claims handling provision before seeking appraisal).
4 See, e.g., In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556, 561 (Tex. App.-Houston [14th Dist.] 2010, orig. proceeding).
5 JM Walker LLC v. Acadia Ins. Co., 356 Fed.Appx. 744, 748 (5th Cir.2009) (per curiam) (summary calendar) (unpublished).
6 Scottish Union & Nat. Ins. Co. v. Clancy, 71 Tex. 5, 8 S.W. 630, 632 (1888).
7 See, e.g., Woodward v. Liberty Mut. Ins. Co., No. 3:09–CV–0228–G, 2010 WL 1186323, at *4 (N.D.Tex. Mar. 26, 2010); In re Sec. Nat’l 784 Ins. Co., No. 14–10–00009–CV, 2010 WL 1609247, at *5 (Tex.App.-Houston [14th Dist.] Apr. 22, 2010, orig. proceeding) (mem. op., not designated for publication); In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d at 563.
8 In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 408, 2011 WL 1713278, at *3 (Tex. May 6, 2011).
9 Id. at 411, at *5.
10 Universal Underwriters, 345 S.W.3d at 411, 2011 WL 1713278, at *5.
11 Id. at 412, at *7.
12 Universal Underwriters, 345 S.W.3d at 407, 2011 WL 1713278, at *2 (quoting Scottish Union, 8 S.W. at 632).
13 Id. (quoting In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex.2006)).