IN THE SUPREME COURT OF TEXAS 444444444444 NO. 17-0640 444444444444
BARBARA TECHNOLOGIES CORPORATION, PETITIONER, v.
STATE FARM LLOYDS, RESPONDENT 4444444444444444444444444444444444444444444444444444 ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE FOURTH DISTRICT OF TEXAS 4444444444444444444444444444444444444444444444444444
CHIEF JUSTICE HECHT, joined by JUSTICE BROWN and JUSTICE BLACKLOCK, dissenting.
Appraisal is a process insurance policies commonly afford insurers and insureds for
resolving disputes over the amount of a claim. Each side picks an appraiser, the appraisers pick an
umpire, and the three inspect the loss and render an award. Appraisals have been used in Texas for
more than a century,1 and to good end. “Access to the appraisal process to resolve disputes”, the
Court writes, “is an important tool in the insurance claim context, curbing costs and adding
efficiency in resolving insurance claims”,2 echoing our earlier observation that “[a]ppraisals can
provide a less expensive, more efficient alternative to litigation”.3 But after praising appraisal’s
effectiveness, the Court proceeds to hobble it. By today’s decision, as a practical matter, whenever
1 See State Farm Lloyds v. Johnson, 290 S.W.3d 886, 888 (Tex. 2009). 2 Ante at ___. 3 In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 407 (Tex. 2011) (orig. proceeding). an appraisal is requested, even by the insured, an insurer is subject to paying 18% interest and
attorney fees if the award exceeds what the insurer has found to be due. That certainly discourages
use of appraisals, at least by insurers, and may effectively doom the process altogether. I come, then,
to bury appraisals, not to praise them.
The Texas Prompt Payment of Claims Act (“the Act”)4 was passed in 1991,5 amended in
1995,6 and recodified in 2003.7 Since then it has been amended four more times.8 The Act sets
deadlines for insurers to process and pay claims, and it penalizes delay. The Act does not mention
appraisals. Typically, the right to an appraisal under a policy arises when the insurer and insured
dispute the amount of loss after the insurer has rejected all or part of a claim, and thus the appraisal
cannot be completed before the Act’s final payment deadline. In 2004, one court of appeals held that
the Act does not penalize the prompt payment of an appraisal award after the Act’s deadline for
payment has passed.9 We declined to review that decision and, 12 years later, a similar decision by
4 TEX. INS. CODE §§ 542.051–.061. All statutory references are to the Texas Insurance Code unless otherwise noted. 5 Act of May 27, 1991, 72nd Leg., R.S., ch. 242, § 11.03, 1991 Tex. Gen. Laws 939, 1043–1045 (originally codified as TEX. INS. CODE art. 21.55), amended by Act of Aug. 25, 1991, 72nd Leg., 2d C.S., ch. 12, §§ 7.01–7.03, 1991 Tex. Gen. Laws 252, 319–321. 6 Act of May 19, 1995, 74th Leg., R.S., ch. 333, § 1, 1995 Tex. Gen. Laws 2839. 7 Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 2, 2003 Tex. Gen. Laws 3611, 3679–3681, amended by Act of June 2, 2003, 78th Leg., R.S., ch. 206, § 21.35, 2003 Tex. Gen. Laws 907, 959 (amending former Article 21.55 despite the Legislature’s codification of the Act in Chapter 542 earlier in the session). 8 Act of May 17, 2017, 85th Leg., R.S., ch. 151, § 2, 2017 Tex. Gen. Laws 293, 293; Act of May 29, 2009, 81st Leg., R.S., ch. 833, § 1, 2009 Tex. Gen. Laws 2074; Act of May 17, 2007, 80th Leg., R.S., ch. 730, §§ 2D.007–.008, 2007 Tex. Gen. Laws 1356, 1419; Act of May 24, 2005, 79th Leg., R.S., ch. 728, § 11.009, 2005 Tex. Gen. Laws 2188, 2210–2211 (amending Section 542.053(a) to conform to amendments made to former Article 21.55 in the Act of June 2, 2003 and then repealing that act). 9 Breshears v. State Farm Lloyds, 155 S.W.3d 340, 345 (Tex. App.—Corpus Christi 2004, pet. denied).
2 the court of appeals below.10 In all, over the past two decades, the issue has been addressed by
several Texas appellate courts,11 by the U.S. Court of Appeals for the Fifth Circuit,12 and by U.S.
District Courts in all four Texas districts.13 Only one federal district court has disagreed,14 and the
10 See Garcia v. State Farm Lloyds, 514 S.W.3d 257, 275 (Tex. App.—San Antonio 2016, pet. denied) (“We hold that because it is undisputed State Farm paid the appraisal award, Garcia cannot sustain her late payment claim.”). 11 Hinojos v. State Farm Lloyds, 569 S.W.3d 304, 313 (Tex. App.—El Paso 2019, pet. filed); Marchbanks v. Liberty Ins. Corp., 558 S.W.3d 308, 312–313 (Tex. App.—Houston [14th Dist.] 2018, pet. filed); Zhu v. First Cmty. Ins. Co., 543 S.W.3d 428, 436 (Tex. App.—Houston [14th Dist.] 2018, pet. filed); Nat’l Sec. Fire & Cas. Co. v. Hurst, 523 S.W.3d 840, 844 (Tex. App.—Houston [14th Dist.] 2017, pet. filed); Gusma Props., L.P. v. Travelers Lloyds Ins. Co., 514 S.W.3d 319, 329–330 (Tex. App.—Houston [14th Dist.] 2016, no pet.); Anderson v. Am. Risk Ins. Co., Inc., No. 01-15-00257-CV, 2016 WL 3438243, at *5 (Tex. App.—Houston [1st Dist.] June 21, 2016, no pet.) (mem. op.); Bernstien v. Safeco Ins. Co. of Ill., No. 05-13-01533-CV, 2015 WL 3958282, at *1 (Tex. App.—Dallas June 30, 2015, no pet.) (mem. op.); In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556, 563–564 (Tex. App.—Houston [14th Dist.] 2010, no pet.); Amine v. Liberty Lloyds of Tex. Ins. Co., No. 01-06-00396-CV, 2007 WL 2264477, at *5 (Tex. App.—Houston [1st Dist.] Aug. 9, 2007, no pet.) (mem. op.); Breshears v. State Farm Lloyds, 155 S.W.3d 340, 343 (Tex. App.—Corpus Christi 2004, pet. denied). 12 Quibodeaux v. Nautilus Ins. Co., 655 F. App’x 984, 988 (5th Cir. 2016); Performance Autoplex II Ltd. v. Mid- Continent Cas. Co., 322 F.3d 847, 861 (5th Cir. 2003). 13 Neff v. Allstate Vehicle & Prop. Ins. Co., No. 5:17-CV-191-DAE, 2019 WL 1560473, at *6 (W.D. Tex. Feb. 28, 2019); Dean v. State Farm Lloyds, No. 5:16-CV-1321-DAE, 2018 WL 6430534, at *8–9 (W.D. Tex. Nov. 20, 2018); Mattox v. Safeco Ins. Co. of Ind., No. 1:16-CV-1037-DAE, 2018 WL 3603102, at *4 (W.D. Tex. May 29, 2018); Gamez v. State Farm Lloyds, No. 5:17-CV-508-DAE, 2018 WL 2251364, at *1 (W.D. Tex. Mar. 19, 2018); SPJST Lodge #154 & Am. Sokol Org. v. Century Sur. Co., No. 4:15-CV-00710-O, 2017 WL 5642613, at *3 (N.D. Tex. Apr. 11, 2017); McEntyre v. State Farm Lloyds, Inc., No. 4:15-CV-00213, 2016 WL 6071598, at *6 (E.D. Tex. Oct. 17, 2016); Studer v. Lloyds, No. 4:13-CV-413, 2016 WL 4063782, at *8 (E.D. Tex. July 29, 2016); Barry v. Allstate Tex. Lloyds, No. 4:14-CV-00870, 2015 WL 1470429, at *6 (S.D. Tex. Mar. 31, 2015); Scalise v. Allstate Tex. Lloyds, No. 7:13-CV-178, 2013 WL 6835248, at *6 (S.D. Tex. Dec. 20, 2013); Michels v. Safeco Ins. Co. of Ind., No. A-12-CA-511-SS, 2013 WL 12076562, at *5 (W.D. Tex. Mar. 13, 2013); Mag-Dolphus, Inc. v. Ohio Cas. Ins. Co., 906 F. Supp. 2d 642 (S.D. Tex. 2012); Medistar Twelve Oaks Partners, Ltd. v. Am. Econ. Ins. Co., No. H-09-3828, 2011 WL 3236192, at *9 (S.D. Tex. July 27, 2011). 14 Graber v. State Farm Lloyds, No. 3:13–CV–2671–B, 2015 WL 3755030, at *10 (N.D. Tex. June 15, 2015) (concluding that “State Farm’s full and timely payment of the appraisal award [did] not preclude Plaintiff’s claim for statutory interest under the TPPCA as a matter of law” and denying State Farm’s motion for summary judgment on that issue).
3 Fifth Circuit later disapproved of that decision’s reasoning.15 In eight legislative sessions, not a
single bill has been introduced to correct or repudiate this unanimous caselaw.
Today, the Court holds that in 1991, the Legislature not only intended but clearly intended,
in plain language no less, to penalize the use of the appraisal process to resolve covered claims,
contrary to two dozen decisions of a dozen courts, which the Legislature has left undisturbed for
more than a decade. There is a better way to read the Act. I respectfully dissent.
I
Petitioner Barbara Technologies Corporation, managed by Bart and Barbara Spaur, owns a
small, commercial rental building in northwest San Antonio insured by respondent State Farm
Lloyds. The building has a flat, asphalt (modified bitumen) roof, which is a little more than 1,000
square feet in size and at least 20 years old. After a hailstorm on March 31, 2013, leaks developed,
and the Spaurs had most of the roof covered with an elastomeric (rubber-like) coating and had some
areas covered with roof cement (sealant). But more than six months later, hearing that the hotel
across the street and the adjacent strip shopping center were getting new roofs, Bart filed a claim
with State Farm on October 17. State Farm tried to reach the Spaurs by phone the next day and left
word to set up an appointment for an inspection. Bart called back on October 24, and the inspection
was scheduled for a few days later.16
15 Mainali Corp. v. Covington Specialty Ins. Co., 872 F.3d 255, 259 (5th Cir. 2017) (“The most fundamental problem with Graber is that it did not recognize an Erie court’s duty to follow state courts’ interpretation of state law rather than the interpretation the federal court thinks makes the most sense.”). 16 The record is conflicting whether the inspection took place on October 30 or 31.
4 On the day of the inspection, State Farm’s adjuster met Bart and his roofer at the building.
No roof damage was visible because of the coating and sealant, but the roofer insisted that
indentations underneath could still be felt. The adjuster disagreed. The part of the roof that had not
been covered with coating and sealant showed no hail damage, and a metal roof over the front
entryway was likewise undamaged. Air conditioning units on the roof were also undamaged, but
there were splatter marks showing the size of the hail. On November 4, State Farm notified Barbara
Technologies that it found only $3,153.57 in damage to the roof, which was less than the policy’s
$5,000 deductible.
Over three months later, on February 21, 2014, Barbara asked State Farm to have a different
adjuster reinspect the roof because several roofers had told her that the roof had hail damage.
Although State Farm was not obligated to conduct a second inspection, it agreed to do so. A
different adjuster met with the Spaurs and a new roofer on March 4. The roofer tried to expose dents
in the roof beneath the coating and sealant but could not do so. The next day, State Farm notified
the Spaurs that it still could find no evidence of the hail damage they claimed.
On July 14, Barbara Technologies sued State Farm for refusing to pay its claim. It asserted,
among other things, violations of the Act, statutory and common law bad faith, and breach of
contract. On January 9, 2015, State Farm invoked its right to an appraisal under the policy. The
policy provided:
If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. Each party will notify the other of the selected appraiser’s identity within 20 days after receipt of the written demand for an appraisal. The two appraisers will select an umpire. If the appraisers cannot agree
5 upon an umpire within 15 days, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.
On August 18, the Spaurs’ appraiser and the umpire awarded $195,345.63 in damages due to the
hailstorm. On August 25, five business days later, State Farm paid the award less appreciation and
the deductible—$178,845.25.
Barbara Technologies amended its petition to drop all its claims except for violations of the
Act. The trial court granted summary judgment for State Farm. The court of appeals affirmed,
adhering to its precedent, which we had declined to review, as well as “a long line of cases holding
that a full and timely payment of an appraisal award under the policy precludes an insured from
recovering penalties under the [Act] as a matter of law.”17
II
As noted at the outset, this Court has always viewed the appraisal process, in use for more
than a century, as a positive means for resolving insurance claims. The Legislature has expressly
provided for the appraisal of some claims.18 It is difficult to imagine that the Legislature could have
intended anything that would impede the utility of appraisals to insurers and insureds alike, that
courts would fail to recognize that intent for 28 years, or that the Legislature would itself acquiesce
in the failure.
17 566 S.W.3d 294, 296–297 (discussing Garcia, 514 S.W.3d at 275–276). 18 See, e.g., § 2210.574(b) (authorizing a claimant to demand appraisal of a loss under a windstorm-and-hail- damage insurance policy).
6 An appraisal establishes the amount of loss, but not liability, though ordinarily little or
nothing is left for trial. The right to request an appraisal does not arise until the insurer and insured
“disagree on the value of the property or the amount of loss”. Ordinarily, disagreement would be
precipitated by the insurer’s rejection of all or part of the claim. An appraisal cannot resolve a
disagreement over coverage. By the time an appraisal offers a means of resolution, coverage issues
should have been resolved.
The Act sets deadlines for the prompt payment of insurance claims.19 Within 15 days of
receiving notice of a claim, an insurer must acknowledge receipt, commence any investigation, and
“request from the claimant all items, statements, and forms that the insurer reasonably believes, at
that time, will be required from the claimant.”20 This need not be a one-time request. “An insurer
may make additional requests for information if during the investigation of the claim the additional
requests are necessary.”21 For ease of reference, I refer to all these materials as the “Info”. Within
15 days of receiving the Info, an insurer must notify the claimant “of the acceptance or rejection of
[the] claim”.22 Finally, within five days of accepting all or part of a claim, the insurer must pay the
amount accepted.23
19 I omit mention of various exceptions immaterial to the present case. 20 § 542.055(a) (emphasis added). 21 § 542.055(b). 22 § 542.056(a). 23 § 542.057(a).
7 Nothing in the Act suggests that after an insurer rejects a claim, the investigation cannot be
reopened, either at the claimant’s request or by the insurer on its own. Neither does the Act provide
for reopening an investigation. It is silent on the subject. In this case, after State Farm initially
rejected the claim, Barbara Technologies asked State Farm to take a fresh look with additional
information, which it did. Had State Farm decided that its first decision was wrong and that the
claim should be paid after all, nothing in the Act suggests that its reconsideration, in good faith,
would violate the deadlines. In that situation, the deadlines simply reset, lest the insurer be
incentivized to stand pat when it would not do so otherwise.
The Court says that “the rejection or acceptance of a claim is the insurer’s acknowledgment
that it had all the information it needed from the claimant to determine whether the claimant was
entitled to benefits under the policy.”24 But as noted, the Act requires only that an insurer request
Info that it “reasonably believes, at that time, will be required”.25 The necessary implication is that
other Info may be required later. The Court agrees that an insurer should reconsider its decision
based on new Info but then holds that if the insurer does so, it violates the Act’s deadlines. The only
way to serve the Act is to violate it.
The Act does not mention appraisals. It is unlikely that an appraisal would be requested by
either the insurer or the insured before a claim is rejected in whole or in part, since the policy right
to an appraisal is triggered by a “disagree[ment] on the value of the property or the amount of loss”.
But if a preclaim-determination appraisal were requested, the award would certainly be part of the
24 Ante at ___. 25 § 542.055(a) (emphasis added).
8 Info—information the insurer could reasonably need to evaluate the claim. And that information
would necessarily come from the claimant through the appraisal of his property. Accordingly, the
period for accepting or rejecting the claim would not begin to run until the appraisal award was
rendered. An appraisal performed after a claim has been initially rejected in whole or in part and the
investigation reopened should be treated no differently than one performed before an initial
rejection. Because an appraisal award cannot be contested, that amount becomes the amount of the
claim.
The Court concludes that an insurer’s request for an appraisal is not a request for Info to
determine the claim but an exercise of its contractual right under the policy.26 The one has nothing
to do with the other. An insurer’s exercise of its contractual right does not take away from the fact
that it unquestionably receives Info from an appraisal. As the Court acknowledges, an insurer could
hire its own third-party appraiser to provide Info as part of its investigation.27 There is no difference
between Info supplied by third-party appraisers acting independently or as part of an appraisal.
For violations, the Act contains two provisions for imposing penalties. Section 542.060(a)
states that “if an insurer that is liable for a claim . . . is not in compliance with this subchapter, the
insurer is liable to pay . . . , in addition to the amount of the claim, interest on the amount of the
claim at the rate of 18 percent a year as damages, together with reasonable and necessary attorney’s
fees.”28 Section 542.058(a)–(b) provides that if the insurer “delays payment of the claim” for more
26 Ante at ___. 27 Ante at ___ n.8. 28 Id. § 542.060(a).
9 than 60 days after receiving the Info, “the insurer shall pay damages and other items as provided by
Section 542.060” unless “it is found as a result of arbitration or litigation that a claim received by
an insurer is invalid and should not be paid by the insurer.”29 While Section 542.060(a) is broader,
both sections apply to delayed payments in the same way. An insurer is not “liable for a claim”
under Section 542.060(a) that is adjudicated invalid or nonpayable under Section 542.058(b).30
Several times the Court insists that the Act is clear, yet it cannot say whether Section
542.060(a) applies to this case or whether the standards for imposing a penalty—liable under
Section 542.060(a) and valid and payable under Section 542.058(a)–(b)—are equivalent. The Court
concludes that the burden of proving that the standard, whatever it is, has been met is on the
insured.31 But the effect of the Court’s application of these sections to payments of postclaim-
rejection appraisal awards is to make every appraisal request subject to the penalty. The insured
must still prove coverage, but coverage issues are not likely to subsist; otherwise, an appraisal would
not go far in resolving the claim and would not be requested. An appraisal can rarely, if ever, be
performed in 60 days. An insurer will escape the penalty only if the insured abandons the litigation.
At bottom, the Act’s complete silence on appraisals, in the Court’s view, discourages them, despite
their recognized value in resolving disputes, including the one in this case.
The 60-day period in Section 542.058(a) does not begin to run until the insurer has all the
Info needed to determine whether to accept or reject the claim. The amount of the claim is a critical
29 Id. § 542.058(a)–(b). 30 JUSTICE BOYD would hold that voluntary payment of a claim renders an insurer liable. See Ante at ___. In other words, unlike every other person or entity imaginable, an insurer cannot settle a claim without admitting liability. 31 Ante at ___.
10 piece of information that appraisal supplies. No one would argue that an adjuster’s assessment of
the amount of damages would be necessary in resolving the claim. That is no different if appraisers
perform the same claim’s adjustment as part of the appraisal process.
Courts have been unanimous in holding that the Act does not penalize prompt payment of
appraisal awards though made more than 60 days after the claim has been rejected in whole or in
part. Here is the Court’s analysis of those cases in full:
Although generally short on statutory analysis, we do not disagree with the crux of the courts of appeals’ opinions on which State Farm relies—use of the appraisal process to fully resolve a dispute as to the amount of policy benefits due, if owed at all, does not subject the insurer to TPPCA damages. . . . [W]e caution that to the extent these opinions could be read to excuse an insurer liable under the policy from having to pay TPPCA damages merely because it tendered payment based on an appraisal award, or to foreclose any further proceedings to determine the insurer’s liability under the policy, we disapprove of these opinions. Nothing in the TPPCA would excuse an insurer from liability for TPPCA damages if it was liable under the terms of the policy but delayed payment beyond the applicable statutory deadline, regardless of use of the appraisal process.32
I think this is a fair paraphrase: the crux of the courts’ opinions is that the Act does not penalize a
postclaim-rejection payment of an appraisal award, and we do not disagree with that; but the Act
does not excuse a postclaim-rejection payment of an appraisal award from its penalties, so we
disapprove of them. Well.
Barbara Technologies complains that by requesting appraisals, insurers delay payment in
order to exhaust insureds from pursuing payment. But as the Court acknowledges, an insurer that
does not timely request an appraisal waives its right,33 and an insurer that uses the appraisal process
32 Ante at ___ (citations omitted). 33 Ante at ___.
11 in bad faith is subject to suit under Chapter 541.34 Barbara Technologies does not explain why only
the Act’s penalties are adequate protection of its interests.
The result of today’s decision is this: If an appraisal is requested, either by the insurer or the
insured, after a claim has been rejected in whole or in part, and the insurer immediately pays the
award, it is nevertheless liable for 18% interest and attorney fees if the claim is later adjudicated to
be covered by the policy. Unless the insured gives up, litigation is unavoidable, either over the
rejection or over the penalty. If that does not make appraisal requests unlikely, it certainly makes
them less likely. The Court renders the appraisal process it praises of little use.
We are, of course, bound by the text of the Act and cannot rewrite it to achieve what we
think are better policies. Under the Act, an insurer is not to be penalized until it has received all
information necessary to evaluate a claim. But an appraisal award can be a critical part of that
information. The Court’s interpretation of the Act is inconsistent with its clear meaning; discourages
continued use of a century-old appraisal process that fosters settlements, which the Legislature
cannot possibly have intended; and upends 15 years of unanimous caselaw, which the Legislature
has had multiple opportunities to correct if wrong.
Accordingly, I respectfully dissent.
Nathan L. Hecht Chief Justice
Opinion delivered: June 28, 2019
34 Ante at ___.