Does Payment of an Appraisal Award Wipe Out Claims Handling Insurance Code Violations?

J. Ryan Fowler | Property Insurance Coverage Law Blog | July 5, 2019

The Texas Supreme Court recently answered the question above in two cases with different results depending on what type of insurance code violations the insured is alleging. The court addressed Texas Insurance Code chapter 542 violations (often called prompt payment of claims) in Barbara Technologies Corporation v. State Farm Lloyds.¹

In Barbara Technologies, the court held that an insured may proceed on a claim under Chapter 542 even after the insurance company invokes the policy appraisal provision and ultimately pays the appraisal award.

However, on the same day, the Texas Supreme Court addressed violations of Chapter 541 of the Texas Insurance Code (often called bad faith claims practices) in Ortiz v. State Farm Lloyds.² In Ortiz, the court held that an insurance company’s payment of an appraisal award bars the insured’s breach of contract claim and the insured’s common law and statutory bad faith claims to the extent that the only actual damages sought are lost policy benefits.

Both cases involved the insurance company invoking appraisal during litigation and ultimately paying the appraisal award after it was issued. Reading the two cases together highlights the differences in Insurance Code violations and what claims are still viable after appraisal. To simplify, the court held that:

1. An insured’s breach of the insurance contract claim is barred;
2. An insured’s common law bad faith claims are barred when the insured is only seeking policy benefits;
3. An insured’s Chapter 541 claims are barred when the insured is only seeking policy benefits; and
4. An insured’s Chapter 542 claims remain viable.

The court made it clear however to prosecute Chapter 542 violations and ultimately recover damages under the statute the insured must still carry the burden of proof and establish that it is entitled to the prompt payment of damages. The court rejected the insured’s argument that when an insurer pays an appraisal award, it accepts liability on a claim and pays policy benefits as actual damages that it is strictly liable for statutory penalties under the prompt payment of claims act.³

Ultimately the court has attempted to clarify the law as it relates to the payment of appraisal awards and Texas Insurance Code violations. If you have a question relating to an insurance claim that has been through the appraisal process contact an experienced insurance attorney.
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¹ Barbara Technologies Corporation v. State Farm Lloyds, No. 17-0604 (Tex. June 28, 2019).
² Ortiz v. State Farm Lloyds, No. 17-1048 (Tex. June 28, 2019).
³ Barbara Technologies.