Insurance And Appraisal

Appraisals are a reality in most insurance policies, regardless if you live in Grand Prairie, Arlington, Fort Worth, Dallas, Mansfield, or anywhere else in the state of Texas.
The United States District Court, Southern District, Houston Division, issued an opinion on July 1, 2011, in the case styled, EDM Office Services, Inc. v. Hartford Lloyds Insurance Company, et al.
This was a lawsuit to recover insurance proceeds and damages under the Texas Insurance Code and common law. Hartford was demanding an appraisal pursuant to the insurance policy and EDM was saying that Hartford had not complied with the conditions precedent identified in the insurance policy for appraisal because it had not conducted a reasonable investigation of the claim as required by Texas Insurance Code, Section 541.060(a)(7). Plus, EDM argued that even if Hartford was entitled to the appraisal, that Hartford had waived its right to the appraisal.
The court in this case agreed with Hartford and ordered that the appraisal take place before the litigation continued.
A brief background shows that EDM suffered damage to a building after Hurricane Ike. Hartford conducted estimates that did not satisfy EDM. Plus there was an argument related to lost profits. There was disagreement as to the exact reasons why the claim was not fully paid with both EDM and Hartford making allegations towards each other. EDM filed this lawsuit and nine months later, Hartford moved to compel appraisal.
In making an analysis of the appraisal provision in the insurance policy, the court basically said that Texas insurance policies frequently include provisions specifying appraisal to resolve disputes about the amount of loss under the policy. An appraisal clause binds the parties to have the extent or amount of the loss determined in a particular way. The effect of an appraisal provision is to estop one party from contesting the issue of damages in a suit on the insurance contract, leaving only the question of liability for the court. An appraiser must “decide the amount of loss,” not construe the policy or decide whether the insurer should pay. Unless the amount of loss will never be needed … appraisals should generally go forward without preemptive intervention by the courts.
The court also said that even if it assumed that Hartford failed to comply with the conditions precedent to provisions of the insurance policy, that did not prevent Hartford from seeking appraisal .
Rather than the condition precedent issue being the biggest issue discussed by the court, they spent most their time discussing whether or not there had been a “waiver” by Hartford, because of the amount of time that had passed before Hartford sought the appraisal process.
In discussing the waiver issue the court said, “The contractual right to appraisal may be waived.” Waiver is defined as the intentional relinquishment of a known right. Courts applying Texas law follow the standard articulated in the case, Scottish Union & National Insurance Company v. Clancy, an 1888, Texas Supreme Court case. This very old case and court said, “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.”
This court then looked at other Texas law that points out that “Mere delay is not enough to find waiver; a party must show that it has been prejudiced. Prejudice to a party may arise in any number of ways that demonstrate harm to a party’s legal rights or financial position.” 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.
In conclusion this court said, “The parties have reached an impasse. They could not successfully mediate their claims. EDM argues that Hartford delayed seeking appraisal. EDM, however, has not demonstrated prejudice. Mere delay is not enough to find waiver; a party must show that it has been prejudiced.”