Delay In Paying Claim After An Appraisal

Insurance lawyers in Mansfield and elsewhere should be able to explain to clients when payment is due under a claim. There are many situations and the situation determines when the claim should be paid and if a penalty applies.
The U.S. Western District Court of Texas, Waco Division issued an opinion in Cater v. State Auto Property & Casualty Insurance that needs to be read.
This is a case that was decided on two dueling motions for summary judgment.
This lawsuit arises from an insurance dispute where Carter (the insured) is suing State Auto to recover damages for breach of contract, bad faith, and violation of the Prompt Payment of Claims Act, Section 542.058, based on the handling of Carter’s hail damage claim. On June 15, 2014, State Auto evaluated Carters claim for hail damage and determined that $3,000 was required to fix the roof. Carter accepted the $3,000 and then on October 3, sued for underpayment. On November 3, 2014, State Auto invoked the appraisal division. The appraisal ultimately set the amount needed to fix Carter’s roof at $49,000, which State Auto promptly paid.
The essential elements of a breach of contract claim are: (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of contract by the defendant; and (4) damage sustained as a result of the defendant’s breach. A breach occurs when a party fails to perform a duty required by the contract.
A claim for bad faith will exist when the insured failed to properly ascertain whether there is any reasonable basis for a denial or delay of payment. The insured must establish that: (1) the insurer had no reasonable basis for denying or delaying payment of the benefits under the policy; and (2) the insurer knew or should have known that there was no reasonable basis for denying the claim or payment. The facts at the time the claim was denied determine whether there is a reasonable basis for the insurer to deny the claim.
Liability under Section 542.058 arises when the insurer wrongfully rejects or delays payment of an insured’s claim.
In Texas, an appraisal award that is higher than the amount originally paid is not evidence of breach of contract. This is especially true when a contract, like the policy at issue in this case, provides for resolution of disputes through an appraisal process.
Here the appraisal process was completed and State Auto tendered the full amount immediately by Overnight delivery in accordance with the terms of the policy. Thus, State Auto did not breach the contact.
A bad faith claim cannot stand alone unless the insurer commits an act so extreme that it causes independent damages. No such acts are alleged in this lawsuit.
When the appraisal process is invoked and the claim is paid, the insurer’s liability for the initial underpayment becomes extinguished.
Irrespective of whether the insured initially underpays the claim, compliance with a contract’s appraisal provision extinguishes claims for attorneys’ fees and statutory interest stemming from a prompt pay deadline imposed by Section 542.058.
Thus, judgment for State Auto.