When Is An Appraisal Waived By The Insurer?

Insurance lawyers who handle home owners claims need to read this opinion from the 14th Court of Appeals.  It is styled, Ron Pounds v. Liberty Lloyds of Texas Insurance Company.

This case concerns whether an insurer waived appraisal of a homeowner’s insurance claim by denying it.  A summary judgment in favor of Liberty was granted by the trial court.

The facts in this case are undisputed.  Pounds purchased a home insurance policy from Liberty.  The policy covered damage caused by wind and or hail.

The policy included an appraisal provision.  The policy did not set a time limit for invoking appraisal.  The policy also provided that “a waiver or change of a provision of this policy must be in writing by Liberty to be valid.”

Pounds made a claim alleging the wind or hail damage.  An adjuster from Liberty inspected the damage and concluded there was no storm related damage.  Liberty sent a letter to Pounds denying the claim because “no storm related damages were found.”  The letter concluded by informing Pounds that if he had any questions or concerns about his claim, he could contact Liberty’s claims representative by phone or email.

Pounds responded to the letter by suing Liberty.

After an unsuccessful mediation, Liberty invoked the policy’s appraisal clause to determine the amount of loss.  Pounds refused to participate in the appraisal, claiming Liberty’s claim denial as justification and waiver of appraisal.

Appraisal clauses are common in homeowners policies and provide a means to resolve disputes about the amount of loss for a covered claim.  Appraisal clauses are generally enforceable, barring illegality or waiver.  This remains true even when an insurer denies coverage, as the appraiser can still set the amount of loss in case the insurer turns out to be wrong.

To waive rights under an appraisal clause, a party must intend to relinquish a known right or engage in intentional conduct inconsistent with claiming that right.

The Texas Supreme Court in “In re Universal Underwriters” concluded that “denial of an insured’s claim does not, by itself and in all circumstances, always constitute an intentional relinquishment of the insurer’s rights under the policy’s appraisal provision; nor does it constitute intentional conduct inconsistent with claiming these appraisal rights.”  The policy language and the surrounding circumstances must also be considered.

Applying the “Universal” test, Pounds has not demonstrated that Liberty Lloyds waived its right to invoke appraisal.  The policy guards against implied waiver by providing that “a waiver or change of a provision of this policy must be in writing by Liberty to be valid.”  The denial letter itself does not mention appraisal, and Pounds does not point to anything else to indicate waiver.  Further, although Liberty explained in the letter that it was denying Pound’s claim because “no storm related damages were found,” it also invited Pounds to contact the claims representative if he had any questions or concerns about his claim.  This indicates an impasse had not been reached, as Liberty was not foreclosing further negotiation on Pound’s claim.  Finally, when Pounds filed suit, Liberty reserved its appraisal rights in its answer and also in correspondence sent during the course of the litigation.

The Texas Supreme Court has observed that it is difficult to see how prejudice could ever be shown when the policy, like the one here, gives both sides the same opportunity to demand appraisal.  If a party senses that impasse has been reached, it can avoid prejudice by demanding an appraisal itself.  Thus, this Court concluded Pounds had not established that he was prejudiced by Liberty’s demand for appraisal.