Appraisal In Insurance Claims

Almost all insurance contracts contain appraisal clauses.  These clauses are discussed in a January 2020 opinion from the Southern District of Texas, McAllen Division.  It is styled, Erasmo Gonzalez v. Allstate Texas Lloyds.

In this case, the Court had urged the parties to discuss appraisal early in the case and both parties assured the Court that appraisal would not be necessary.  Months later, Erasmo invoked the appraisal provision in the insurance contract.  This Court Ordered the appraisal and discussed it’s reasoning.

The appraisal process determines the value of damages, and courts decide liability.  Absent illegality or waiver, the Texas Supreme Court has generally held in favor of enforcing appraisal clauses because denying the appraisal would vitiate the insurer’s right to defend its breach of contract claim.  An insured waives its right to appraisal where (1) the parties reached an impasse; (2) there was unreasonable delay between the point of impasse and the insured’s demand for appraisal; and (3) the insurer shows it has been prejudiced by such delay.  Waiver requires intent, either the intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.

Erasmo claims there was an impasse after the case was mediated and that appraisal is now needed.  Allstate argues that the home had been vacant for two years previous to the loss and that until the coverage issue is resolved, appraisal is not appropriate and that in any event, appraisal had been waived by Erasmo.

Parties reach an impasse when there is a mutual understanding that neither will negotiate further and the parties are aware of the futility of further negotiations.  Disagreement over amount of loss does not constitute an impasse.  Further, ongoing negotiations, even when the parties disagree, do not trigger a party’s obligation to demand appraisal.

Erasmo identifies September 5, 2019 as the date of impasse, while Allstate has not identified any date that could constitute an impasse.  The Court concludes that an impasse did in fact begin after the parties negotiated and reached a mutual understanding that further negotiations would be futile on September 5, 2019.  Thus, the Court will now consider whether Erasmo’s invocation of appraisal on September 9, 2019 constituted unreasonable delay and whether this delay prejudiced Allstate.

Erasmo asserts he invoked appraisal without unreasonable delay.  Allstate’s argument that Erasmo has unreasonably delayed appears to be based on Allstate’s allegation that it denied Erasmo’s claim over two years ago in April 2017 on the grounds that Erasmo violated his policy’s vacancy provision.  Allstate further argues that, this is clearly an effort to use the appraisal clause in bad faith.  Waiver of appraisal is measured from the time that the right to invoke appraisal arose—the time of disagreement or impasse—not the time notice of suit or a Texas Insurance Code claim is received.  Courts measure delay from the point of impasse by examining the parties’ conduct and surrounding circumstances.  Such measure goes beyond the amount of time involved in seeking appraisal.

As noted above, the Court concludes the parties reached an impasse on September 5, 2019.  Whether Erasmo unreasonably delayed waiving the right to appraisal is measured from the time of disagreement or impasse, not the time notice of suit or a Texas Insurance Code claim is received.  Allstate’s argument that the passage of time between the parties’ initial dealings in 2017 and the parties’ instant dealings constitutes unreasonable delay is unpersuasive given that no impasse existed during this time frame.  While Allstate may have chosen to defend this claim for as long as it has without raising the coverage issue, such does not constitute a waiver on Erasmo’s part.  Erasmo invoked his right to appraisal four days after the parties reached an impasse.  Thus, Erasmo did not unreasonably delay in demanding appraisal from the point of impasse.

Erasmo argues that because there was no unreasonable delay, there can be no prejudice.  Allstate argues that the passage of time and potential deterioration of the property prejudices Allstate ability and the appraiser’s ability to determine the extent of damage to the property that might be attributable to the storm, what changes have occurred in the interim and arguably, exacerbated by the costs of repairs, if any.

Mere delay is not enough to find waiver of appraisal.  No waiver of an insured’s right to appraisal exists in the absence of a chowing of prejudice to the insurer.  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 had been reached, it can avoid prejudice by demanding appraisal itself.

This Court allowed the appraisal to proceed.