Bad Faith And Appraisals

Bad faith claims are a common source of litigation.  A 2020, opinion from the Southern District of Texas, Houston Division, discusses bad faith claims in the situations where an appraisal clause in the insurance contract allows for appraisal and that clause is invoked.  The case is styled, Braulio Reyna v. State Farm Lloyds.

Reyna was insured by a State Farm policy which covered loss to his home.  This homeowners policy contained an appraisal clause.  The home suffered storm damage during the policy period.  A claim was timely made.  State Farm had the home adjusted by one of its adjusters and made payment of the claim.  State Farm later paid more money on the claim based on a reevaluation.

Next, Reyna requested another investigation on the damages and State Farm sent an additional small amount.  Reyna then invoked the appraisal clause in the insurance contract and the appraisal resulted in a much higher estimate of damages which State Farm immediately paid.

Reyna received the monies, then sued State Farm for breach of contract, violations of the Texas Prompt Payment of Claims Act, and for bad faith.

State Farm filed a motion for summary judgment based on its contention that payment had been timely made and thus, there was no breach of contract.  Reyna responds stating that State Farm should have paid the full amount at the beginning rather than months later, after the appraisal.

Here, State Farm responded to Reyna’s original claim, the reinspection request, and the appraisal award, with payments within the statutory 60-day period.  Reyna’s Prompt Payment of Claims Act claim, like that of the homeowners in other Texas cases, is based on not receiving the amount established by appraisal within 60 days of the original insurance claim, but that is not required by the Prompt Payment of Claims Act.

State Farm argues that its pre-appraisal payments were reasonable.  Reasonableness is harder to assess where, as here, a subsequent appraisal shows the initial payment to have been too low, but courts have found a pre-appraisal award to be reasonable, even when the appraisal award is 6.8 times greater than the pre-appraisal payments.  Here, the appraisal award was only 3.9 times greater than the pre-appraisal payments.  State Farm is entitled to summary judgment on Reyna’s Prompt Payment of Claims Act claim because it complied with the statutory deadlines and made reasonable payments.

State Farm argues that Reyna cannot maintain extra-contractual causes of action, including for bad faith, because he has no right to additional policy benefits and has not alleged an independent injury.  Reyna does not respond to this point.

The Texas Insurance Code , Section 541.151, authorizes a private action against an insurer that commits “an unfair or deceptive act or practice in the business of insurance” that causes damages to another.  The Texas Supreme Court recently held that “the insurer’s payment of the [appraisal] award bars the insured’s . . . common law and statutory bad faith claims to the extent the only actual damages sought are lost policy benefits.”

Reyna’s claim is based on the difference between the appraisal award and State Farm’s pre-appraisal estimates and payments.  Reyna does not address this issue in his response to State Farm’s summary judgment motion, presenting no evidence of an independent injury.  State Farm is entitled to summary judgment on Reyna’s bad-faith claim.

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