Insurance Claims And Appraisal

Probably all auto and home insurance policies have appraisal paragraphs in them.  So how do the Courts view appraisal paragraphs?  This is discussed in a 2022, opinion from the Western District of Texas, San Antonio Division.  The opinion is styled, Diane Castanon, Katherine Castanon v. Safeco Insurance Company of Indiana.

This is a lawsuit that arises from a plumbing claim.  A plumbing leak is alleged to have occurred on or about July 20, 2019.  Plaintiffs sued Safeco on July 20, 2021, for various violations of the Texas Insurance Code and breach of contract.

The wording of the appraisal paragraph can be read in the opinion.

More than two years after the date of loss and six months after filing this lawsuit, Plaintiffs demanded appraisal on February 10, 2022.  Safeco declined to participate in the appraisal process on February 25, 2022.  Plaintiffs then filed the instant motion to compel the appraisal and to abate the litigation during appraisal.

The Parties dispute whether Plaintiffs’ invocation of the appraisal clause of the policy at issue is proper at this stage in the proceedings.  Plaintiff maintains that appraisal is best resolved through the appraisal process.  However, Safeco contends that Plaintiffs have waived their right to demand appraisal and rendered appraisal impossible by repairing the alleged damage.

In Texas, enforcement of appraisal clauses is strongly favored, absent illegality or waiver.  Waiver requires intent, either the intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.  The party challenging the validity or enforceability of an appraisal clause based on waiver bears the burden of establishing (1) waiver by conduct of the party seeking appraisal and (2) prejudice to itself.  While waiver is typically a fact question, whether certain circumstances constitute waiver is a question of law that a court may decide.

When an insurance policy is silent regarding the deadline to invoke an appraisal clause, the demand for an appraisal must be made within a reasonable time.  Unreasonable delay in demanding appraisal is a factor in favor of finding waiver.  However, reasonableness must be measured from the point of impasse.  An impasse is not the same as a disagreement about the amount of the loss.  Rather, the parties reach an impasse when there is a breakdown of good-faith negotiations, or where further negotiations would be futile, or would be of no effect if performed.

Safeco contends that the parties reached an impasse on March 11, 2020, when it denied Plaintiffs’ claim. Since that date, it argues, “Safeco’s position has been consistent . . . regarding the coverage dispute.  Safeco further submits that no subsequent settlement offers or attempts at negotiation have been made since that date.  In the alternative, Safeco submits that the parties reached an impasse on March 19, 2021, when Plaintiffs’ counsel sent Safeco a pre-suit notice as required by the Texas Insurance Code for what Plaintiffs contended were “actual damages owed.  Plaintiffs do not dispute Safeco’s version of the facts.

Here, there is no indication of direct communication between the parties about Plaintiffs’ claim after Safeco denied coverage for Plaintiffs’ claim or after Plaintiffs sent their demand letter, and since that time, Plaintiffs have filed the instant lawsuit.  In such circumstances, courts have found the parties have reached an impasse.  This Court concludes the same.

Even assuming the Parties reached an impasse in March 2021, Plaintiffs’ appraisal demand
was unreasonably delayed.  At that time, Plaintiffs were on notice that they had the right to invoke the appraisal clause but failed to do so.  A one-year delay between impasse and an appraisal demand is unreasonable.  Accordingly, the Court finds that Plaintiffs’ delay in demanding appraisal is unreasonable.

However, delay alone is not enough; Safeco must also demonstrate 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.  Safeco has met its burden to show prejudice. Plaintiffs have repaired the alleged damages to their property, making it impossible for an appraisal panel to assess the alleged damages.  Further, the Parties have already engaged in expert discovery and have incurred litigation expenses.  While Plaintiffs argue that continuing discovery would “only increase the cost of litigation when the parties may be able to complete resolution through the more efficient, less costly avenue of appraisal,” they ignore that appraisal cannot resolve the central coverage dispute at issue in this lawsuit.  An appraisal, at this stage, will only further delay the litigation and serve no purpose as repairs have already been completed.  Thus, the Court concludes that Plaintiffs have waived appraisal.

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