Prompt Pay And Appraisal

Llano County insurance lawyers need to know how the Prompt Payment of Claims Act works in situations where an appraisal clause is invoked.  An example is found in a Western District, Austin Division opinion styled, Thomas Cheski v. Safeco Insurance Company of Indiana.

On April 10, 2016, Cheski experienced severe weather, which damaged his home.  Cheski submitted a claim to Safeco.  On April 13, 2016, Safeco initially assessed the damage at a value less than the deductible.  Cheski requested a re-inspection and following the re-inspection, Safeco reassessed the claim at a value of $10,363.13 and issued payment of June 9, 2016.  Cheski continued to disagree and Safeco invoked appraisal on June 28, 2016.  On November 11, 2016, through the appraisal process, Cheski’s and Safeco’s appraisers agreed the amount of loss was $11,844.13 and Safeco issued payment for the difference on December 9, 2016.

Cheski sued Safeco alleging various violations of the Texas Insurance Code and Texas DTPA in addition to violation of the Prompt Payment of Claims Act and breach of contract.  Safeco contends its payment following the appraisal process precludes Cheski’s causes of action and moved for summary judgment.

Cheski contends that the eventual payment does not negate his claims for Safeco’s initial failure to timely pay the claim.

Safeco presented evidence that it paid the claim based on the appraisal award and cites to Texas law saying, “Under Texas law, an insurer’s timely payment of a binding and enforceable appraisal award, and the insured’s acceptance of the payment, estops the insured from maintaining a breach of contract claim against the insurer.  Accordingly, Cheski cannot maintain his breach of contract claim, and Safeco is entitled to summary judgement on that claim.  Similarly, Cheski cannot recover under his negligence claim, which is merely a breach of contract claim phrased in negligence terms.

An underlying breach of contract claim is required to prevail on bad faith claims and claims for statutory violations of the Texas DTPA and Insurance Code.  The two noted exceptions to this rule are the insurer’s: (1) failure to timely investigate the insured’s claim or (2) commission of some act, so extreme, that would cause injury independent of the policy claim.  Cheski did not show that the claim was not timely investigated or any evidence of an act, so extreme, that it caused an independent injury.

An insured may not seek Prompt Payment of Claims violations for any delay in payment between an initial payment and the insurer’s timely payment of an appraisal award.  Other courts have applied this rule more broadly and held that timely payment of appraisal award precludes any penalties under the Insurance Code’s prompt payment provisions.  Accordingly, following other courts in this Division, the Court found Cheski is not entitled to damages under the Prompt Payment of Claims statutes.