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Fifth Circuit Reinstates Appraisal Award Set Aside by Trial Court
09.18.13
On September 17, 2013, the United States Court of Appeals for the Fifth Circuit issued an opinion in TMM Investments, Ltd. v. Ohio Casualty Ins. Co., reversing a trial court’s order invalidating an appraisal award and reversing the bench trial verdict awarding contractual damages, prejudgment interest, and attorneys’ fees in a case involving hail damage.

TMM owned a shopping center in Texarkana, Texas, allegedly damaged in a June 2006 hail storm. TMM submitted a sworn proof of loss to Ohio Casualty for $679,725.68. Ohio Casualty estimated the damage to be $17,949 and paid that amount to TMM. TMM invoked appraisal, and the parties named their appraisers who selected an umpire. Ohio Casualty’s appraiser contended that the amount of damage at issue was not caused by a covered peril, and TMM’s appraiser resigned citing concerns as to how the appraisal was being conducted.

Ohio Casualty’s appraiser and the umpire entered an award for a replacement cost of $73,014.83 and actual cash value award of $49,632.63. The award did not include $2,794.80 for damage to the HVAC system that was included in both appraisers’ estimates. Ohio Casualty paid the award plus the $2,794.80 for the HVAC damage.

TMM refused to accept the appraisal award payment and filed suit to invalidate the appraisal award. After discovery and depositions, Ohio Casualty moved for summary judgment, and TMM filed a cross-motion seeking to set aside the appraisal award, arguing the appraisal was improper as it considered causation and coverage issues. The district court granted judgment for TMM and invalidated the appraisal award. The court impaneled an advisory jury which found that the cost to repair the property was $654,795.84. The court conducted a bench trial and found that Ohio Casualty breached the contract and awarded the ACV amount of $445,261.17, plus costs, attorneys’ fees, and prejudgment interest running from October 6, 2008. Both parties appealed the trial court’s verdict.

The Court of Appeals found that the trial court was correct in determining the umpire was without authority to exclude the HVAC damages from the appraisal award as there was no disagreement on that amount between the two appraisers. The Court concluded that the omission did not justify invalidating the entire award, however, and noted that “minor mistakes that do not taint the entire award should not frustrate the parties’ intent to be bound by the appraisal provision of their contract.”

The Court also reversed the trial court’s finding that the appraisal panel exceeded its authority in determining issues of causation and applied the Texas Supreme Court’s rationale in State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), which observed that appraisals often include some causation element. The district court invalidated the appraisal award due, in part, to its conclusion that the appraisers contributed the damages to differing causes. Noting that TMM acknowledged multiple causes of damage, including wear and tear, the Fifth Circuit held that Johnson appeared to foreclose invalidating the appraisal award as it was “entirely appropriate” for the appraisers to consider whether damage was caused by pre-existing conditions.

Finally, the Fifth Circuit held that TMM did not have a valid claim for breach of contract, because Ohio Casualty tendered the amount set forth in a valid appraisal award, plus the amount for damages to the HVAC system. Ohio Casualty’s payment, even though refused by TMM, satisfied Ohio Casualty’s contractual obligations. As a result, TMM was not entitled to an award of attorneys’ fees and costs. The Fifth Circuit’s analysis on this point was limited, with little reference to Texas case law.