On September 21, 2017 the U.S. Court of Appeals for the Fifth Circuit issued its decision in Mainali Corporation v. Covington Specialty Insurance Company, No.17-10350. This was a commercial property insurance case arising from a fire loss at a gas station and convenience store. Covington paid approximately $389,255.59 in actual cash value for the loss. After the insured filed suit alleging underpayment of the loss, Covington demanded appraisal and the appraisal award was for slightly less than the total actual cash value Covington had already paid. Nevertheless, Covington paid an additional sum to make up for a shortfall between its prior payment of an individual component of the loss and the appraisal award for that specific component. Covington then moved for and obtained summary judgment on the insured’s contractual and extra-contractual claims based on the timely payment of the appraisal award.
On appeal, the Fifth Circuit affirmed. The court first held that the insured failed to meet its burden, in connection with its contract claim, of demonstrating that the appraisal award omitted any items covered under the policy; therefore, timely payment of the appraisal award barred the contract claim. As for the insured’s Prompt Payment claim, the court followed the Texas cases holding that full and timely payment of an appraisal award precludes liability under the Prompt Payment provisions of the Insurance Code. The court also clarified that in diversity cases, federal district courts should follow the Texas cases on the Prompt Payment issue rather than the federal district court decision in Graber v. State Farm.
Partner Harrison Yoss represented Covington in the district court and he and Partner Wade Crosnoe represented Covington on appeal.