Appraisal & Attorney’s Fees: Hail No!

Background

The certified question arose from a residential first party tornado claim.

On May 25, 2019, a tornado struck Rodriguez’s home, and he filed a claim on his policy with Safeco. Safeco acknowledged the claim, inspected the property, and issued payment in the amount of $27,449.88. Dissatisfied with Safeco’s adjustment Rodriguez retained counsel who sent a demand letter under chapter 542A of the Texas Insurance Code claiming Safeco owed an additional $29,500. Rodriguez eventually sued on June 18, 2020 alleging common first party causes of action including breach of contract and statutory claims under the Texas Insurance Code. Safeco removed the case to federal court. After a failed mediation, Safeco invoked the policy’s appraisal provision. On April 5, 2022, an appraisal award was issued in the amount of $71,840.25. On April 12, 2022, after accounting for prior payments and other amounts, Safeco issued the appraisal payment of $32,447.73, constituting full payment of the appraisal amount.

Rodriguez did not dispute Safeco’s payment of the award nor did he dispute that Safeco issued payment in a timely fashion. Simultaneously with the award, Safeco issued payment of $9,458.40, attributable to potential interest under chapter 542A. Following these payments, Safeco moved for summary judgment urging that full payment of the award and potential interest supported dismissal of the litigation and Rodriguez’s ability to recover attorney’s fees. The district court agreed with Safeco and granted summary judgment. Rodriquez then appealed to the 5^th Circuit, which then certified the question.

Opinion From the Court

Justice Blacklock, who authored the Rodriguez opinion, articulated the mathematical calculation contained in §542A.007(a)(3) as “somewhat detailed but it is not unclear or ambiguous.” According to Justice Blacklock, “§542A.007(a)(3) provides the calculation for attorney’s fees by (1) dividing the amount to be awarded in the judgment to the claimant for the claim under the policy for damage or loss of covered property by (2) the amount alleged to be owed on the claim for that damage. Typically, the amount alleged to be owed can be established in the claimant’s 542A.003 notice letter sent to the insurer. The result from the initial step is then multiplied by the “total amount of reasonable and necessary attorney’s fees supported at trial as prescribed by §542A.007(a)(3)(B).”

The Supreme Court’s prior landmark decisions in Menchaca and Ortiz severely limited a policyholder’s ability to recover on breach of contract and bad faith claims following the payment of an appraisal award. However, Ortiz left open the question of whether the payment of an appraisal award foreclosed damages under the Texas Prompt Payment of Claims Act (“TPPCA”).

Insurers attempted to close the door left open in Ortiz by paying interest in conjunction with the payment of an appraisal award, leaving only the recovery of attorney’s fees.

While Rodriguez’s argument rested largely on presumed legislative intent to allow recovery of attorney’s fees, the Rodriguez court disagreed, relying instead upon a bedrock principle for courts to follow plain and unambiguous legislative provisions. Applying this fundamental construct to § 542A.007 means the mathematical calculation provided by statute results in no attorney’s fees when an insurer pays the appraisal award and the potential interest owed.

This opinion will certainly and meaningfully impact residential and commercial property claims, primarily decisions about when to invoke appraisal and whether to pay appraisal awards even when coverage is disputed.  Rodriguez hopefully moves the Texas property insurance industry toward efficient, effective resolution of “force of nature” insurance disputes.