Expert Commentary

Prompt Payment of Appraisal Award Defeats Bad Faith

Laypeople, and some of their lawyers, believe that if they are not promptly paid exactly what they want on a claim without question, it is sufficient to establish a bad faith claim. In Texas, at least, the insured must prove that the insurer breached the contract and acted in a conscious way to deprive the insured of the benefits of the contract. Failure to produce proof defeats a bad faith claim.


Claims Practices
July 2016

In Anderson v. American Risk Ins. Co., Inc., 2016 Tex. App. LEXIS 6538 (Tex. App. Houston 1st Dist. June 21, 2016), Vanessa Anderson appealed from the trial court's rendition of summary judgment in favor of American Risk Insurance Company, Inc. (ARIC). Anderson brought contractual and extracontractual claims against ARIC related to an insurance coverage dispute that arose after her house was damaged during a storm. After paying the appraisal award, ARIC moved for summary judgment on all claims. The trial court granted summary judgment and rendered a take-nothing judgment.

Facts

Anderson's residence in Spring, Texas, was covered by an ARIC homeowners insurance policy. During a storm on June 12, 2012, a tree fell through the roof of her home. All told, one bedroom and one bathroom were destroyed by the tree, and the home had no water, power, or air conditioning.

ARIC's summary judgment evidence showed that within 3 days of the tree falling, Steve Mazey inspected the property on behalf of ARIC. Mazey estimated the total loss at $58,784.05.

From June to September 2012, ARIC made a series of payments to Anderson totaling $52,475.22. Anderson lived at the apartment complex Marquis at Woodlands from August 11, 2012, through October 10, 2012. According to her affidavit, she accrued late fees because ARIC was slow to reimburse her, though she was "very prompt about submitting" receipts.

On November 8, 2012, Anderson sent a demand letter to ARIC seeking $300,000 to settle her claims: $200,000 for actual damages, $25,000 for mental anguish, and $75,000 for attorney fees and expense amounts that had nothing to do with the falling tree. ARIC did not pay, and she filed suit, asserting claims for breach of contract; breach of the common law duty of good faith and fair dealing; various violations of Chapter 541 of the Texas Insurance Code and Deceptive Trade Practices Act (DTPA); and violations of the prompt payment provisions set forth in Chapter 542 of the Texas Insurance Code.

ARIC invoked its right to appraisal, as provided for under the policy. After many delays, some caused by her appraiser, an award was rendered and ARIC issued checks to Anderson on August 8, 2014, in payment of the appraisal award.

ARIC further asserted that it was entitled to judgment as a matter of law on the extracontractual claims because there was a bona fide dispute about the amount of covered damages, and Anderson's alleged damages are barred by the economic loss rule. Finally, ARIC argued that no genuine issue of material fact existed on the misrepresentation and fraud claims because Anderson had not identified any particular false representation that she relied on to her detriment.

Analysis

Anderson contended that the trial court erred in granting summary judgment in favor of ARIC because of material issues of breach of contract. In her petition, Anderson alleged that ARIC was liable for breach of contract because it failed "to pay appellant's benefits relating to the cost to properly repair" her property. ARIC argued that it was entitled to judgment as a matter of law on Anderson's breach of contract claim because the claim was precluded by ARIC's appraisal award payment.

The Texas Supreme Court has long recognized the validity of appraisal provisions, which provide a means to resolve disputes about the amount of loss for a covered claim. When an insurer makes timely payment of a binding and enforceable appraisal award, and the insured accepts the payment, the insured is estopped by the appraisal award from maintaining a breach of contract claim against the insurer.

The undisputed evidence showed that ARIC invoked the appraisal process, as provided for under the policy, to determine the value of Anderson's claim. Both parties appointed appraisers and agreed on an umpire. By August 1, 2014, the appraisal award was set. One week later, ARIC tendered payment of the appraisal award after accounting for the deductible, prior payments, and policy limits. Accordingly, the summary judgment record conclusively showed that ARIC fulfilled its obligations under the contract.

The fact that ARIC did not pay the amount of the award earlier, alone, did not raise a fact issue on Anderson's claim for breach of contract. The court of appeal concluded that the trial court correctly rendered summary judgment in favor of ARIC on Anderson's breach of contract claim.

Extracontractual Claims

The summary judgment evidence demonstrated that the parties participated in the appraisal process and that an appraisal award was determined on August 1, 2014. It was undisputed that ARIC issued checks in full payment of the appraisal award on August 8, 2014—well within the timeliness requirements of the statutes. Because the summary judgment evidence conclusively demonstrated that ARIC fully and timely paid the appraisal award, Anderson was precluded from maintaining her prompt payment claim as a matter of law.

Breach of the Duty of Good Faith and Fair Dealing

Anderson alleged that ARIC breached its common law duty of good faith and fair dealing "by denying [Anderson's] claims or inadequately adjusting and making an offer on [Anderson's] claims without any reasonable basis, and by failing to conduct a reasonable investigation to determine whether there was a reasonable basis for these denials." ARIC argued on appeal, as it did in the trial court, that it is entitled to judgment as a matter of law on Anderson's common law bad faith claim because there was no breach of contract, and even had there been, there was a bona fide dispute about coverage.

Under Texas law, an insurer has a duty to deal fairly and in good faith with its insured in the processing and payment of claims. An insurer breaches this duty of good faith and fair dealing if the insurer knew or should have known that it was reasonably clear that the claim was covered, but denies or unreasonably delays payment of the claim. However, absent a breach of contract, the insured cannot maintain a common law bad faith claim in Texas unless the insurer commits some act so extreme that would cause injury independent of the policy claim or fails to timely investigate the insured's claim. Evidence establishing only a bona fide coverage dispute does not demonstrate bad faith.

Here, ARIC's payment of all covered damages extinguished any breach of contract claim arising from the dispute. Thus, to avoid summary judgment on her common law bad faith claim, Anderson had the burden to raise a genuine issue of material fact that ARIC committed some act so extreme that would cause injury independent of the policy claim or failed to timely investigate her claim. The summary judgment evidence demonstrates only a bona fide dispute about the amount necessary to compensate Anderson for covered damage to her home. Within 15 days of receiving notice of a claim, insurers are required to acknowledge receipt of the claim, commence investigation of the claim, and request items and forms that the insurer reasonably believes, at that time, will be required from the claimant. Undisputed summary judgment evidence shows that on June 15, 2012—3 days after Anderson reported the claimed loss—a representative of ARIC inspected the property.

In sum, because Anderson's breach of contract claim failed, and she failed to show that ARIC caused her to suffer some injury independent of her policy claim or failed to timely investigate her claim, the court concluded that there was no genuine fact issue on Anderson's common law duty of good faith and fair dealing claim, and thus, the trial court did not err in rendering judgment as a matter of law on this claim in favor of ARIC.

Conclusion

To assert the tort of bad faith, the plaintiff must prove that the insurer acted intentionally to deprive her of the benefits of the contract. The evidence presented established that the insurer acted to thoroughly investigate her claim within days of her first report and to pay her claim promptly as it determined, and then paid the difference between its finding and an appraisal award. Although it has been said that "no good deed goes unpunished," the court protected ARIC, but it was required to defend itself at trial and in the appellate court for doing everything right.


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