The Payment Of Appraisal Awards – Not Quite A Bar

Kelly McKee | Kane Russell Coleman Logan

A frequently encountered question in the insurance world is whether payment of an appraisal award forecloses or bars first party claims against an insurer by the insured, and if so, under what circumstances. The Texas Supreme Court has taken this matter up in numerous cases in the last several years, but which claims are barred by payment of an appraisal award is still partially unresolved. Three recent decisions from the Texas Supreme Court have provided guidance on the correct interpretation of Texas Prompt Payment of Claims Act (“TPPCA”) claims, but questions still remain.

Texas Prompt Payment of Claims Act

In three recent decisions, the Texas Supreme Court reiterated its prior position, that payment of an appraisal award does not automatically entitle an insurer to summary judgment on an insured’s TPPCA claims.1  In short, the TPPCA requires insurance claims under certain types of policies to be investigated, and paid or denied, within a certain prescribed period. If they are not, those claims can be subject to the award of an eighteen percent statutory interest rate from the time of accrual, prejudgment interest, and attorney’s fees.2  

In both Alvarez & Lazos, the dispute started when the insurer’s initial inspection led them to provide an estimate to the insured indicating that the insured’s residential wind and hail damage claims fell below their deductibles. Later, the insurers conducted a second inspection, which included additional damages, resulting in an increased estimate, and made payment.  However, the insureds still believed the estimates undervalued their damages, and each filed suit. In both suits, an appraisal was ordered by the trial court. These appraisals valued the damages higher than any prior estimate in each respective case, which the insurer in each case promptly paid. After making the payments, the insurers each moved for summary judgment, arguing that their contractual obligation to pay had been satisfied.

In both cases, the trial court granted summary judgment for the insurer, and the court of appeals affirmed.3 The Texas Supreme Court, reversing and remanding both decisions, found that the claims for damages under the TPPCA were not barred by payment of appraisal award.4  Interestingly, the Court found that these claims were not barred despite the fact that the insureds had not pled a specific claim for damages arising under the TPPCA.5  The Court found that each insured’s demand in the petition for the 18% statutory interest provided under the TPPCA, combined with their assertions in response to summary judgment (that they were not barred from the TPPCA cause of action), was sufficient to preserve the TPPCA claims for review and remand.

Other Claims

In most first party cases, the insured includes additional causes of action for contractual and extra-contractual claims (i.e., breach of contract, statutory and common law bad faith).  The Lazos and Alvarez holdings did not provide any guidance on those other claims, because in both cases the insureds amended their petitions for review to remove all contractual and extra-contractual causes of action, and only petitioned the Texas Supreme Court on the TPPCA.6  However, in the third case, Steven Biasatti and Paul Gross D/B/A Topdog Properties v. Guideone National Insurance Company, the insured did not drop the contractual and extra-contractual claims in its petition for review to the Court.7  

In Topdog, the insureds for several properties underwent two separate insurer inspections to their properties for wind and hail damage, both of which resulted in an insurer’s estimate that was below the deductible. 8 The insurer declined to perform a third inspection and refused to invoke the policies unilateral appraisal clause requested by the insured, finding that it was unnecessary.

The insureds then sued for breach of contract, common-law and statutory bad faith, and violations of the TPPCA.9  Eight months after suit was filed, the insurer demanded an appraisal, but the insured refused to agree. The insurer then moved to compel an appraisal, which was granted by the court.  The appraisal award found the insureds’ losses to be about thirty-three times over the deductible, which the insurer promptly paid (less the deductible and depreciation).10

As in the other two cases, the trial court granted summary judgment in favor of the insurer, based on the payment of the appraisal award.  The court of appeals affirmed, finding:

(1) Insureds failed to raise a fact issue on damages for breach of contract because Insurer paid all benefits available under the policy when it paid the appraisal award, and (2) Insureds’ bad-faith and TPPCA claims failed because it did not allege an injury independent from the policy benefits and did not demonstrate policy benefits were withheld after the appraisal award was paid.11

The Texas Supreme Court cited its earlier opinion in the Barbara case and noted that in Barbara they had declined to “decide whether an acknowledgement or determination of liability was necessary to obtain damages under the section 542.058 delay of payment–TPPCA.” 12  They offered no further guidance on that issue in this opinion.  Instead, the Court again held that the payment of the appraisal award did not foreclose the insureds’ TPPCA claims.

The Court also discussed Ortiz, in which the Court held that “payment of an appraisal award forecloses an insurer’s liability for breach of contract and common-law and statutory bad faith unless the insured suffered an independent injury.”13  The insured in Topdog argued that the Court should create an exception to the independent injury rule for breach of contract and bad faith claims under the unique facts of this case.

The Supreme Court overturned the appellate court ruling.  First, it held that the Court of Appeals erred in holding that the insured’s claims under the TPPCA could not be maintained because the insurer had paid the appraisal, citing Barbara.  The Court then considered whether the breach of contract and bad faith claims were barred, noting that under Ortiz, it would appear so.  However, the Court punted on this issue, noting that it had not previously considered whether payment of any appraisal award under a unilateral appraisal clause would have the same effect.  Accordingly, the Court remanded all causes of action to the trial court for consideration.


            These three decisions clarified part of the law, and left open some questions as well:

  • It appears that any allegation in the petition that the insured is seeking recovery of the 18% statutory interest award provided under the TPPCA, assuming it is not later waived, will be treated as a TPPCA claim, even if the TPPCA is not specifically pled in the original petition;
  • Payment of an appraisal award does not bar a TPPCA claim, but payment of the award is also not an automatic acknowledgment of liability or determination of the same, so the claim will still have to be litigated;
  • Payment of an appraisal award bars claims for breach of contract and common-law and statutory bad faith, unless the insured suffered an independent injury;  
  • Payment of an appraisal award MAY not bar claims for breach of contract and extra-contractual claims if the appraisal award was based on a unilateral appraisal clause (this issue was left unresolved and remanded to the trial court for determination); and
  • The Topdog case also left open for the parties to brief whether unilateral appraisal clauses are illusory and thus unenforceable.

Therefore, despite this trilogy of cases by the Texas Supreme Court, litigation on these matters will continue.


1 Alvarez v. State Farm Lloyds, No. 18-0127 (Tex. April 17, 2020); see alsoLazos v. State Farm Lloyds, No. 18-0205 (Tex. April 17, 2020) (reciting essentially the same information and holdings); Steven Biasatti And Paul Gross D/B/A Topdog Properties v. Guideone National Insurance Company, No. 18-0911 (Tex. April 17, 2020).

2 Tex. Ins. Code §§ 542.051–.061.The statutory interest rate is subject to a calculation, if the claim arises from damages to certain real property caused by forces of nature. Tex. Ins. Code §§ 542A.001–007.

3 Alvarezsupra note 1; Lazossupra note 1.

4 Alvarez, supra note 1 (citing Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806, 820 (Tex. 2019) (“payment in accordance with an appraisal is neither an acknowledgment of liability nor a determination of liability under the policy for purposes of TPPCA damages under section 542.060.” ); Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 135 (Tex. 2019) (“an insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claims under the Prompt Payment Act.”)). See also, Lazossupra note 1 (citing the same).

5 Alvarezsupra note 1; Lazossupra note 1.

6Alvarezsupra note 1 (noting the original petitions was for “breach of contract, breach of the duty of good faith and fair dealing, unjust enrichment, negligence, negligent misrepresentation, and violations of Chapters 541 and 542 of the Insurance Code”); See also, Lazossupra note 1 (noting the same).

7 No. 18-0911 (Tex. April 17, 2020).

8 Id.

9 Id.

10 Id.

11 Id. (citing Steven Biasatti And Paul Gross D/B/A Topdog Properties v. Guideone National Insurance Company, 560 S.W.3d 739, 743–44 (Tex. App.—Amarillo 2018)).

12 Id. (citing Barbara Technologies Corp., 589 S.W.3d at 823–24).

13 Id. (citing Ortiz, 589 S.W.3d at 129,133,135).

Colorado Supreme Court Decision Could Tarnish Appraisal Process for Policyholders

Michael V. Pepe | SDV Insights | July 23, 2019

On June 24, 2019, the Colorado Supreme Court ruled that the plain language of appraisal provisions in insurance policies, requiring “impartial appraisers,” direct appraisers to be “unbiased, disinterested, and unswayed by personal interest,” regardless of who hires them, and prohibits the party-appointed appraisers from acting as advocates.

A common and attractive alternative dispute resolution option, the appraisal process usually entails the policyholder and insurer each hiring their own appraiser, who estimates how much the claim is worth. These appraisers also select a third-party umpire, and if they cannot agree upon one, a court appoints one. The umpire analyzes the conflicting estimates and presents a number to resolve the dispute. If two of the three parties agree with the outcome, the number becomes binding.

Owners Ins. Co. v. Dakota Station II Condo. Ass’n, Inc.began when Dakota Station II Condominium Association Inc. (“Dakota”) and its insurer, Owners Insurance Company (“Owners”) could not agree on how to value two claims arising out of weather damage. To settle the differences and come to a resolution, Dakota invoked the appraisal provision in the insurance policy instructing each party to select its own “competent and impartial appraiser.” Ultimately, a court-appointed umpire considered six cost categories in dispute and adopted four of Owners’ estimates and two of Dakota’s.

Owners filed a petition to vacate the award, alleging that Dakota’s appraiser “acted improperly by entering into a contract … that capped her fees at five percent of the insurance award (allegedly giving her a financial interest in the outcome).” Under this fee arrangement it was possible that the appraiser would collect more fees for a higher award. Owners argued that the appraiser’s potential financial interest meant that the appraiser was not “impartial” as required by the policy.

After two lower courts held in favor of the insured, the Colorado Supreme Court granted certiorari and considered two issues: (A) the meaning of the language “impartial” in the appraisal provision, and (B) whether the fee arrangement meant that Dakota’s appraiser was not impartial as a matter of law.

The Court affirmed the lower court’s holdings in part, holding that appraisers were not necessarily held to the same strict standards of impartiality as arbitrators. On the other issues, the Court overturned the lower court. The Court held that the appraisal provision is not ambiguous, and that the plain meaning of “impartial” is “[n]ot favoring one side more than another; unbiased and disinterested; unswayed by personal interest.” In comparing this with the plain meaning of “advocate” – “[s]omeone who assists, defends, pleads, or prosecutes for another” – the court concluded that an appraiser cannot simultaneously advocate for a party and be impartial.

The Court relied on the fact that there is nothing in the provision suggesting that an appraiser would put forth values on behalf of a party that hired it. “[W]e can’t endorse a reading of the impartiality requirement that suggests one can simultaneously be an ‘advocate’ for one of the parties and be ‘impartial.’”

The Court also concluded that in this case, the contingent-cap fee arrangement did not render the appraiser biased as a matter of law. The fees did not reach a level that would have been capped, even under Owner’s appraiser’s valuation, and thus the contingent-cap did not affect what the appraiser was paid. The appraiser did not “believe the cap was in effect and there is seemingly no relationship between the fees billed by the appraiser and the estimates she put forth, we can’t say that hypothetical incentives rendered her partial.”

Several judges dissented from the majority opinion, warning that the holding further “tips the scale in favor of the insurance industry,” widening the imbalance of power in this area.

The holding may be impractical, requiring humans to ignore their natural instincts, because “when an appraiser advocates for her own work and final valuation, she essentially advocates for one party, and it’s human nature to expect (and want) an appraiser to advocate for her own work and final valuation.” It seems unlikely that each party would select and compensate its own appraiser and expect that appraiser to not advocate for or favor its side. After all, the umpire is supposed to fulfill the unbiased third-party role in the appraisal process.

Colorado’s holding should put both insurers and policyholders on notice to review the language of appraisal provisions commonly found in first party policies, including homeowners, commercial property, and builders risk insurance. Parties should consider whether this is the arrangement they want and whether to negotiate for a process that expressly allows for appraisers to advocate on their behalf to the umpire. Otherwise, they run the risk that a favorable award can be vacated based on an after-the-fact showing of partiality or bias.

In addition to reviewing appraisal provisions, parties should carefully consider the appraiser selection process and vet potential appraisers before the appraisal process begins.

Texas Supreme Court Holds that Invoking Appraisal Provision and Paying Appraisal Amount Does Not Insulate an Insurer from Damages Under the Texas Prompt Payment of Claims Act

John C. Eichman and Grayson L. Linyard | Hunton Andrews Kurth | July 3, 2019

In two cases decided June 28, 2019, the Texas Supreme Court held that an insurer’s invocation of a contractual appraisal provision after denying a claim does not as a matter of law insulate it from liability under the Texas Prompt Payment of Claims Act (“TPPCA”). But, on the other hand, the court also held that the insurer’s payment of the appraisal award does not as a matter of law establish its liability under the policy for purposes of TPPCA damages.

In Barbara Techs. Corp. v. State Farm Lloyds, No. 17-0640, 2019 WL 2666484, at *1 (Tex. June 28, 2019), State Farm Lloyds issued property insurance to Barbara Technologies Corporation for a commercial property. A wind and hail storm damaged the property, and Barbara Tech filed a claim under the policy. State Farm denied the claim, asserting that damages were less than the $5,000 deductible.

Barbara Tech filed suit against State Farm, including for violation of the TPPCA. Six months later, State Farm invoked the appraisal provision of the policy. More than a year after the suit was filed, appraisers agreed to a value of $195,345.63. State Farm then paid that amount, minus depreciation and the deductible. Barbara Tech amended its petition to include only TPPCA claims.

In the trial court and court of appeals, State Farm successfully argued that because it invoked the contractual appraisal process and then paid Barbara Tech in accordance with the appraisal, as a matter of law it could not be liable for TPPCA damages. The Supreme Court rejected that argument, noting that the TPPCA was silent with respect to the role of any appraisal process. The court held that an insurer’s use of the policy’s appraisal process and payment of the appraisal amount does not absolve it from liability for TPPCA damages. Conversely, the court also held that an insurer’s payment of an appraisal award “is neither an acknowledgment of liability nor a determination of liability under the policy for purposes of TPPCA damages under Section 542.060.” The court therefore concluded that neither Barbara Tech nor State Farm was entitled to summary judgment on the TPPCA claims.

Similarly, in Ortiz v. State Farm Lloyds, No. 17-1048, 2019 WL 2710032, at *1 (Tex. June 28, 2019), State Farm sold Oscar Ortiz (“Ortiz”) homeowner’s insurance. After his home was damaged by wind and hail, he submitted a claim which State Farm rejected as being below the deductible amount of $1,000. Ortiz ultimately sued state farm for TPPCA violations, among other claims.

State Farm demanded an appraisal which the court ultimately compelled. The appraisal set the cash value of the loss at $5,243.93, which State Farm paid about a week later. One issue on appeal was whether the payment of the appraisal amount barred claims under the TPPCA. Citing its decision in Barbara Tech, the court held that “the payment of an appraisal award does not as a matter of law bar an insured’s claims under [the TPPCA],” and remanded for further proceedings in light of Barbara Tech.

These two opinions will aid policyholders whose insurers wrongfully deny claims and then try to use a policy’s appraisal procedure to shield themselves from TPPCA damages.  But the decisions also teach policyholders that they typically must establish liability under the policy to obtain damages under Section 542.060 of the TPPCA.

Be Sure To Clearly Define The Grounds For Disqualifying An Independent Appraisal Because The Court May Not Do It For You

Gregory S. Paonessa |Burns & Levinson | May 29, 2019

It is not uncommon for parties entering into an agreement to transfer an asset to seek the input of an independent, third-party appraiser. Plainly, the parties to any such transaction desire an appraiser who will be unbiased and will not have any conflicts of interest. Further, one would assume that if such an appraiser’s company had a relationship with the opposing party, a court would step in to invalidate the appraisal. That assumption is not always correct, however–especially if the appraisal agreement does not specify what will disqualify the appraiser. Indeed, a Massachusetts Supreme Judicial Court judge recently confirmed this in Buffalo-Water 1, LLC v. Fidelity Real Estate Company, LLC.

In Buffalo-Water, an Appraisal Agreement only required the individual appraiser to disclose any prior appraisal services he rendered for either of the parties. The appraiser’s employer, Cushman & Wakefield, was not required to make any such disclosure, nor was it required to disclose conflicts of interest or relationships that could deem it to be biased. Further, and unbeknownst to Buffalo-Water, Cushman had previously been engaged by Fidelity to represent it in connection with a national contract.

Once Buffalo-Water became aware of the Fidelity-appraiser relationship, it filed suit, seeking to have the appraisal invalidated, and Fidelity moved to dismiss the complaint. Fidelity’s Motion was allowed, and Buffalo-Water appealed. In its opinion, the Supreme Judicial Court framed the issue as follows:

The issue on appeal is whether we should modify this common law rule and allow a judge to invalidate an appraisal intended by the parties to provide a final, binding valuation of a property, where there is the appearance of bias, not on the part of the individual who conducted the appraisal, but on the part of the entity that employed the individual appraiser.

In answering this question, the Court noted that Buffalo-Water’s complaint alleged no facts tending to suggest that the appraiser had any direct bias or conflicts of interest and also found that he had no indirect bias because he did not even know about Fidelity’s national representation by Cushman. Thus, the Court ruled that not only did the appraiser have no ability to disclose the Fidelity-Cushman relationship, but his appraisal could not have been tainted by that relationship. Ultimately, therefore, the Court refused to invalidate the appraisal or overturn dismissal of the action.

Buffalo-Water serves as a stark reminder to in-house counsel responsible for appraisal-agreements (and even other agreements, where appraisers are used) to think broadly as to what would disqualify an appraiser and specify any disqualifying circumstances in the agreement. As the Buffalo-Water Court noted:

When parties negotiate a contract that provides for a binding appraisal they are free to include provisions that establish more stringent impartiality requirements than those in our common law and specify the appraisal will be invalid where those requirements are not met.

Indeed, the last thing in-house counsel want to do is explain to their business counterparts that, despite the fact an appraiser’s company could be biased or lack impartiality, they can’t object to the use of a bad appraisal.

Can An Insurer Waive Its Right to Appraisal?

Iris Kuhn | Property Insurance Coverage Law Blog | March 23, 2019

The purpose of Section 627.7015, Florida Statutes titled “Alternative procedure for resolution of disputed property insurance claims” is to encourage insurance companies and policyholders to resolve their disagreements regarding disputed property insurance claims without the necessity of litigation or appraisal. The statute requires, in part:

(2) At the time a first-party claim within the scope of this section is filed by the policyholder, the insurer shall notify the policyholder of its right to participate in the mediation program under this section.1

The statute defines a “claim” as “any dispute between an insurer and a policyholder relating to a material issue of fact. . . .”2 and it places the burden on the insurance company to provide notice to a policyholder of his or her right to participate in the statutory mediation process. If an insurance company fails to follow the notice requirements mandated in subsection (2) of the statute, the policyholder is not required to participate in the appraisal process as a condition precedent to filing a breach of contract action against the insurance company for failure to pay benefits due and owing under the policy.3

Recently, Florida’s Third District Court of Appeal decided a case involving Section 627.7015.4 The appellate court reversed the trial court’s decision compelling appraisal of the insureds’ claim where a dispute had arisen, and the insurance company demanded appraisal before it provided written statutory notice to its policyholders of their right to mediate under Section 627.7015.

In October 2017, the policyholders placed their insurance carrier, First Protective Insurance Company d/b/a Frontline (“Frontline”), on notice of their claim for property damage resulting from Hurricane Irma. A disagreement arose between the parties over whether the insureds’ windows needed to be replaced or simply repaired. The policyholders argued that their window model was no longer manufactured, and the windows would require a complete replacement.

As the dispute continued, in November 2017, the policyholders requested that Frontline provide them with copies of photographs taken by Frontline’s adjuster as part of his report. Frontline provided the report but refused to produce the photographs, alleging they were protected by the work-product doctrine. The appellate court noted that Frontline’s invocation of the work product privilege was significant because it implied that Frontline anticipated litigation as early as November 2017.5

In December 2017, the policyholders threatened to file a complaint with the Florida Department of Financial Services. In response, Frontline produced a sample estimate, which left most of the insureds’ questions and concerns unanswered. The policyholders then informed Frontline of their intent to retain counsel.

It was not until several months later that Frontline sent a written demand to the policyholders invoking the appraisal process under the policy. In June 2018, after Frontline had invoked the appraisal process, it provided notice to its policyholders of their right to pursue mediation under section 627.7015. In July 2018, the policyholders filed suit and Frontline moved to compel appraisal. The trial court granted Frontline’s motion, and the policyholders appealed the trial court’s decision.

The Third District concluded that Frontline could not demand appraisal without first providing its policyholders with notice of their right to mediation under state law. The court reasoned:

[S]ection 627.7015 furthers the ’particular need for an informal, nonthreatening forum for helping parties. . . because most homeowner’s . . . residential insurance policies obligate [the] insureds to participate in a potentially expensive and time-consuming adversarial appraisal process prior to litigation.6

It further noted that,

Frontline’s actions are in derogation of the salutary purpose of section 627.7015, i.e., to expeditiously bring the parties together for a mediation without any of the trappings of an adversarial process.7

The court held that once a dispute has arisen, an insurance company cannot demand appraisal before providing the policyholder with notice of his or her right to participate in mediation. By doing so, an insurer waives its right to appraisal.

The waiver of appraisal is a complicated matter. Appraisal can be waived through many actions, and it varies from state to state. Never hesitate to contact a Merlin Law Group attorney with specific questions on this topic or others. Please make certain to use our search function if you have other questions about property insurance claims and policyholder rights.
1 §627.7015(2), Florida Statutes (Emphasis added).
2 §627.7015(9), Florida Statutes.
3 §627.7015(7), Florida Statutes.
4 Kennedy v. First Protective Ins. Co. d/b/a Frontline Insurance, No. 3D18-1993, 2019 WL 1051386 (Fla. 3rd DCA Mar. 6, 2019).
5 Id. at *1.
6 Id. at *2. See also Universal Prop. & Cas. Ins. Co. v. Colosimo, 61 So. 3rd 1241, 1242 (Fla. 3rd DCA 2011).
7 Id. at *2.