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Mainali Corp. v. Covington Specialty Insurance Co.

United States Court of Appeals, Fifth Circuit

September 21, 2017

MAINALI CORPORATION, Plaintiff - Appellant
v.
COVINGTON SPECIALTY INSURANCE COMPANY; ENGLE MARTIN; ASSOCIATES, INCORPORATED; LYNN SUMMERS, Defendants - Appellees

         Appeal from the United States District Court for the Northern District of Texas

          Before DAVIS, CLEMENT, and COSTA, Circuit Judges.

          GREGG COSTA, CIRCUIT JUDGE:

         A fire damaged a gas station and convenience store owned by Mainali Corporation. Mainali filed a claim with its property insurer, Covington Specialty Insurance Company, which paid the claims based on an independent adjuster's estimates. Mainali thought it was owed more, so it sued Covington for breach of contract, breach of the duty of good faith and fair dealing, fraud, and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act. After a full appraisal process, a panel's appraisal award was less than Covington had already paid to Mainali under the insurance policy. But Covington did pay a relatively small additional sum to ensure its payments were consistent with the way the appraisal panel allocated the losses. The district court granted summary judgment for Covington on all of Mainali's claims. The key issue we decide involves the application of the Prompt Payment of Claims Act to payments of an award pursuant to an appraisal process. For the reasons that follow, we AFFIRM.

         I.

         Mainali owned a gas station and convenience store (the Property) in Decatur, Texas. Covington insured Mainali's Property. The commercial package insurance policy included coverage for the building, associated business personal property, the gas and fuel pumps, the gas station's canopy and awnings, and lost business income. It also provided for payment of loss on an actual cash value basis-that is, with deduction for depreciation-and required payment of the depreciation holdback or full replacement cost value only if the insured repaired or replaced the property.

         In April 2014, a fire damaged Mainali's Property. The following day, Mainali notified Covington of the fire. Three days after the fire, Covington sent Lynn Summers, an independent adjuster, to investigate Mainali's claim. Over the course of several payments made from May 2014 through January 2015, Covington paid Mainali $389, 255.59 using an actual cash value basis.

         Mainali disputed this calculation. And in March 2015, about two months after Covington's last payment, Mainali filed suit against Covington and Summers in state court. Covington removed the lawsuit to federal court and then exercised its right of appraisal under the policy. As a result, Covington and Mainali each designated an appraiser, and the two appraisers agreed on an umpire. The appraisal panel issued an appraisal award of $387, 925.49 as actual cash value and a replacement cost value of $449, 349.61. The latter was the relevant figure as Mainali did not repair or replace the Property. The appraisal award provided that it was "inclusive of all FIRE damages sustained to the insured property" and was the sum of three types of losses: Building, Contents, and Business Interruption. Although Covington had already paid more than the total amount the appraisal panel said it owed, it paid an additional $15, 175.82 for the building allocation after the panel announced its award.

         Covington and Summers subsequently moved for summary judgment on Mainali's claims. They argued that under Texas law, the timely payment of the appraisal award precluded liability on Mainali's breach of contract and extracontractual claims. Mainali responded that the appraisal award was incomplete because it did not expressly include any amounts for fuel and gas pumps, the gas station's canopy and awnings, or code upgrades. As for its extracontractual claims, Mainali pressed only its claim under the Prompt Payment of Claims Act in Chapter 542 of the Texas Insurance Code. It argued the postappraisal payment was subject to that Act's interest penalties for payments made more than 60 days after the insurer receives necessary documentation from the insured. The district court granted Covington's motion.

         II.

         Mainali first challenges the district court's grant of summary judgment on the breach of contract claim. Under Texas law, "appraisal awards made pursuant to the provisions of an insurance contract are binding and enforceable, and every reasonable presumption will be indulged to sustain an appraisal award." Franco v. Slavonic Mut. Fire Ins. Ass'n-CIC, 154 S.W.3d 777, 786 (Tex. App.-Houston [14th Dist.] 2004, no pet.). "The effect of an appraisal provision is to estop one party from contesting the issue of damages in a suit on the insurance contract, leaving only the question of liability for the court." TMM Invs., Ltd. v. Ohio Cas. Ins. Co., 730 F.3d 466, 472 (5th Cir. 2013) (quoting Lundstrom v. United Servs. Auto. Ass'n, 192 S.W.3d 78, 87 (Tex. App.-Houston [14th Dist.] 2006, pet. denied)). Courts have thus repeatedly rejected breach of contract claims when an insurer timely paid an appraisal award. See, e.g., Quibodeaux v. Nautilus Ins. Co., 655 Fed.App'x 984, 986-87 (5th Cir. July 7, 2016); Blum's Furniture Co. v. Certain Underwriters at Lloyds London, 459 Fed.App'x 366, 368-69 (5th Cir. Jan. 24, 2012); Nat'l Sec. Fire & Cas. Co. v. Hurst, 2017 WL 2258243, at *3-4 (Tex. App.-Houston [14th Dist.] May 23, 2017, no pet. h.); Garcia v. State Farm Lloyds, 514 S.W.3d 257, 273-74 (Tex. App.-San Antonio 2016, pet. denied). Indeed, Texas law recognizes only three situations that allow a court to set aside an appraisal award: "(1) when the award was made without authority; (2) when the award was made as a result of fraud, accident, or mistake; or (3) when the award was not in compliance with the requirements of the policy." Franco, 154 S.W.3d at 786.

         Apparently relying on the third exception to breathe life into his breach of contract claim, Mainali contends that the appraisal award was incomplete because it "excludes" damage to items covered by the policy: fuel and gas pumps, the gas station's canopy and awnings, and code upgrade costs. But Mainali cites nothing in the record showing these items were not included. It is Mainali's burden to identify such evidence in order to overcome summary judgment given that the appraisal award states that it "is inclusive of all FIRE damages sustained to the insured property" (and shows code upgrade costs were included in the building loss calculation). Its failure to do so means there is no disputed issue of material fact, and the appraisal award will not be set aside.

         III.

         We next address Mainali's prompt payment claim under Chapter 542 of the Texas Insurance Code. Tex. Ins. Code §§ 542.051 et seq. Section 542.058 of the statute requires the insurer to pay the policyholder's claim within 60 days of receiving all documentation needed to resolve the claim. If the insurer does not do so, it is liable ...


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