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Ortiz v. Lloyds

Supreme Court of Texas

June 28, 2019

Oscar Ortiz, Petitioner,
State Farm Lloyds, Respondent

          Argued February 20, 2019

          On Petition for Review from the Court of Appeals for the Fourth District of Texas

          Justice Lehrmann delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Guzman, Justice Boyd, Justice Devine, Justice Brown, Justice Blacklock, and Justice Busby joined as to Parts I, II, III(A), III(B), and III(C), and in which Justice Green, Justice Guzman, Justice Devine, and Justice Busby joined as to Part III(D).


          Debra H. Lehrmann Justice

         We are asked in this case to determine the effect of an insurer's payment of an appraisal award on an insured's claims for breach of contract, bad faith insurance practices, and violations of the Texas Prompt Payment of Claims Act. We hold that the insurer's payment of the award bars the insured's breach of contract claim premised on failure to pay the amount of the covered loss. We further hold that the payment bars the insured's common law and statutory bad faith claims to the extent the only actual damages sought are lost policy benefits. Finally, in accordance with our contemporaneously issued opinion in Barbara Technologies Corp. v. State Farm Lloyds, __S.W.3d __(Tex. 2019), we hold that the insured may proceed on his claim under the Prompt Payment Act. Accordingly, we affirm the court of appeals' judgment in part and reverse it in part.

         I. Background

         Oscar Ortiz had a homeowners insurance policy with State Farm Lloyds and submitted a policy claim to State Farm for wind and hail damage to his home. State Farm sent an adjuster to inspect the property, and the adjuster estimated the amount of the damage caused by wind or hail to be $732.53, which was below the policy's $1, 000 deductible. The adjuster "observed additional damage [that he concluded was] not caused by hail" and thus was not covered by the policy. In response to State Farm's request that Ortiz forward any estimates "related to this loss that exceed your deductible," Ortiz sent State Farm an estimate he received from a public adjuster valuing the loss at $23, 525.99. State Farm conducted a second inspection with the public adjuster present and revised the damage estimate to $973.94, again concluding the damage amount did not exceed the deductible.

         Approximately six weeks after being notified of the results of the second inspection, [1]Ortiz sued State Farm for breach of contract, violations of the Prompt Payment Act, [2] and statutory and common law bad faith insurance practices.[3] State Farm answered and, approximately two months later, demanded an appraisal pursuant to the parties' insurance policy, which provides in pertinent part:

Appraisal. If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. . . . The two appraisers shall then select a competent, impartial umpire. . . . The appraisers shall then set the amount of the loss. If the appraisers submit a written report of an agreement to [State Farm], the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any two of these three shall set the amount of the loss. Each appraiser shall be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire shall be paid equally by [Ortiz] and [State Farm].

         Ortiz objected, arguing that State Farm had waived its right to appraisal by waiting too long to demand it. State Farm filed a motion to compel appraisal, which the trial court granted. The appraisal award set the replacement cost of the loss at $9, 447.52 and the actual cash value at $5, 243.93. State Farm paid the award, minus the deductible, approximately seven business days after receiving it.[4] State Farm then moved for summary judgment, arguing that its payment of the appraisal award "resolves and disposes of all claims in this lawsuit." The trial court initially denied the motion, but on reconsideration granted it and rendered a final judgment in State Farm's favor on all claims. Ortiz appealed.

          Relying principally on its previous decision in Garcia v. State Farm Lloyds, 514 S.W.3d 257 (Tex. App.-San Antonio 2016, pet. denied), the court of appeals affirmed. 568 S.W.3d 156, 160 (Tex. App.-San Antonio 2017) (mem. op.). The court held that, absent a ground for setting aside an appraisal award, an insurer's timely payment of the award forecloses liability for breach of contract. Id. As to the bad faith claims, the court held that Ortiz presented no evidence that State Farm failed to timely investigate or committed an act "so extreme that it caused injury independent of [his] policy claim." Id. (citing Garcia, 514 S.W.3d at 278) (alteration in original). The court also concluded that our recent opinion in USAA Texas Lloyds v. Menchaca, 545 S.W.3d 479 (Tex. 2018), in which we held that the absence of a breach of contract finding does not bar a bad faith claim against an insurer, has no bearing on either Garcia's viability or State Farm's entitlement to summary judgment in this case. 568 S.W.3d at 159-60. The court of appeals did not specifically address Ortiz's claim under the Prompt Payment Act. We granted Ortiz's petition for review.[5]

         II. Standard of Review

         A trial court's order granting summary judgment is reviewed de novo. Tarr v. Timberwood Park Owners Ass'n, 556 S.W.3d 274, 278 (Tex. 2018). A party moving for traditional summary judgment has the burden to prove that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Tex.R.Civ.P. 166a(c); ConocoPhillips Co. v. Koopmann, 547 S.W.3d 858, 865 (Tex. 2018). "When reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant's favor." Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005) (citations omitted).

         III. Analysis

         A. Appraisal

         Appraisal clauses in Texas insurance policies have long provided a mechanism to resolve disputes between policy holders and insurers about the amount of loss for a covered claim. In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 406-07 (Tex. 2011). Unlike arbitration, which "determines the rights and liabilities of the parties, appraisal merely 'binds the parties to have the extent or amount of the loss determined in a particular way.'" In re Allstate Ins. Co., 85 S.W.3d 193, 195 (Tex. 2002) (quoting Scottish Union & Nat'l Ins. Co. v. Clancy, 8 S.W. 630, 631 (Tex. 1888)). We have lauded the appraisal process as an efficient and less costly alternative to litigation, requiring "no lawsuits, no pleadings, no subpoenas, and no hearings." State Farm Lloyds v. Johnson, 290 S.W.3d 886, 894 (Tex. 2009).

         Although a party may waive its contractual right to an appraisal, it does not do so merely by failing to demand it before suit is filed. See In re Universal Underwriters, 345 S.W.3d at 410. Rather, waiver in this context occurs when the party seeking appraisal fails to demand it within a reasonable time after the parties reach an impasse on the amount of the loss, if the failure prejudices the opposing party. Id. at 412. We have recognized the inherent difficulty of demonstrating prejudice when a policy allows both parties the same opportunity to demand ...

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