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Salas Realty LLC v. Transportation Insurance Co.

United States District Court, N.D. Texas, Dallas Division

December 2, 2019

SALAS REALTY LLC, et al., Plaintiffs,
v.
TRANSPORTATION INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          David C. Godbey United States District Judges.

         This Order addresses Plaintiffs Salas Realty, LLC and Salas Plumbing, Inc.'s (collectively “Salas”) Application for Appointment of Umpire [1]. For the following reasons, the Court directs the parties each to appoint an appraiser and instructs the two appraisers to select an umpire.

         I. Origins of the Dispute

         Salas insured its property with Defendant Transportation Insurance Company (“Transportation”). Notice of Removal, Ex. C, Salas Realty, LLC / Salas Plumbing, Inc.'s Appl. Appointment Umpire (“Salas's Appl.”) 2 [1]. Salas submitted a claim with Transportation because Salas alleged its property suffered damage after a hail storm. Id. Transportation used an adjuster to investigate the damage, but Transportation declined to pay for the damage because its adjuster stated that the damage resulted from wear and tear, which is not covered under the insurance policy. Def. Transportation Insurance Company's Opp'n Pl.'s Appl. Appointment Umpire (“Def.'s Opp'n”) 4 [9]. Salas demanded that Transportation appoint an appraiser. Salas's Appl. 4. However, Transportation claimed that under the insurance policy it was not obligated to hire an appraiser. Def.'s Opp'n 5. Now Salas ask the Court to appoint an umpire. Salas's Appl. 5.

         The insurance contract includes an appraisal clause that states in relevant part:

If the Named Insured and the Insurer fail to agree on the amount of loss for physical damage or business income or extra expense, either may make a written demand for appraisal in which case within 20 days of that written demand each shall select an appraiser and shall notify the other of its chosen appraiser. This APPRAISAL Condition is not available to the named Insured or the Insurer if there is a dispute as to whether the loss or damage was caused in whole or in part by the covered peril. This APPRAISAL Condition is not available if there is a dispute as to whether or not the loss is covered in whole or in part under this coverage part.

Id. at 3; see also Def.'s Opp'n 3. Salas argues that it is entitled to an appraiser because the disagreement concerns the amount of loss resulting from the hail storm. Salas's Appl. 2. But Transportation contends that the adjuster determined the loss resulted directly from wear and tear, so the dispute concerns the cause of the damage, not the amount of loss. Transportation Insurance Company's App. Opp'n Pl.'s Appl. Appointment Umpire (“Def.'s App.”), Ex. A-1 2 [10]; Def.'s Opp'n 3-5.

         II. History and Scope of Insurance Appraisals

         Appraisals are a “means of resolving disputes about the ‘amount of loss' for a covered claim.” State Farm Lloyds v. Johnson, 290 S.W.3d 886, 889 (Tex. 2009) (internal quotations and citations omitted). Texas law generally holds appraisal clauses are enforceable, but appraisal-clause litigation is sparse. See Id. at 888-89. Yet, in 2009, the Texas Supreme Court in State Farm Lloyds v. Johnson clarified the appropriate scope of appraisals. See Id. at 887.

         A. History of Appraisals Before State Farm Lloyds v. Johnson

         Prior to 2009, the Texas Supreme Court addressed this topic only five times, and each concerned either waiver or enforceability. Id. at 889. Historically, insurance companies have used these clauses in property insurance contracts, and Texas law generally has encouraged courts to enforce these clauses. Id. at 888, 894. In fact, Texas law has pushed parties to conduct an appraisal prior to filing suit because an appraisal does not require court intervention and is usually faster and less expensive than litigation. Id. at 894-95, 894 n.42 (noting that Texas law considers appraisals a condition precedent to litigation).

         Long-standing Texas law limits appraisals to determining damage, not liability, because the question of liability is left for the courts. Id. at 889-90. However, the line between the damage and liability question is not always clear. Id. at 890. Prior to 2009, Texas courts split on when an appraiser could decide causation as a part of his damage determination. Id. (collecting cases).

         B. The Texas Supreme Court Defined the Scope of Appraisals in State Farm Lloyds v. Johnson

         In 2009, the Texas Supreme Court defined the scope of appraisals and the meaning of “amount of loss.” Id. at 887, 895. In Johnson, the insurance company and the insured disputed whether an appraisal was appropriate under the contract's ...


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