Texas Court Addresses What Constitutes an “Itemized” Appraisal Decision

On Tuesday of this week, a unanimous panel of Texas’ intermediate level appellate court rejected arguments that an appraisal award that set forth lump sum replacement cost, depreciation, and actual cash value amounts for real property, personal property, and additional living expense was not sufficiently “itemized.”  In Cantu v. Southern Ins. Co., 2015 Tex. App. LEXIS 8847 (Aug. 25, 2015), it also rejected the policyholder’s contention that a court, having appointed an umpire when the two appraisers were unable to agree, was without authority to remove him and select a replacement.  The decision is not currently reported on WestLaw.

shutterstock_227485471The insured’s home was damaged by 2011’s massive Bastrop County Complex Fire.  After disputes arose over the amount of loss, the insurer invoked the appraisal clause in the contract of insurance.  The parties’ appraisers were unable to agree on an umpire, and the carrier then requested that the court appoint one.  The district judge proceeded to do so, and, four months later for unspecified reasons, removed him and appointed a replacement umpire in his stead.

The replacement umpire and the insurer’s appraiser subsequently reached agreement on the amount of loss.  The carrier promptly tendered a check for that amount,  and it filed a declaratory judgment action after the policyholder refused to accept it, seeking a declaration at the award was valid and binding.  The trial court granted it’s motion for summary judgment, and the matter then went up on appeal.  On August 25th, Justice Melissa Goodwin and two other members of the Texas Court of Appeals affirmed.

The insured raised essentially two arguments in her effort to have the award set aside.  First, she contended that it was not made in substantial compliance with the terms of the policy because it did not constitute “an itemized decision” as required by the contract of insurance.  The award set forth the replacement cost, depreciation, and actual cash value for four separate “items,” to wit “Dwelling,” “Personal Property,” “Additional Living Expense,” and “Damage from Testing.”  In Justice Goodwin’s view, that was sufficient.

The policy did not define “itemized,” but the court held that an “item” was “a piece of a whole, not necessarily separated.”  There was, in other words, no need for the award to attach an extensive laundry list of individual pieces of property damaged or destroyed by the blaze.  As the decision explained, “the award here listed as ‘items’ the coverages under the policy” and set forth “separate loss values for each category of coverage rather than a single lump sum for the total loss.”  It therefore passed muster.

In addition, the policyholder argued that the award was made without authority because the district court was not empowered to appoint a replacement umpire.  She contended that once the original umpire was selected, the district court’s involvement in the appraisal process was complete, and it was without jurisdiction to interfere any further.

The justices is made short shrift of that, pointing out that it had the potential to undercut the whole appraisal process.  In Justice Goodwin’s words:

if a district judge cannot appoint a replacement umpire when an umpire becomes unable to perform his duties, such as in circumstances of disability or death, parties whose appraisers cannot agree on an umpire would be left with no recourse.  To construe the appraisal clause as precluding appointment of replacements would therefore be inconsistent with the appraisal clause as a whole, would stall the appraisal process and render the appraisal clause meaningless, and would contravene the express intent of the parties to resolve disputes over umpire selection through judicial appointment.

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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