Federal Court Holds that the Voluntary Payment of an Appraisal Award Plus Penalty Interest Defeats TPPCA Claims Under Texas Law

In 2019, the Supreme Court of Texas issued a pair of decisions that allowed policyholders to prosecute claims under the Texas Prompt Payment of Claims Act (“TPPCA”) even after the insurers paid appraisal awards. The decisions were a modification of law and so post-appraisal litigation has and continues to evolve. One such example is a recent decision from District Judge Tipton of the Southern District of Texas in White v. Allstate Vehicle and Property Insurance Company, which has provided a potential road map for insurers looking to curb post-appraisal demands and litigation after the payment of an appraisal award.[1]

A. The legal landscape – Barbra Technologies and Ortiz.

Until recently, it was the general rule in Texas that an insurer’s payment of an appraisal award barred all of a policyholder’s contractual and extra-contractual claims. So after the insurer properly paid the appraisal award, courts routinely granted summary judgment and concluded litigation. But in 2019, the Supreme Court of Texas modified the general rule when it issued Barbara Technologies Corporation v. State Farm Lloyds[2] and Ortiz v. State Farm Lloyds.[3] These decisions carved out an exception to the general rule for causes of action under the TPPCA. That is, “an insurer’s payment of an appraisal award does not as a matter of law bar an insured’s claims under the [TPPCA].”[4] Thus, assuming a policyholder can plead and prove insurance coverage coupled with a statutory violation, TPPCA claims survive payment of an appraisal award. 

Barbara Technologies and Ortiz are important decisions because the TPPCA generally allows a policyholder to recover penalty interest when an insurer does not timely pay a claim, as well as attorneys’ fees for prosecuting the claim. The penalty interest available under the TPPCA varies depending on the type of claim. And while penalty interest may be minimal in some instances, that is not always the case with attorneys’ fees. So a significant driver of post-appraisal litigation necessarily concerns attorneys’ fees.   

Importantly, Barbara Technologies and Ortiz did not address the situation in which an insurer voluntarily pays an appraisal award plus the TPPCA penalty interest. In that situation, does the policyholder still have a valid TPPCA claim? The answer is “no” according to the court’s opinion in White.

B. The White decision.

In White, the policyholder made an insurance claim for damages caused by Hurricane Harvey.[5] The insurer paid the claim pursuant to its estimate and investigation.[6] Believing he was entitled to more money, the policyholder then filed suit against the insurer and demanded appraisal under the policy.[7] An appraisal award was then issued by the appraisers and paid by the insurer—plus penalty interest allowed under the TPPCA.[8] The insurer then moved for summary judgment arguing that its voluntary payment of the appraisal award and penalty interest entitled it to judgment as a matter of law.

In addressing the policyholder’s claims for breach of contract and bad faith, the court found that the payment of the appraisal award barred the policyholder’s contract claim as a matter of law.[9] And given that the policyholder’s claimed damages flowed from the non-viable contract claim, the policyholder’s claims for bad faith were equally barred.[10]

The court addressed the policyholder’s TPPCA claim last. In doing so, it separately analyzed the recoverability of penalty interest and attorneys’ allowed under the TPPCA.

With respect to penalty interest, the court held that “[r]egardless of whether an insurer violates the TPPCA, it may nevertheless be entitled to summary judgment on a TPPCA claim if the insurer paid the full amount of interest the insured could claim under the TPPCA.”[11] To that end, the insurer in White was entitled to summary judgment as the evidence undisputedly established that the insurer voluntarily paid the policyholder all the penalty interest he could recover under the TPPCA.[12] So no additional penalty interest could be recovered in the prosecution of the policyholder’s lawsuit.

As for attorneys’ fees, the court found that they were barred given that the policyholder lacked damages under the TPPCA—i.e., he could not recover penalty interest.[13] The court explained that attorneys’ fees are generally not awardable under the Texas Insurance Code absent actual damages.[14] The court also emphasized recent changes to the TPPCA and Chapter 542A of the Texas Insurance Code that significantly limited the recoverability of attorneys’ fees in first-party litigation over storm damage, which statutory changes were required to “curb abusive hailstorm claims.”[15] So the court reasoned that its ruling was consistent with the governing statute and its underlying purpose.[16]   

In a lengthy footnote, the court also rejected the claim that the policyholder could recover attorneys’ fees for his non-TPPCA claims under Chapter 38 of the Texas Civil Practice and Remedies Code.[17] The court’s reasoning was two-fold. First, it held that Chapter 542A’s formula for calculating attorneys’ fees applied to the non-TPPCA claims and the insurer was entitled to judgment as a matter of law under the statute. Id. Second, even assuming Chapter 38 applied to the non-TPPCA claims, the policyholder was not entitled to attorneys’ fees because he failed to prevail on those claims and recover actual damages.[18]

C.        Takeaway.

White demonstrates that policyholders will continue to litigate post-appraisal to recover attorneys’ fees regardless of whether the insurer pays the appraisal award. So insurers need to be prepared. It is also a favorable decision for insurers when defending post-appraisal litigation. It demonstrates that Barbara Technologies and Ortiz do not stand for the proposition that an insurer can never obtain summary judgment on TPPCA claims. Indeed, the facts at issue in White were not addressed in either opinion. And so White arms courts with authority to curb abusive TPPCA litigation that solely concerns attorneys’ fees—not actual damages under a cognizable theory of recovery.

Whether the policyholder in White will appeal the decision remains to be seen. At this time, a motion for reconsideration is pending before the trial court. 

[1] No. 6:19-CV-00066, 2021 WL 4311114 (S.D. Tex. Sept. 21, 2021).

[2] 589 S.W.3d 806 (Tex. 2019).

[3] 589 S.W.3d 127 (Tex. 2019).

[4] Ortiz, 589 S.W.3d at 135.

[5] 2021 WL 4311114 at *1.

[6] Id.

[7] Id.

[8] Id.

[9] Id. at *5.

[10] Id. at *6.

[11] Id. at *8.

[12] Id.

[13] Id. at *10.

[14] Id. at *9.

[15] Id. (cleaned up).

[16] Id.

[17] Id. at *10 n.8.

[18] Id

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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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