Ever since the Texas Supreme Court changed the landscape of Texas law regarding appraisal in Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019) and Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019), practitioners and courts have been struggling to apply the Texas Supreme Court’s holdings. Barbara Technologies and Ortiz answered some questions but raised others.
One question resulting from Barbara Technologies and Ortiz is: Does the payment of an appraisal award plus the estimated interest due under the Texas Prompt Payment of Claims Act (“TPPCA”) entitle an insurer to summary judgment on an insured’s claims under the TPPCA, absolving the insurer from having to pay attorney’s fees under the Act? Courts have now answered this question differently. Most recently, the Fourteenth Court of Appeals weighed in on this issue and found that the answer is “No.” See Texas Fair Plan Ass’n v. Ahmed, 2022 Tex. App. LEXIS 5770 (Tex. App.—Houston [14th Dist.] Aug. 11, 2022, mot. for reh’g en banc filed Aug. 26, 2022).
Background Regarding TPPCA Post-Appraisal Litigation
The Texas Supreme Court held in Barbara Technologies that an insured can recover damages under the TPPCA (and attorney’s fees) despite an insurer’s timely payment of an appraisal award under certain circumstances. However, the Court also held that there is no liability for the insurer under the TPPCA unless the insurer accepts liability or is adjudicated liable under the policy, and the insurer violated a deadline under the TPPCA. The Court explained that payment of an appraisal award is not an acknowledgement of liability nor a determination of liability for purposes of damages under the TPPCA. Thus, the Texas Supreme Court overruled ample case law that prompt payment of an appraisal award disposed of all contractual and extra-contractual claims, including statutory claims, the insured may have against the insurer.
The Ahmed Decision
Ahmed involved a hail claim. The insurer investigated the claim and determined that it was below the deductible. The insured sued the insurer, including allegations that the insurer violated the TPPCA. The insurer demanded appraisal. The appraisers issued an agreed appraisal award determining the replacement cost value of the claim was $22,699.78, well above the deductible. The insurer notified the insured that it would pay the full replacement cost value. The insurer paid the insured $13,193.78, which it characterized as the value of the appraisal award minus the deductible. The insurer then filed a traditional and no-evidence summary-judgment motion on the insured’s claims under the TPPCA. The trial court denied the motion.
In 2019, while this case was still pending in the trial court, the Texas Supreme Court decided Barbara Technologies. The insurer then made an additional payment to the insured of $6,458.26, which it characterized as constituting $3,206.19 in statutory interest, $752.23 in prejudgment interest, and $2,500 for “estimated attorney’s fees.” The insurer moved for reconsideration of its summary judgment motion on the insured’s TPPCA claim, attaching new evidence showing it had paid both the appraisal award and the statutory interest it determined would be recoverable under the TPPCA. The insured filed a cross motion for summary judgment in support of his TPPCA claims, which the trial court granted. The trial court then held a bench trial on attorney’s fees and awarded the insured $96,358.50.
The Court in Ahmed observed that the facts in the instant case were similar to those in Barbara Technologies. The Court in Ahmed was persuaded by language in Barbara Technologies that payment of an appraisal award is similar to a settlement. The Court in Ahmed observed:
Because payment of the appraisal award constitutes neither an admission of liability under the policy nor a judicial determination of liability, the mere fact that the insurer paid the appraisal award is not determinative of liability, a core inquiry in a [claim under the TPPCA]. Accordingly, the insurer’s payment of an appraisal award “did not conclusively establish that it is not liable for [the insured’s] claim, as it must to avoid [damages under the TPPCA] as a matter of law under section 542.060.
The Court in Ahmed also relied on Martinez v. Allstate Vehicle & Property Insurance Co., 2020 U.S. Dist. LEXIS 220008 (S.D. Tex. 2020). There, Judge Ellison reasoned that dismissing a claim under the TPPCA on the basis that the insurer had paid the appraisal award along with the statutory attorney’s fees would be akin to forcing an insured into a settlement to which it did not agree. The Court in Martinez relied on case law that did not concern appraisal or even insurance. Regardless, the Court in Ahmed concluded:
As discussed in Martinez, and following the logic of Barbara Technologies, we conclude that, while advance payment of an appraisal award and statutory interest may entitle an insurer to an offset, it does not entitle the insurer to summary judgment on an insured’s [claim under the TPPCA]. To conclude otherwise would be to subject the insured in this case, Ahmed, to a settlement to which he did not agree.
Separately, the Court in Ahmed determined the trial court erred in granting summary judgment in favor of the insured on liability. The insurer disputed that its payment of the appraisal award was an admission of liability on the insurance claim that could subject it to liability under the TPPCA.
Implications of the Ahmed Decision
It is important to note the limitations of Ahmed. While Ahmed is persuasive authority, it is not the law of the land. It was issued by an intermediate appellate court. So, with the exception of certain trial courts, it is not binding on every Texas court. See In re Riggs, 315 S.W.3d 613, 616 n.2 (Tex. App.—Fort Worth 2010, no pet.) (decisions of other intermediate appellate that are “not reviewed by our higher court” “are persuasive but not binding on the other intermediate appellate courts of our state”).
It also remains to be seen whether Ahmed will be appealed to and reviewed by the Texas Supreme Court. To this end, the insurer in Ahmed already filed a motion for rehearing en banc with the Fourteenth Court of Appeals, which sits in Houston. In its motion, the insurer argues that the panel opinion departs from the well settled rule that attorney’s fees are barred absent damages. It also argues that the panel opinion misconstrues and misapplies Martinez (which is also a non-binding decision) andfails to follow Ortiz (which is a binding decision). So the legal issues raised in Ahmed are far from settled at this point.
This is important because there is case law, such as White v. Allstate Vehicle & Property Insurance Co., 2021 U.S. Dist. LEXIS 180770 (S.D. Tex. Sept. 22, 2021), that finds the opposite of Ahmed. In White, Judge Tipton held that an insured cannot recover attorney’s fees under the TPPCA without first establishing its right to damages under the TPPCA—i.e., penalty interest, which the insured cannot do if penalty interest has been voluntarily paid. Notably, Judge Tipton even quoted a prior decision of the Fourteenth Court of Appeals, stating that “a plaintiff who does not recover actual damages cannot recover attorneys’ fees under the Insurance Code.” This corresponds with the black-letter rule discussed in Ortiz that “attorney’s fees and costs incurred in the prosecution or defense of a claim … are not damages.” Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 135 (Tex. 2019). Notably, Judge Tipton also recently denied reconsideration of his decision. See No. 6:19-CV-00066, 2021 WL 4311114, (S.D. Tex. Sept. 21, 2021). White was discussed in a prior blog here.
Further, contrary to Ahmed, appraisal and settlement negotiations are different in many ways. Appraisal is a creature of contract and the agreement to make appraisal available is entered into before a dispute arises. Appraisal is also available to the insured before litigation commences and before the insured incurs any attorneys’ fees. Typically, there is no contractual right to require another party to engage in settlement negotiations. Settlement negotiations, such as those that occur at a mediation, are usually a means to arrive at a compromise of the entire matter to avoid the time and cost of litigation. Appraisal resolves only the disputed amount of the loss, not coverage, and either the two appraisers must agree, or the umpire must side with one of the appraisers. See Karl A. Schulz, Accurate Outcomes in Appraisal – The Importance of the Umpire’s Subject Matter Expertise, 15 J. Consumer & Commercial Law 54, 57 (2012). And importantly, the Texas Supreme Court has not held that enforcing an appraisal award is akin to enforcing a settlement agreement that was never bargained for as analogized in Ahmed and Martinez. That’s because it is not. There is no question that the insured agrees to appraisal to set the amount of loss—i.e., it is a bargained-for contract provision—and can invoke appraisal at almost any time, including before incurring any attorneys’ fees or engaging in litigation.