Texas Court – Appraisal Award Insufficient to Defeat Insured’s Breach of Contract Claim

By Kimberly L. Steele, Sedgwick Dallas

A recent federal opinion from Judge Sam Lindsay of the Northern District of Texas, Dallas Division, found that an insurer’s payment of an appraisal award was insufficient to defeat the insured’s breach of contract claim, and that the insured’s statutory and common-law bad faith claims remained viable as well. In the case of Church On The Rock North d/b/a North Church v. Church Mutual Ins. Co., No. 3:10-CV-0975-L (N.D. Tex. Feb. 11, 2013), North Church sued Church Mutual over its handling of a claim for damages arising out of an April 2010 thunderstorm. The parties agreed on the cost of a number of repairs, but differed on others, including the amount to be paid for replacement of North Church’s roof. Church Mutual invoked the appraisal process, and while appraisal was ongoing, North Church sued.

Church Mutual removed the lawsuit to federal court, and the case was administratively closed (subject to a potential future motion to re-open) so that appraisal could be completed. Upon receipt of the appraisal award, Church Mutual issued two checks, one for the remaining unpaid balance of the loss owed, and a second for the withheld depreciation. Church Mutual later moved to re-open the lawsuit and for summary judgment on North Church’s claims for breach of contract, common law bad faith, and violations of the Texas Insurance Code and the Deceptive Trade Practices Act. According to Judge Lindsay’s order, “[b]oiled down to its essence, [Church Mutual’s] contention is that without a viable contract claim, North Church’s other claims necessarily fail, and North Church cannot succeed on its contract claim because it is estopped by the alleged binding appraisal award and [Church Mutual’s] timely payment of that award from pursuing a contract claim[.]”

Judge Lindsay rejected Church Mutual’s position in all respects. Specifically, he concluded that Church Mutual had failed to establish as a matter of law that the appraisal award was binding and enforceable, but only assumed that it was true. Moreover, Church Mutual did not present sufficient evidence to prove that North Church intended to be bound by the award, failed to prove that its payments were timely, and did not establish as a matter of law that its calculations of deductible, depreciation, and prior payments were correct. Thus, Church Mutual’s motion for summary judgment on the contract claims was denied.

Judge Lindsay likewise denied Church Mutual’s summary judgment in relation to the insured’s extra-contractual claims. He did so not only because their contract claims remained viable and because mere payment of an appraisal award, without more, did not preclude an award for pre-appraisal violations of the Insurance Code. He also noted that North Church’s statutory claims were based on timing of payment and purported misrepresentations, not allegedly wrongful underpayment or denial of policy benefits, so the statutory claims would not stand or fall with the common-law bad faith claim. In closing, Judge Lindsay expressly stated that he was not commenting on the strength or weakness of North Church’s case, but only that Church Mutual had not met its summary judgment burden.

The Insurance Law Blog has looked at appraisal awards in Texas in earlier posts.  Please click here for a post from December regarding appraisal clauses and the disputes in Texas over the appraisal process.


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