INTRODUCTION: Assessment regulations have been an element of insurance in Texas for more than a century. 1 In the 2009 Supreme Court judgment of 2009 of State Farm Lloyds v. Johnson the Court noted that it has only taken out insurance assessment provisions a total of five times between 1888 and 2002. 2 Since Johnson the Insurance Assessment Act has increased significantly and has now claimed a spot on the front line of Texas property insurance coverage disputes. The case Randel discussed below is the latest evaluation statement.
DEFINITION OF APPERISAL: It is an "extrajudicial" contractual process that is binding on the parties to resolve a dispute between the insurance company and the policyholder as to the amount of a loss covered under an insurance policy. 3 Assessment cannot be used to determine liability for the loss or interpretation of insurance language. Assessment determines only the single issue of the amount of the loss for the claim in question.
TYPICAL VALUATION REQUIREMENTS:
If you [the policyholder] and we [insurer] do not agree on the size of the loss, you can either request that the size of the loss be determined by valuation. If any of them make a written demand for valuation, each must choose a competent, uninterested valuer. Each person shall notify the other of the valuer within 20 days of receipt of the written request. The two evaluators will then choose a competent, impartial judge. The valuers must then determine the size of the loss. If the valuers submit a written report of an agreement to us, the agreed amount shall be the amount of the loss. If the values do not agree within a reasonable time, they must leave their differences to the judge. Written agreements signed by two of these three shall determine the amount of the loss. 4
Randel v. Travelers Lloyds of Texas Insurance Company 5 issued August 1
The plaintiffs' house burned down on the fourth of July and the plaintiffs filed a claim with their insurer, Travelers. On the same day, travelers gave a $ 10,000 advance check for loss of personal property. The main building was then inspected by travelers, along with the plaintiffs and the plaintiff's contractors. Plaintiffs fired their contractors shortly thereafter due to a disagreement over the repairs to be made. Travelers gave their home estimate of damage to $ 179,232.16. After deductions for depreciation and deductibles for the police, they issued a check for $ 126,720.80. 6 Travelers' estimate for personal property was $ 53,270.49, and it paid both a payment and $ 24,446.33 for lost use. During a re-inspection of the property by travelers, the additional coverage of the property that charged the plaintiffs declined in order not to mitigate damages as additional damages had been added after the plaintiffs had fired their contractors and all repair work had ceased.
At that time, the plaintiffs had decided to invoke the insurance assessment clause, but travelers argued that the valuation was not appropriate because the dispute was about coverage rather than the amount of damages. Assessment was granted. The claim for loss of use was excluded from the valuation, but the valuation price of the home was $ 317,030.75 for fair cost ("ACV"), and for personal property the estimate was $ 100,331.02. 7 Travelers paid on time the 5-day award with a total payment, after all deductions, of $ 164,435.23 for housing and $ 21,098.22 for personal property. With a subsequent fourth payment for loss of use, the total claim loss from the travelers was $ 46,657.22 and the total payment from the travelers was $ 533,529.88.
However, the full payment of the valuation award did not end with the parties' dispute. The plaintiffs filed a lawsuit in a state court several weeks before the payment of the valuation due to breach of contract, insurance rules, including violations under Chapter 542 of the Texas Insurance Code, entitled the Texas Prompt Payment Claims Act ("TPPCA"), and bad faith. Travelers dismissed the action before the federal court and requested a summary assessment of all the plaintiffs' claims due to the payment of the valuation.
Due to the plaintiffs' breach of the contract, the district court concluded that the plaintiffs & # 39; approval of the valuation premium prevented their breach of contract claims for home damage. The court also noted that the plaintiffs were not entitled to further damages for loss of use. Without breach of contract, the plaintiffs were not entitled to pursue the allegation of bad faith. For TPPCA violations, the court found that travelers had complied with the deadlines for loss of usage payments, and its estimate payments, even if premature, were found to be "reasonable". Travelers therefore waived liability under the TPCCA. 8
The Fifth Circuit & # 39; s holdings:
LETTER OF CONTRACT: When reviewing the district court's decision on breach of contract and confirming the district court's termination, the fifth district announced : the mere issuance of the valuation test does not prevent a breach of contract, but rather, since valuations only determine the damages, an insurer can still defend itself on the liability issue coverage.
TPPCA: The District Court dismissed the TPPCA claim for housing and personal property protection, even though " [the court] was considered reasonable. 11 The Fifth Circuit noted that the district court's judgment was understandable at the time it was announced. In 2017, the Fifth Circuit made a Erie guess with Mainali Corporation v. Covington Specialty Insurance Company opinion that prompt payment liability should not be imposed as long as the tax payment was timely and "reasonable." 12 Subsequently, a problem arose with various Texas courts that found what was "reasonably" different. The Supreme Court of Texas in Hinojos v. State Farm Lloyds solved that problem by putting a new test of "reasonableness" and determining that "a reasonable payment would roughly correspond to the amount owed on the claim." 13 Although the result in Mainali still stands given that it involved an overpayment, the standard of reasonableness with which it was applied proved to be too broad. 14 The rule today is the rule from Hinojos – "in order to avoid prompt payment liability, an estimate payment must" roughly correspond to "the amount ultimately owed." 15
I ] Randal because there was such a large gap ($ 185,000) between the tax payment and the valuation price, the travelers admitted that the tax payment was not reasonable given the latest guidance from Hinojos ; therefore, the ex ante evaluation was not a defense against TPPCA liability for travelers. 16 The Fifth Circuit remanded the case to the district court to determine interest for the late payment under the TPPCA.
USE OF USE BENEFITS UNDER TPPCA: The Fifth Circuit confirmed the district court and found that travelers paid the full amount on time for loss of benefits.
Randal is the latest valuation statement for policyholders in Texas, but it will certainly not be the last as the use of valuation clauses continues to grow and valuation laws become more refined and clarified.
1 See Scottish Union & Nat & # 39; l Ins. Co. v. Clancy 8 S.W. 630, 631 (Tex. [Comm’n Op.] 1888).
2 State Farm Lloyds v. Johnson 290 SW3d 886, 889 (Tex. 2009).
3 Id. at 887-88.
5 Randel v. Travelers Lloyds of Texas Ins. Co. 2021 WL 3560910 (5th Cir. 12 August 2021).
6 Id. at * 1.
7 Id. at * 2.
9 Id. at * 3.
12 Id. ; se Mainali Corp. v. Covington Specialty, Ins. Co. 872 F.3d 255, 259 (5th Cir. 2017).
13 See Hinojos v. State Farm Lloyds 619 SW3d 651, 658 (Tex. 2021).
15 Hinojos 619 SW3d at 658.
16 Randal 2021 WL 3560910 at * 4.