If you read your insurance policy closely, you will likely find an appraisal clause. What is this? In short, an insurance appraisal is a procedure for a policyholder and insurance company resolve disputes over the value of your claim. Our law firm has successfully handled numerous insurance appraisals, in some cases recovering more than 10 times the original amount paid to the policyholder. Let’s face it, insurance companies make more money when they don’t pay valid claims. Our law firm understands how to leverage your insurance policy for your benefit.
While the appraisal process is supposed to provide an efficient mechanism to resolve an insurance dispute, it is still not proper for an insurer to undervalue your claim in the first place or wrongfully deny or delay your insurance claim.
The Texas Prompt Payment of Claims Act is designed to penalize an insurer who unjustifiably denied, delayed, or underpaid a valid claim. However, it is not always quite that simple. Until recently, Texas courts have generally held that the payment of an appraisal award cleanses the insurer’s failure to promptly pay a claim. In other words, Texas courts permitted insurers to lowball an insured, force the insured to go file suit or go to appraisal, and as long as the insurer promptly pays the appraisal award, it would not face any liability for attorney’s fees or penalties even though the insurer significantly lowballed the claim in the first place. The Texas Supreme Court’s ruling in Barbara Technologies Corporation v. State Farm Lloyds says this is no longer the case.
The Barbara Tech case involved a hail and wind claim in which State Farm estimated the damage at less than the $5,000.00 deductible. The policyholder filed suit and State Farm moved to compel appraisal. The appraisal award came back in excess of $195,000.00. State Farm promptly paid the appraisal award.
After the appraisal award was rendered, Barbara Tech amended its complaint to seek attorney’s fees and penalties for violations of the Prompt Payment of Claims Act. Barbara Tech argued that State Farm acknowledged liability by paying the appraisal award and had failed to comply with the prompt payment statute by not timely issuing payment within 60 days after receiving all claim materials.
The Texas Supreme Court held that an insurer may be in violation of the Prompt Payment of Claims Act if it delays payments beyond the statutory deadline regardless of whether the claim went to appraisal. In other words, simply paying an appraisal award may not cleanse an insurers failure to promptly pay a claim in the first place.
What does this mean for Texas policyholders? It remains to be seen exactly how the holding in Barbara Technologies will be applied by lower courts. However, going to appraisal should no longer be viewed as a get out of jail free card for insurers who underpay claims.