### REVISED September 27, 2017
IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 17

- 10350 Summary Calendar

MAINALI CORPORATION,
Plaintiff

- Appellant

v. COVINGTON SPECIALTY INSURANCE COMPANY; ENGLE MARTIN & ASSOCIATES, INCORPORATED; LYNN SUMMERS,
Defendants

- Appellees

Appeal from the United States District Court for the Northern District of Texas

Before DAVIS, CLEMENT, and COSTA , Circuit Judges. GREGG COSTA, Circuit Judge : A fire damaged a gas station and convenience s t ore owned by Mainali Corporation. Mainali filed a claim with its property insurer, Covington Specialty Insurance Company, which paid the claims based on an independent adjuster’s estimates. Mainali thought it was owed more, so it sued Covington for breach of contract, breach of the duty of good faith and fair dealing, fraud, and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act . After a full appraisal process, a panel ’s appraisal award was less than Covington h ad a lread y paid to Mainali under the insurance policy. United States Court of Appeals Fifth Circuit 

### FILED September 21 , 2017 Lyle W. Cayce Clerk Case: 17-10350 Document: 00514172570 Page: 1 Date Filed: 09/27/2017No. 17

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2 But Covington did pay a relatively small additional sum to ensure its payments were consistent with the way the appraisal panel allocated the losses. The district court granted summary judgment for Covington on all of Mainali’s claim s. The key issue we decide involves the application of the Prompt Payment of Claims Act to payments of an award pursuant to an appraisal
process
. For the reasons that foll ow, we AFFIRM. I. Mainali owned a gas station and convenience store (the Property) in Decatur, Texas. Covington insured Mainali’s Property

. The comme rcial package insurance policy included coverage for the building, associated business personal property, the gas and fuel pumps, the gas station’s canopy and awning s , and lost busine ss income. It also provided for payment of loss on

an actual cash value basis

— that is, with deduction for depreciation

— and required payment of the dep reciation holdback or full replacement cost value only if the insured repaired or replaced the property. In April 2014 , a fire damaged Mainali’s P roperty. The following day, Mainali notified Covington of the fire. Three days after the fire , Covington sent Lynn Summ ers, an independent adjuster, to investigate Mainali’s claim. Over the course of several payments made from May 2014 through January 2015 , Covington paid Mainali $389,255.59 using an actual cash value basis

. Mainali disputed this calculati on
. And i n March 2015, about two months after Covington’s last payment , Mainali filed suit against Covington and Summers in state court. Covington removed the lawsuit to federal court and then exercised its right of appraisal under the p olicy. As a result , Covington and Mainali each designated an appraiser, and the two appraisers agreed on an umpire. The appraisal panel issued an appraisal award of $387,925.49 as actual cash value and a replacement cost value of $449,349.61

. The former was the relevant figure as Mainali did not repair or replace the Property

. The Case: 17-10350 Document: 00514172570 Page: 2 Date Filed: 09/27/2017No. 17

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3 appraisal award provided that it was “inclusive of all FIRE damages sustained to the insured property” and was the sum of three types of losses: Building, Conte nts, and Busine ss Interruption

. Although Covington had already paid more than the total amount the appraisal panel said it owed, it paid an additional $15,175.82 for the building allocation afte r the panel announced its award. Covington and Summers subsequently moved f or summary judgment on Mainali’s claims. They argued that under Texas law, the timely payment of the appraisal award precluded liability on Mainali ’s breach of contract and extra contractual claims. M ain ali responded that the appraisal award was incomplete because it did not express ly include any amounts for fuel and gas pumps, the gas station’s canopy and awnings, or code upgrades. As for its extracontractual claims, Mainali pressed only its claim und er the Prompt P ayment of Claims Act in Chapter 542 of the Texas Insurance Code

. It argued the post appraisal payment was subject to that Act’s interest penalties for payments made more than 60 days after the insurer receives necessary documentation from the insured

. The district court granted Covington’s motion. II. Mainali first challeng es the district court’s grant of su mmary judgment on the breach of contract claim. Under Texas law, “appraisal awards made pursuant to the provisions of an insurance contract are bindi ng and enforceable, and every reasonable presumption will be indulged to sustain an appraisal award.” Franco v. Slavonic Mut. Fire Ins. Ass’n

- CIC , 154 S.W.3d 777, 786 (Tex. App.

— Houston [14th Dist.] 2004, no pet.). “The effect of an appraisal provision i s to estop one party from contesting the issue of damages in a suit on the insurance contract, leaving only the question of liability for the court.” TMM Invs., Ltd. v. Ohio Cas. Ins. Co. , 730 F.3d 466, 472 (5th Cir. 2013) Case: 17-10350 Document: 00514172570 Page: 3 Date Filed: 09/27/2017No. 17

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4 (quoting Lundstrom v. United Ser vs. Auto. Ass’n , 192 S.W.3d 78, 87 (Tex. App.

— Houston [14th Dist.] 2006, pet. denied)). C ourts have thus repeatedly rejected breach of contract claims when an insurer timely paid an appraisal award. See, e.g. , Quibodeaux v . Nautilus Ins. Co. , 655 Fed. App’x 984, 986

− 87 (5th Cir. July 7, 2016); Blum’s Furniture Co. v. Certain Underwriters at Lloyds London , 459 Fed. App ’x 366, 368

− 69 (5th Cir. Jan. 24, 2012); Nat’l Sec. Fire & Cas. Co. v. Hurst , 2017 WL 2258243, at *3

– 4 (Tex. App.

— Houston [14th Dist.] May 23, 2017, no pet. h.); Garcia v. State Farm Lloyds , 514 S.W.3d 257, 273

− 74 ( Tex. App.

— San Antonio 2016, pet. denied ) . Indeed, Texas law recognizes only three situations that allow a court to set aside an appraisal award: “(1) when the award was made without authority; (2) when the award was made as a result of fraud, accident, or mistake; or (3) when the award was not in compliance with the requirements of the policy.” Franco , 154 S.W.3d at 786. Apparently relying on the third exception to breathe life into his breach of contract claim, M ainali contends that the appraisal award was incomplete because it “excludes” damage to items covered by the p olicy: fuel and gas pumps, the gas station’s canopy and awnings, and code upgrade costs. But Mainali cites nothing in the record showing these items were not included. It is Mainali’s burden to identify such evidence in order to overcome summary judgment given that the a ppraisal a ward states that it “ is inclu sive of all FIRE damages susta ined to the insured property ” (and s hows co de upgrade cost s were included in the building loss calculation). Its failure to do so means there is no disputed issue of material fact, and the appraisal award will not be set asid e. III. W e next address Mainali’s prompt payment claim under Chapter 54 2 of the Texas Insurance Code. T EX

. I NS

. C ODE §§ 542.051 et seq. S ection 542 .058 of the statute requires the insurer to pay the policyholder’s claim within 60 Case: 17-10350 Document: 00514172570 Page: 4 Date Filed: 09/27/2017No. 17

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5 days of receiving all documentation needed to resolve the claim. If the insurer does not do so , it is liable for an 18% penalty on the amount that was not timely paid, plus attorney’s fees. Id. § 542.060. We must decide whether a payment made to comply with an appraisal

awa rd, which in most if not all cases is going to be paid after the 60

- day window, is subject to this penalty . No reported Texas case has ever subjected such a payment to the statute. Earlier this year, a state court of appeals held that “full and timely pa yment of an appraisal award under the policy precludes an award of penalties under the Insurance Code’s prompt payment provisions.” Hurst , 2017 WL 2258243 at *5 (citing In re Slavonic Mut. Fire Ins. Ass’n , 308 S.W.3d 556, 563 (Tex. App.

— Houston [14th Dist .] 2010, no pet.), overruled on other grounds by In re Universal Underwriters of Tex. Ins. Co. , 345 S.W.3d 404 (Tex. 2011) ) ; see also Garcia , 514 S.W.3d at 274

– 75 ; Breshears v. State Farm Lloyds , 155 S.W.3d 340, 3 44

– 45 (Tex. App.

— Corpus Christi 2004, pet. denied)

. We recently held the same. Quibodeaux , 655 Fed. App’x at 988 (5th Cir. 2016) (holding that a “plaintiff may not seek Chapter 542 damages for any delay in payment between an initial payment and the insurer’s timely payment of an appraisal award”) ; see also Blum’s Furniture Co. , 459 Fed. App’x at 368

– 69; McEntyre v. State Farm Lloyds, Inc. , 2016 WL 6071598, at *6 (E.D. Tex. Oct. 17, 2016). Mainali does find support for its view in one district court decision. See Graber v. State Farm Lloyds , 20 15 WL 3755030 (N.D. Tex. June 15, 2015). The most fundamental problem with Graber is that it did not recognize an Erie court’s duty to follow state court s’ interpretation of state law rather than the interpretation the federal court thinks makes the most sense. Rideau v. Keller Indep. Sch

. Dist. , 819 F.3d 155, 165 (5th Cir. 2016) (explaining that on a state law question “we must defer to the prevailing view of the state intermediate courts, even more so if th at view is uniform, unless convinced by other Case: 17-10350 Document: 00514172570 Page: 5 Date Filed: 09/27/2017No. 17

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6 p ersuasive data that the highest court of the state would decide otherwise .

. . .” (quotation and citation omitted) ). Further, t he primary authority Graber relied on was the re jection of a “good faith” defense to the Prompt Payment of Claims Act in a nonappraisal case. Graber , 2015 WL 3755030 at *10 (citing Higginbotham v. State Farm Mut. Auto Ins. Co. , 103 F.3d 456, 461 (5th Cir. 1997 ) )

. Higginbotham considered an insurer’s outright rejection , based on a reasonable defense, of a claim rather than an alleged underpa yment followed by a timely post appraisal payment. See 103 F.3d at 458, 46 1. The different situation in which that ruling arose is not enough to di vine that the Supreme Court of Texas would disagree with all the lower courts in the state t hat h ave addressed the issue in the context of postappraisal payments. Covington was not trying to avoid payment of the claim; it was invoking a contractually agreed to mechanism for assessing the amount it owed. We must defer to the view of the Texas courts that have confronted the same question this case poses. Breshe ars , 155 S.W.3d at 345 (“The Breshears also argue that by invoking the appraisal process, State Farm did not notify them as to whether it intended to pay their claim within the time requ ired by the code. We disagree.”). At a minimum under th ose state court decisions, there is no statutory violation because Covington made a preappraisal award that was undeniably reasonable. Id. (rejecting prompt payment claim because the insurer “complied with the insurance code , and provided a reasonable payment within a reasonable time”). In fact, it was more than the panel found due ($389, 255, above the awarded $387,925). Only because of an allocation issue relating to the building award did Covington

— out of an abundance of caution

— issue an additional $15,175.82 to Mainali after the appraisal

. Covington did not violate the Prompt Payment of Claims Act. * * * The judgement of the district court is AFFIRMED. Case: 17-10350 Document: 00514172570 Page: 6 Date Filed: 09/27/2017