### TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03
- 19
- 00292
- CV

In re United Services Automobile Association

OR I GINAL PROCEEDING FROM TRAVIS COUNTY

M E M O R A N D U M O P I N I O N

Relator United Services Automobile Association (USAA) has filed a petition for writ of mandamus comp laining of the trial court ’ s denial of its motion to compel appraisal. W e conditionally grant mandamus relief

. See Tex. R. App. P. 52 .8

.
BA CKGROUND USAA provided homeowners ’ insurance to the real parties in i nterest, Sean and
Bren da Forbes ( the Forbes es )

. The policy covered the structure up to $ 1,047,0 00 and personal property up to $785,250 and provided loss of use protection , also known as Alternative Living Expenses ( ALE), up to $209,400. USAA agreed to pa y the lesser of “ actual cash value ” ; the

“ cost to replace the property with property of like kin d, quality, age and condition ” ; or the “ cost
to re pair or our cost to restore the proper ty to the condition it was in just before the loss. ” The policy also p r ovided that i f the parties dis agree d “ on the amount of loss, ” either party could seek

a binding appr aisal. The relevant polic y provisions read as fo llows:2

Appraisal. If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. Th e two appraisers will choose an umpire. If they cannot agree upon an umpire within 1 5 days, you or we m ay reques t that the choice be made by a judge of a court of record in the state where the “ residenc e premises ” is located. The appraisers will separat ely se t the amount of the loss. If the appraisers submit a written report of an agreement to us, the amount agre ed upon will be the amount of loss. If they fail to agree, they will submit their differen ces to t h e umpire. A decision agreed to by any two w ill se t the amount of loss

.

***
The appraisers and umpire are only authorized to determine the “ actual cash valu e , ” replacement cost, or cost to repair the property that is the subject of the claim. The y are not authorized to determine coverage, exclusion s, con ditions, f orfeiture provisions, conditions precedent, or any other contractual issues that may exist betwe en you and us. The appraisal award canno t be used by either you o r us in any proceeding co ncerni n g coverage, exclusions, forfeiture provisions , c ondi tions precedent, or other contract u al issues. However, once contractual liability is admitted or det ermin ed, the appraisal award is binding upon you and us. This appraisa l process and authority g ranted to the appraisers and the umpire can only be e xpande d and modified by written mutual consent signed by you and us.

***
Additional Living E xpense . If a l o ss co vered under Section I

— LOSSES WE COVER makes that part of the “ residence premises ” where y ou reside uninhabitable, we cover the reasonable and necess ary increase in l ivi ng expenses so that your household can maintain its normal standard of living.

Pa yment will be for the shortest time required to repair or replace the damage or, if you permanen tly relocate, the shortest time required for your hou sehold to settle elsewhere, in either event, not to exceed 1 2 months.
In January 2018, the home caught fire , res ulting in extensive damage throughout the structure and the Forbeses ’ personal belongings

. During the adjustment process, disputes

aro se about USAA ’ s decision to clean or repa ir many of the family ’ s personal property items3

rather than replace t hem an d about the value of some of the items. In August 2018, the Forbeses filed suit , complain ing th at USAA had inappropriate ly insisted that certa in items be clean ed instead of replaced, f

a iled to pa y for a number of items that had been declared unresto rable,

un dervalued a number of items that had to be replaced , and wrongly insist ed that certain items had been fully res tored

. T he Forbeses asserted that they were en tit l ed to “ the replacement cost of all items that have not been res tored to pre

- loss cond ition ” and leveled claims for brea ch of
contract and violations of the insurance code and the Texas D e ceptive T ra de Practi ce s Act , claiming USAA had not conduc t ed a reasonabl e inve st ig ation of the claim , had not paid some claims as required by the po licy , a nd ha d not in good faith sought a fair settlement

. USAA answered , and the parties began discovery an d other pretr ial processes.

O n February 4, 2019, the Forbeses filed an amended petition, a dding allegations of retaliation afte r the y fil ed suit and complaining about USAA ’ s decisions related to structural repairs and the Forbeses ’ ALE

. T he Forbeses asser t ed that since the suit was filed, USAA had retaliated by becoming unresponsive and unreasonable , refusing to meet with the Forbeses , refus in g to pay for certai n repair s , making offers of “ gross underestimates of re pair costs, ” refus ing “ to pay what it act ually costs to repair ” the home, and denying the Forbeses ’ ALE claim

. T he Forbeses further stated that as repair s began, the p artie s discovered th at “ the scope of necessary repairs was much greater than USAA originally th ou gh t ” and encompassed reframing, paint i n g , electrica l , lighting f ixtures, the HVAC syste m , wood work, windows, stucco, and other items. T he Forbeses asserted t hat th e difference between their t hi rd

- party estimates for the repair work to the struct ure and USAA ’ s offer s was more than $400,0 00. Shortly the r e after , USAA invok ed the appr aisal clau se , filing a motion to compel on March 12 . T he trial court denied the

mo tion to c omp el appraisa l , leadi ng to this original proceeding

.4 DISCUSSION Appraisal c lauses are common and generally enf orce abl e under Texas law. See,
e.g. , State Farm Lloyds v. Johnson , 290 S.W.3d 886, 888

– 89 (Tex. 2009) ; In re Public Serv.
Mut. Ins. , No. 03

- 13

- 00003

- CV, 2013 WL 69244 1, at *2 (Tex. App.

— Austin Feb. 21, 2013, orig. pr oceedin g ) (mem. op.)

. The Texas S u preme Court has held that “ mandamus relief is
approp ria te to enforce an appraisal clause because denying the appraisal would vitiate the insurer ’ s right to defend its brea ch of contract claim

. ” In re Universal Underwrite rs of Tex

. Ins. , 345 S.W.3d 404, 412 (Tex. 2011) ; see also In re Allstate Cnty. Mut. I ns. , 8 5 S.W.3d 193, 196 (Tex. 2002) ( mandamus relief available if trial court abuses its discretion in denying appraisal clause because denial may “ vitiate or sev erely compromise the defendants ’ defenses to those claims ” ) ; In re Public Serv. Mut. , 20 13 WL 692441, at *2 ( “ Mandamus relief is appropriate when the trial court den ies a motion to compel an appraisal, vitiating th e insurer ’ s right to defend a breach of c ontract claim. ” )

.

We fi rst turn to whether USAA waived its right to invo ke the appr aisal process , noting that t he insurance policy incl u d es a general “ nonwaiver provi sion, ” stating that “ [a] waiver or change of a pr ovision of this policy must be in writing ” to be valid. “ [A] s a general proposition, nonwaiver provisions are bi nding and enforceable , ” Shields Ltd. P ’ ship v. Bradberry , 526 S.W.3d 471, 481 (Tex. 2017) , and such provision s may themselves be waived
exp ress ly or impliedly , i d . at 482

- 83

. 1 A party may impliedly waive a nonwaiver provision by

“ intentionally engag [ing] in c onduct inconsistent with claiming the right to enforce the

1 The supreme court has stated that “ a nonwaiver provision absolutely barring waiver in the most general of terms might be wholly ineffecti ve , ” Shields Ltd. P ’ ship v. Bradberry , 526 S.W.3 d 471, 48 4 (Tex. 2017) , but that is not the case here

— this contract allows for waive r of or change to the nonwaiver pr ovision , as long as the altera tion or waiver is in writing

.5

nonwaiver agreement , ” i d

. at 485 , and t he Forbes es assert that USAA ’ s delay in i nvoking the apprai sal process should b e viewed as wai v ing its right s under the nonwaiver provision as well

as waiving i ts rights under the appraisal clause. However, even assum ing t hat USAA ’ s delay

amou nted to intentional conduct inconsistent with claimin g its rights to enforce the appraisal agreement , it d oe s not follow that such behavior was also “ inconsistent with clai ming t he right to

en force the nonwaiver agreement. ” See id

. It appear s, th erefore, that the nonwaiver provision remained in effect and thus bars any finding of implied waiver of the appraisal pro vision

.

E ven if the nonwaiver clause had been waived or was otherwise ineffective , however, the F o rbeses had to establish that USA A had wa ived its rights under the appraisal clause. The supr eme c ourt has held, “ A ppraisals have proceeded for well over a century with little judicial involvement , ” noting the rarity of its prior decisions involv ing appraisals

. Universal Underw riters , 345 S.W. 3 d at 407

. When , as here, a policy does not place a time
l imit a t i o n on a party ’ s righ t to avail itself of the appraisal process and the demand is made within

a reasona ble time after the parties reach an i mpasse, invocation of the appraisal proces s is vali d unless waived. Barbara Techs. C orp. v. State Farm Lloyds , 589 S.W.3d 806, 815 (Tex. 2019)

.

“ [W] aiver in this context occurs when the party seeking appraisal fails to demand it within a reasonable time after the parties reach an impasse on the amount of the loss, if the failure prejudic es the opposing party. ” O rtiz v. State Farm Lloyds , 589 S.W.3d 127, 131 (Tex. 2019)

.

A party waive s the right to invoke an appraisal clause by intentional l y relinquis h i n g it or e ngag ing in “ intentional conduct inconsisten t with claiming that right

. ” Universal Underw riters , 345 S .W .3d at 407

. The Forbeses argue that USAA unreasonably de layed its ap praisal de m and and thus waived it s rights

. See id . at 408

. Th e reasonableness or

u nreasonableness of a d elay “ must be measur ed from the point of im passe , ” and the su preme6

court has ex pl ained that “ [a] n impasse is not the same as a disagreement about the amount of loss. ” Id

. The court defined impasse a s “ a mutual understanding that neither will negotiate further , ” referencing other defini tions as “ the apparent breakdown of good

- faith ne gotiations ” or the “ point at which the parties have exha usted the prospects of concluding an agreement and further dis cussions would be fruitless. ” Id

. at 409

- 10 (qu oting L aborers Health & Welfa re Tr

. Fund v. Advanced Lightweight Concrete Co. , 484 U.S. 53 9, 544 (1988 ) )

.

The Forbeses argue that the parties rea ch ed an impas se in June 2018, when USAA

se nt a le tter saying that it “ respe ctfully deni[e d] the r equest for policy l imits ” and explaining that several parties hired to help clean and res tore the Forb es es ’ items “ feel the items in question have been brought back t o pre - loss condition. If you are not in agreement, we can implement the Apprais al Process outlined in the con tract. ” In that lett er, US AA also noted that it was revising

one valuation upward a fter correcting an error (designat ing a sofa as a loveseat) an d closed by invit ing the Forbeses to reply to the message an d at tach documentation if needed

. Given that
USAA referenced the avail ability of fur ther work on valuation b y rai sing the po ssibili ty of the appraisal process and then informed the For beses of ho w to reply and attac h any needed documentation , the June 2018 letter does not demonstrate that USAA knew that further negotiations would be of no use. See id. at 408 ( “ Ongoing negotiations, e ve n when the parties disagree, do not trigger a party ’ s obligation to demand appraisal. ” ). Thus, it seems that , as in Universal Underwriters , USAA was put on notice that the parties had reached an impasse at earliest in August, when the F o rbeses filed sui t over USAA ’ s handling of their personal

- property claim. See id . at 410 (noting that insurer deman ded appra isal about one month after insured f iled suit) ; see also In re Ooi da Risk Retention Grp ., Inc. , 475 S.W.3d 905, 912 (Tex. App.

— Fort7

Worth 2015, orig

. proceeding) ( “ Merely filing suit does not inherently signal that the parties have mutually concluded that all future settlement negotiations would be futile. ” )

.

USA A invoked the appraisal claus e in Febr ua ry 2019, at most six months after the parties reac he d an impasse , if taken from the point that litigation commenced

. “ Although a party may waive its contractual right to an appraisal, it does not do so merely by fai ling to demand it before sui t is filed. ” Ortiz , 589 S.W.3d at 131

. T he parties engaged i n discovery and other litig ation p rocesses, but it seems that they also were continu ing to work on settling the overal l claim , at least until the For beses filed their a mended petition in Februa ry 20 19, en c ompass ing complaints re lated to ALE and repair s to th e structure itself. Thus, the record does not establish th at USAA ’ s delay in invoking an appraisal a rose to the level of being intentional conduct so inconsistent wi th claiming that right a s to waive the right altogether. See Universal Underw riters , 34 5 S.W.3d at 407 ; cf. In re Allstate Vehicle & Prop. Ins. , 549 S.W.3d 881, 889

- 92 (Tex. App.

— Fort Worth 2018 , orig. pr oceeding ) ( insurer waived appraisal provi sion by it s

co nduct p o st

- impasse, which included removing suit to federal court, agreeing to trial s etting, seeking extension of time to designate experts, requesting seventh i nspection, and “ directly verbally express[ ing] to the trial court Allstate ’ s intent to g o to t rial de s pite the lack of satisfaction of the appraisal clause condition precedent ” )

.

E ven if USAA ’ s delay in invoking appraisal was unreasonable , the Forbeses als o had to establish that the delay prejudiced them, and the supreme court has “ recognized t he
i nherent difficulty of demonstrating prejudice when a policy allows both parties the sa me opportunity to demand appraisal

. ” Ortiz , 589 S.W.3d at 131

. The Forbeses have not d one so.

Appraisal is a process that can “ short

- circuit potential litigation and shou ld be pursued before resorting to the courts

. ” Id

. (quoting Universal Underwri ter s , 345 S.W.3d at8

41 2 ). The supreme court has referred to it as “ a condition precedent to suit , ” noting that
app raisals “ require no attorneys, no lawsuits, no pleadings, no subpoen as, and no hearings ” an d

can almost always “ be completed with less time and ex pense than it would take to file motions contesting it. ” Johnson , 290 S .W.3d at 89 4

. When, as he re, an appraisal clause can be invoked by both sides, “ it is difficult to see ho w prejudice could ever be shown ” because both sides have the same opportun it y to demand appraisal , and “ [i] f a party senses that impasse has been reached, it can avoid prejudice by demanding an appraisal itself

. ” Universal Underwr iters , 345 S.W.3d at 412

. Similar to the fac ts presented to our sister court in In r e Am erican Nation al Property and Casualty Co. , 582 S.W.3d 400, 406

- 07 (Tex. App.

— San Antonio 2018 , orig

. proceeding ) , the Forbes es a ssert prejudice beca use they have inc urred s ubstantial costs from their litigation efforts , noting that USAA filed a jury demand , initiated d is covery against the Forbeses ,

an d filed responses to the For beses ’ discovery requests . However, as in American National , where the p l ainti ff incurred more th an $145,000 in cos ts due to “ depositions, motions, ex pert retentions, mediation, and even a decla ra tory act , ” id . at 406 , the Forbeses initiated litigation rather than first pursuing an appraisal, participated in discovery, and oth erwise prepared for trial without ever request ing an appraisal. Indeed, USAA referenced the appraisal process in its June
2 018 letter , informing the Forbeses that if they were dis satisfied with USAA ’ s determinations on the claim, they could “ implement the Apprai s al Process outlined in t he cont ract. ” We hol d that the Forbes es did not establish that they were prejudiced by US AA ’ s delay in i nvoking the appraisal clause

. Thus, the trial court erred in so far as it determined that USAA waived its right
to demand an ap praisal.9 We now conside r wheth er the appra is al provision is appropriate for the various elements of the claim

. T he Forbes es argue that the appraisal provision i s not applicable to the dispute related to the contents of the home beca use th at dispute is over c overage, not the amount of the loss

— speci fica lly, whether USAA ha s met its obligation to restore the per sonal pr operty to the condition it was in before the f ire. B e cause USAA chose to re store most of the damaged
pers onal items r ather than replacing them , the F o rbes es argue that th e “ only disput e is whether the restoration job meets the contract ual sta ndard, ” whi ch does not fall within the three issues that the po licy authorizes the appraisers to decide

— actual cash value, replacement cost, or cost to repair th e property

— and instead falls within t he category of disputes the appraisers are not authorized to decide

— q ue stions of “ coverage, exclusions, conditions, forfe iture provisions, conditions precedent, or any other contractual issues that may exist betwe en you and us

. ”

T h e supreme court has exp l ained that “ in most cases appraisal can be structured in a way that dec ides the amount of loss without deciding any liability questions ” and that “ even if an appraisal award is flawed, that can be ea sily remedied by disregarding it later ” at trial. Johns o n , 290 S.W.3d at 894

- 95

. And c ourt s have enforced appr aisal provisi on s in the following disputes : whether a covered hail storm had damaged all or only the ridgeline of a roof , Johnson , 290 S.W.3d at 887 ; wh ether auto i nsurance companies , against w hich th e plaintiffs lodged claims of systematically underval uing insured veh icle s, should be allowed to invoke apprais al provisions to obtain appraisals of the automobiles , Allstate C ty. Mut. , 85 S .W.3d at 194 ; whether after paying for property damage afte r a wi ndstorm, an i nsuran ce company should also have paid

“ a dditional paymen t fo r their contractor ’ s overhead, profit, and sales tax , ” In re Acceptance Indem. Ins. , 562 S.W.3d 645, 648 (Tex. App.

— San Antonio 2018 , orig

. proceeding ) ; w het her a roof neede d rep airs d ue to age , a covered windstorm, or another storm that predated cover a ge,10

Pub lic Serv. Mut. , 2013 WL 692441, at *4 ; and w hethe r a building damaged by fire “ could be restored and the fire loss compensated only by the complete reconstru ction or rep lace m ent of the whole in terior of the building ” or simply by “ reconstructing so me p arts and replacing other parts of the interior ” at a much lower cost , Gulf Ins. Co. of Dall

. v. Pappas , 73 S.W.2d 145, 146 (Tex. App.

— San Antonio 1934 , writ ref ’ d )

.

USAA attemp ted to re store the person al pr operty through cleaning or repair, and the F orbes es insist the p roperty is still damaged after those efforts

. Th is dispute th us i nvolves questions about the kind of items that were damage d , the quality and cost of the items , the degree of damage they suffere d, and how the y can be restored to their pre - f ire condition through replacement or cleaning. The appraisers have the authority to determine “ actual cash value ,

re placement cost, or cost to rep air the property , ” and if they det ermine through the appraisal that
USAA ’ s restoration efforts have fail ed, t hat information will be incor p orated into the final results . A s the supreme court has said , “ repair or replacement i s an ‘ amount of loss ’ qu estion for the appraisers

. ” Johnso n , 290 S .W.3d at 891 ; see also id

. at 893 ( stating that in refusing writ in Pappas , 73 S.W.2d at 146

- 47, supreme court adopt ed lo wer court ’ s holding that “ whe th er the building ’ s interior should be repaired or completely replaced to restore it to its previous cond ition ” was question for appraisers )

. We agr ee with USAA that the question of w hether its restoration efforts sati sfy its contrac tual obligation falls within a determination of the cost to restore the property to pre

- loss condition and hold that the perso nal

- property dis pute is sub ject to the apprai sal cla use. See id . at 894

- 95 ( “ [T] he scant precedent involving disputes abou t the scope of appraisal suggests that appraisals generally resolve such disputes , ” a nd “ [l] itigating the scope of appraisal is waste ful and unnecessary if t he appraisal itself c an settle this controversy. ” ).11 Similarly, whether USAA has improperly ref used to pay for or has paid insufficien t amounts for certain structural repairs are also questions appropriate for the appraisers
to co nsider. Although the For bes es asser t that the p arties ha ve not yet reached an impasse on the amount of loss and that the ir di spute is instead about USAA ’ s reta li atory behavior

— its alleged refusal to communicat e with For bes , its refusal to pay for certain repai rs, and its refusal t o make
goo d

- faith effo rts to se ttle the claim

— t he heart of the claims is that the Forbeses beli eve t hat USAA should be paying more to repair the home. 2 F urther, the appr aisal clause does not place limits on when it may be invoked , and a lthough the point of impasse is rel evant to the

un reasonableness of a party ’ s delay in invoking appraisal , it does not follow that an appraisal clause may not be invoked until an impasse is reached

. T he dispute related to the structural
repa irs is thus subject to USAA ’ s dema nd for an appraisal

. See id

. a t 893

.

As for the Forbeses ’ ALE claims, USAA argues that those sums s hould also be ref erred to the appraisal pro cess , while t he Forbeses argu e that their ALE claim is not subject to appraisal

. USAA argues that ALE “ falls under the policy ’ s ‘ loss of use ’ co verage, ” and thus

“ represent a type of ‘ los s , ’ and [that] how much ‘ use ’ the Forbeses have lost is a question of

‘ amount. ’ ” USAA also notes several Texas c ases in which appraise rs set a claimant ’ s ALE

. See Anderson v. American Risk Ins. , N o. 01

- 15

- 00257

- CV, 2016 WL 3438243, at *2

- 3 (Tex. App.

— Houston [1st Dist.] Ju ne 21 , 2016, no pet.) (mem. op.) ( apprai sal award “ set the total additional living expenses ( ‘ ALE ’ ) owed ” ); Timb erlake v. Metro politan Lloyds Ins

. , 230 S.W.3d 798, 799 (Tex. App.

— Dallas 2007, no pet.) ( appraisal award included “ additional living expenses ” ) ;

2 For example, the Forbeses all eged that “ USAA h ad dra matically under est imate d the repair cos t ” and had paid $ 400,000 less than the Forbeses ’ t hird

- party estimates

.12

All ison v. Fire Ins. Exch. , 98 S.W.3d 227, 254

– 55 (Tex. App.

— Austin 2002, pet. grant ed, judgm ’ t vacated w.r.m.) ( noting that appraiser ’ s award included sum for addit ional living
expenses )

. 3
A lthough ALE is a “ Loss of Use Protection ” under the policy, r ather than being defined as a c omponent of an insured ’ s “ loss, ” an insured only incur s A LE as a part of its overall loss , and it makes logical sense to al low for a n in dependent assessment when the parties disagr ee about whether an insured has made arrangem ents that reasonab ly allow them to maintain their normal standard of living. Further , as noted by the supreme court, “ [l] itigating the scope of
appra isal is wasteful and unnecessary if the appraisal itself can settle this controversy , ” and “ if an appraisa l awa rd is flawed, that can be easily remed ied by d isregarding it later. ” Johnson , 290
S .W.3d at 895 . We hold that the For beses ’ ALE claim should be included in the appraisal
process . CONCLUSION

We have held that the t rial court erred in denying USAA ’ s d emand for an appraisal on the Forbes es ’ claim s . Because the appra isal will im pact at least the Forbes es ’ breach

- of

- contract claim s , we hold that mandamus relief is ap propriate

. See Universal Underwrite rs , 345 S.W.3d at 412 ( “ We have held that mandamus re lief is appropriate to enforce an appraisal cla use because denying the appraisal would vitiate the insurer ’ s right to defend its breach of contract claim

. ” ); Allstate C ty. Mut. , 85 S .W.3d at 196 ( “ Because the appraisals go to

3 USA A also cites to In re State Farm Lloyds, Inc. , for the proposition that the court of appeals reversed th e denial of a motion to apprais e “ in a suit against insur er for ‘ failing to pay for Plaintiff ’ s loss of use of her hom e , ’ ” but t hat case does not discuss whether an ALE claim should be part of an appr aisal and simply note s that the plaintiff sought ALE in suing fo r t he insurer ’ s alleged failure to pay for use o f her home and to compensate “ for the damaged and destroy ed personal items

. ” 170 S.W.3d 629, 631, 635 (Tex. App.

— El P aso 2005, orig. proceeding)

.13

the h eart of the plaintiffs ’ b reach of contract claim, we need not decide here the significance of the appraisals to each of the remaining claims. ” ) . Writ wi ll issue only in the un likely event th at the trial court does not comply with this opinion.

___________________________________ _____ __ Jeff Rose , Chief Justice Before Chi ef Justice Rose, Justices Baker and Kelly Filed : December 23, 2020