### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-13-00003- CV

In re P ubl ic Service Mutual Ins urance Com pany, Reed Insu rance A djusters, and S teve n L. Matthews

ORI GINAL P ROCEEDI NG F ROM CO MAL CO UNTY

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

Relators Public Service Mutual I nsura n ce Company (PSMI C), Reed I nsuranc e Adjusters, and Steven L

. Matthews filed a petition for writ of mandamus and motion for temporar y relief from the district court’s order direc ting the parties to complete mediation and d en y ing R el at o rs ’ m otion to abate the underlying cause and to compel an appra isal require d by the

commerc ial proper

ty insurance policy that PSM I C issued to rea l parties in interest, Shree Dee p L L C and Asha Ram L t d. d/b/a Be st Value I nn and Suites (Shree Dee p). We conditionally g rant the petition for writ of mandamus to compel t h e ap p raisal, deny the petition for mandamus as to the motion to abate, and dismiss the motion for temporar y relief

.
BACK GR OUND The challeng ed order stems from Re l at o rs’ motion to compel appra isal and abate lit i gation in a suit that Shree Dee p filed ag ainst them, alleg ing brea ch of contra ct and violations of the insurance code and Texas Dec eptive Trade P ra ct i ce s Act based on PSM I C’s nonpay mentof p o l i cy b en ef i ts for motel roof damag e attributed to a Fe bruar y 1, 2011 windstorm. The policy insured the pr operty

from January

1, 2011 to J anuar

y 1, 2012 and had a

$5,000 deductible. Shr ee Dee p made a claim for roof damag e but withdrew it befor e a schedule d inspection, initially acknow ledg ing to PSM I C that the damag e was less than the policy ’s deductible. Steven L

. Matthews of Reed I nsuranc e Adjusters proce eded to inspect the roof damag e for PSM I C, fin d i n g the roof damag e was minimal and estimating the value of the loss at $1,000.23. Months afte r withdraw ing the claim, S hree Dee p reta ined publ ic i nsuranc e adjuster Gar y Pennington, a

nd Pennington hired eng ineer J im L inehan, who conclude d that there was extensive damag e requiring

new roofs. PSM I C’s adjuster Matthews subsequently hir e d e ng ineer Eric D. Moody , who conducte d an investi g ation and dete rmined that the shing le-loosening damag e to t he roof did not result from the Februa

ry 1 windstorm. PSM I C sent a letter to Shree Deep’s adjust er on September 23, 2011, providing copies of Moody ’s repor t and Reed’s $1,000.23 estimate and explaining that beca use the amount was “substantially less than the insured policy deductible of $5,000, PSM w[ould] be unable to issue pay

ment to the insured under the claim for the damage re p ai rs.” The letter also invited further information to evalua te the cla im:

Should y o u n o t ag ree with PSM ’s evalua tion of the claim as repor ted, A Proof of L oss f orm is enclose d with this letter. Your completion of it in acc ord with y our evalua tion of the in sured damag e is invited, along with a copy of estimate or contra ctor’s bid in support. PSM will consider any such further submissi on and advise y ou if there are any chang es o n t h e cl ai m evaluation, in light of the new information.

After rec eiving the Marc h 23 letter, Shree Dee p’s adjuster ref err ed the claim to counsel for litigation. Shree Dee p s en t a DTPA notice letter to PSM I C on J anuar y 31, 2012. PSM I C responde d on 2Marc h 7, 2012, rea sserting its position that “the cover ed damag es in this claim do not exceed the

policy ’s deduc tible.”

Shree Dee p filed the underly ing suit ag ainst Relators on Marc h 30, 2012, contending th at t h e p ar t i es disputed both policy cover ag e for the claim and the amount of the loss. Relators arg ued that the l atter was t he crux of t hei r d i s p u t e. The case prog resse d, Shree Deep obtained an October 22, 2012 trial setting, and on September 19, 2012, Rel at o rs filed a motion to compel 1 appra isal and abate litigation, invoking the following provision from Shree Dee p’s policy :

AP P RAISAL I f we and y ou disag ree on the amount of loss, either may make written demand for an appra isal of the loss. I n this e vent, eac h party will se lect a competent and impartial appraiser and notify the other of the appra iser selec ted within 2 0 d ay s o f such demand. The two appra isers will selec t an umpire. I f they cannot ag ree within 15 day s upon such umpire, e ither may reque st that selec tion be made by a judge of a court having jurisdiction. Eac h appra iser will state separ ately the amount of loss. I f they fail to ag ree , they will submit their differ ence s to the umpire. A decision ag ree d to by

any two will be binding a s to the amount of loss. Each w ill: 1. Pay its chosen appr aiser; a

nd 2. Be ar the other e x penses of the appr aisal and umpire equally

. I f there is an appra isal:

a. You will ret ain y our rig ht to bring a leg al action ag ainst us, subject to the provisions of the L eg al Action Ag ainst Us Property L oss Condit ion; and b. We will st ill retain our rig ht to deny the claim.

Relators alleg e that Shree Dee p obtained the trial setting wi t h o u t co nfer ring with 1 opposing c ounsel. 3The rele vant part of the policy ’s “L eg al Action Ag ainst Us” provision made “full compliance with

all the terms of this insurance ” a condition prec edent to filing suit ag ainst PSM I C under the policy

.

Aft er a hear ing, the trial court denied the motion, order ed the parties to complete mediation, and require d th e p ar t i es to ag ree to a mediator. Relators then filed this petition for 2 mandamus and motion for te mporary relief

.
ANALYSIS To obtain mandamus relief , a rela tor must show that the trial court clea rly abused its discretion and that the rela tor has no adequate reme dy by appea l

. In re Southwestern Bell Tel. Co. , 226 S.W .3d 400, 403 (Tex. 2007) (citing In re Prudential Ins. Co. of Am. , 148 S.W .3d 124, 135–36 (Tex. 2004)). Mandamus relief is appropr iate when the trial court denie s a m o tion to compel an appra isal, vitiating t h e i n s u re r’ s rig ht to defe nd a brea ch of contra ct claim. In re Universal Underwriters of Tex. Ins. Co. , 345 S.W .3d 404, 412 (Tex. 2011) (citing In re Allstate Co. Mut. Ins. Co. , 85 S.W .3d 193, 196 (Tex. 2002) (orig . proce eding )). Appraisal Appra isal clause s in i n s uranc e contra cts set forth a proce ss for resolving disputes about a prope rt y ’s value or the amount of a cover ed loss. Id. at 405. These clause s are usually enfor cea

ble, absent illega lity or waiver

. Id

. at 407. Fur ther, “[w]hi le trial courts have some

I nitially , the trial court g rante d the motion to compel appra isal and to abate litigation afte r 2 a hea ring at which Shree Deep did not appea r. The trial c ourt g rante d Shree D eep’ s motion t o set aside that order afte r the parties disputed whether additional notice of the hear ing should have been sent to Shree De ep’s c ounsel by e-ma il, which he had r equeste d afte r a f ire in his office building. 4discretion as to the timing of an apprai s al , t h ey d o not have discretion to ignor e a valid appra isal

clause entirely .” State Farm Lloyds v. Johnson , 290 S.W .3d 886, 893 (Tex. 2009).

Relators arg ue that the trial court err ed in denying its motion to c ompel compliance with a v al i d appra isal provision in the i nsuranc e contract because it vitiates their abili ty to defe nd Shree Dee p’s brea ch of contra ct claim. Shree Dee p responds that mandamus relief is improper beca use: (1) compliance with the appra isal provision was excused by PSM I C’s failure to pay policy benef its, which was a prior materia l brea ch of the contra ct; (2) the par t i es ’ dispute includes a

cover ag e issue that is inappropria te for appra isal; (3) even if appra isal wer e approp ri at e, PSM I C wai v ed an y such appra isal rig ht, and (4) the appra isal provision is unenfor cea ble under g ener al contra ct principles. We conside r ea ch of the se ar g uments in turn.

Excuse from com plian ce for failu re t o pay

I n response to the Relato rs’ arg uments about the g ener al enfor cea bility of the appra isal provision, Shree Deep co n t en d s , without citation to authority , that it was excused from comply ing with the appra i sal provision beca use PSM I C materia lly brea ched the policy by failing to pay policy benef

its for the cover ed peril of windstorm damag e. As Relators observe d, courts have disfavore d simil ar arg uments that nonpay ment of a claim excused an insured’s parti ci p at i o n in appra isal. See, e.g. , Sanchez v. Property & Cas. Ins. Co. o f Ha r t f ord , No. H-09-1736, 2010 U.S. Dist. L EXI S 6295, at *25 n.10 (S.D. Tex. J an. 27, 2010) (noting that claimant cited no authority for proposition that mere alleg ation of insurer’ s brea ch of insurance contra ct rel i eves insured of obliga tion to participa te in appra isal, and if insureds could esca pe appra isal with anticipatory brea ch

or repudia tion alleg ations whene ver cover ag e or claims-handling disputes arose , “appr aisal clause s 5would be virtually a nullity ”); In re Security Nat’l I ns. Co. , No. 14-10-00009- CV, 2010 Tex. App. L EXI S 2911, at *19 (Tex. App.—Houston [14t h Dist.] Apr. 22, 2010, orig

. proce eding ) (mem. op.) (re jecting arg ument that insurer was not entitled to enfor ce rig ht to appra isal beca use it had b re ac h ed i ts contra ctual obliga tions by failing to pay timely and complete policy benef its for t h e costs to pr operly repa ir the damag e to the commerc ial proper ty); see In re State Farm Lloyds, I nc ., 170 S.W

. 3 d 6 2 9 , 6 3 4

– 3 5 ( T e x. App.—El Paso 2005, orig

. proce eding ) (holding that insurer’ s alleg ed failure t o comply with other policy provisions did not show intent to dispense with policy ’s require ments that would allow insurer to a rrive at amount of loss). Accep t ance of Shree Dee p’s prior-br eac h arg ument would compel pay ment of a disputed-value claim befor e the appra isal, curta iling the utilit y of its inclusion in the contra ct. The Texas Supreme Court disap proves of such construction of an appra isal clause

. See Johnson , 290 S.W .3d at 893 (noting that courts must avoid construing appra isal clause s in manner that would rende r such clause s larg ely inopera tive). We are not pe rsuade d by Shree Dee p’s arg ument ag ainst enfor ceme nt of the appr aisal provision in this poli cy .
P ropriet y of ap praisal w ith cover age issue

Shree Dee p further contends that appra isal is improper wher e co v e r a g e is s u e s rema in. I n support of its contention that valuation of t h e l o s s i s n o t the only disputed issue, Shree Dee p points to corr espondenc e from PSM I C’s counsel stating that the roofing materia ls wer e ag ed and that prior repa irs in d i ca t ed t h e damag e predated the commence ment of cover ag e on J anuar y 1, 2011. 3

Shree Dee p’s adjuster acknow ledg ed that Shree Dee p had made some roof repa irs due to 3 damag e fr om a J anuar

y 15, 2010 windstorm. 6Shree Dee p contends that the primary issue in this case involves a battle of the eng ineer ing experts

about whether a Fe bruar

y 1, 2011 windstorm (cove red) or a storm befor e J anuar y 1, 2011 (pre dating

cover ag e) cause d the motel roof damag e. Rely ing on an excerpt from State Farm Lloyds v. Johnson , 290 S.W .3d 886, 892 (Tex. 2009), a case wi t h an an al o g ous dispute about hail damag e to a homeowner ’s roo f, Shree Dee p arg ues that when there are differ ent cause s for a single injury to proper ty , causation is a liability question for courts, not appra isers. See id. (citing W ells v. American States Preferred I

ns. Co. , 919 S.W .2d 679, 685–86 (Tex. App.—Dallas 1996, wr it denied)). Howeve r, in Johnson , the Texas Supreme Court expressed strong favor for enfor ceme nt of appra isal clause s in insurance contra cts, even when conce rns arise about the scope of the appra isal. Id. at 893 (“Eve n if the appra isal h er e t u rn s out to involve not just damag e but liability questions, that does not mean that appra isal should be prohibited as an initial matter.” );

see Sanchez , 2010 U.S. Dist. L EXI S 6295, at *9 (noting Texas Supreme Court’s policy fa v oring enfor cemen t o f appra isal clause s in contra cts reg ardle ss of conce rns that might exis t about scope of appra isal). The Court observe d that appra isa l cl au s es are a common feature in most proper ty i nsuranc e policies for resolving disputes about the value of a cover ed claim and conclude d that appra isals should g ener ally proce ed without pree mptive i n t er v ention by the courts “unless the amount of loss will never be neede d.” Johnson , 290 S.W .3d at 888–89, 895.

R el ators point out that Johnson also rec og nized appra isers’ responsibility fo r separ ating loss due to a cover ed event from a proper ty ’s pre- exis ting condition. See id

. at 892. The court rea soned t h at if appra isers could never allocate damag es betwee n cover ed and excluded perils, then appra isals could never assess hail damag e unless a roof wer e brand new. Id

. The court

7advised ag ainst such a construction beca use it would “re nder appra isal clause s larg ely inopera tive.” Id

. at 893. The court further stated that causation must alway s be a consideration for appra isers, at least initiall y , b eca

use an appra isal is for damag es cause d by a particula r occur renc e, not ever

y repa ir that a proper

ty might require

. Id

. “Any appra isal nece ssarily includes some causation element b ec au se setting the ‘amount of loss’ require s appra isers to decide betwee n damag es for whi ch

cover ag e is claimed from damag es cause d by ever y thing else.” Id

. The court conclude d that parties could not avoid appra isal mere ly beca use there might be a cau s ation question that exceede d the scope of appr aisal. Id

.

Ba sed on this c ontrolling law, we simil arly conclude that the appra isal provision in this policy may not be disreg arde d simply beca use cover ag e or causation issues about which storm

cause d the roof da

mag e may

overla p with issues about of the amount of the loss and repa ir costs. Waiver of app raisal

Shree Dee p arg ues alterna tively that even if appra isal wer e appropr iate here , Relators waived any such rig ht. “[W ]aiver require s intent, either the intentional relinquishment of a known rig ht or i ntenti o n al co n d u ct i nconsistent with claiming that rig ht.” In re Universal Underwrit ers , 345 S.W .3d at 407 (quoting In re Gene ral Elec. Capital Corp ., 203 S.W .3d 314, 316 (Tex. 2006)). Be cause waiver is an aff

irmative defe nse, the burden of showing waiver is on the party challeng ing the rig ht to appraisal. In re State Farm Lloyds , 170 S.W .3d at 634. To establish waive r, the pa rty challeng ing appra isal must show that (1) the parties rea ched an impasse—“a mutual understanding that neither will neg otiate furthe r, ” an d (2) any failure to demand appra isal within a rea sonable time prejudice d the opposing party
. In re Universal Underwriters , 345 S.W .3d at 410, 412. The
8T ex as Supreme Court has cautioned that prejudice is difficult to prove when, as in this ca s e, t h e

policy g ives both sides the same opportunity to demand appra isal. See id

. at 412. Courts “will not infer waiver wher e neither expli cit lang uag e nor conduct indicates that such was the party ’s intent.” Id . at 410. 1. Waiver by delay

Shree Dee p contends that appra isal is i n tended to take place befor e suit is filed,

see Johnson , 290 S.W .3d at 894, and Relators waived any such rig ht throug h their unrea sonable delay in reque sting it. Shree Dee p arg ues that the point of impasse was rea ched and Relators should have invoked appra isal either afte r PSM I C’s September 23 letter denying Shree Dee p’s claim,

or when Shree Dee p sent its J anuar y 31 DTPA demand letter. R el at ors arg ue that their counsel continued eff

orts to work with Shree Dee p to resolve the amount of the disputed loss even afte r suit

was filed on Marc h 30, 2012, and that in their view, an impasse was not reache d until Aug ust 1, 2012, when PSM I C first lear ned about Shree Dee p’s estimated repa ir costs for the claimed damag e. The Texas Supreme Court has held that the rea sonablene ss of any delay i n as serting an appra isal demand must be measured from th e p o i n t of i mpasse, when there is “a mutual understanding that neither w ill negotiate further .” In re Univ ersal Underwriters , 345 S.W .3d at 408, 410.

The rec ord ref

lects that Shree Dee p’s counsel had discussions with Relator’s counsel

near the end of J une, afte r suit had been filed, about attending mediation while Shree Dee p’s “ac tual damag es wer e only $30,000” and “instead of discovery .” Ba sed on this evidenc e, it appea rs that the parties wer e still exploring resolution of this claim as late as J une 2012—meaning that three months befor e Relators filed their motion to compel appra isal, there was still not a mutual understanding that
9neither of these parties would neg otiate further —and the measure m ent of time for purposes of establishing an unrea sonable delay had not y et beg un. See id. at 410; see also In re GuideOne Mut. Ins. Co. , No. 09-12-00581- CV, 2013 Tex. App. L EXI S 599, at *3 (Tex. App.—B eaumont J an. 24, 2013) (orig

. proce eding ) (mem. op.) (distinguishing betwee n exis tence of dispute and development of impasse and noting that parties wer e still neg otiating by eng ag ing in mediation y ear s afte r filing suit). Even if the point of impasse is measure d from the filing of Shree Dee p’s suit, as done in some

case s, see e.g. , In re Universal Underwriters , 345 S.W .3d at 410, the policy at issue here place d no time limit on making the demand for appra isal and stated t h at t he insured reta ined the rig ht to

sue afte r appra isal. I n a simil ar context, the court in GuideOne conditionally g rante d mandamus and reje cted an arg ument that the insurer had unrea sonably delay ed invoking the appra isal clause by waiting to do so until four y ear s afte r filing its answe r and just two months befor e trial. Id. at *2–3. We are not persua ded that Shree Dee p has m et i t s b u rden of showing that Relators waived their contra ctual rig ht to appraisal by unrea sonably

delay ing to invoke it. Nor has Shree Dee p made the “diffi cu l t ” showing that it has been prejudice d by a delay in asser

ting the contra ctual rig ht to appra isal. See In re Universal Underwriters , 345 S.W .3d at 412. Shree Dee p arg ues that Relators’ fil i n g o f t h e m o t i on to compel cause d the loss of the first trial setting on October 22, 2012, and will impose incre ased litigation time and expense, but the trial court hear d nothing in support of that arg ument. Wit hout some evidenc e of the extra expense that Shree Dee p woul d n ot have incurre d but for the delay in demanding appra isal, there is no showing of prejudice

. See In re GuideOne , 2013 Tex. App. L EXI S 599, at *6 (conc luding that there

was no showing of prejudice wher e rec ord failed to establish that insured’s litigation expenses would

10not have been incurre d if insurer moved for appra isal ear lier). Fur ther, as the Texas Supreme Court has noted, a party sensing that an impasse has been rea ched could avoid prejudice b y d emanding an appraisal it sel f. In r e Universal Underwrit ers , 345 S.W .3d at 412 (“[I ]t is difficult t o see how prejudice could ever be shown when the policy , like the one h er e, g ives both sides the same opportunity to demand appra isal.”). Be cause a showing of prejudice is essential to es t ab l ishing waiver , this re cord does not suppor t Shre e Dee p’s arg ument that Relators waived their contra ctual rig ht to appraisal.

2. Waiver by denial of

claim I n a footnote, Shree Dee p also contends that PSM I C’s September 23 letter denied Shree Dee p’s claim for roof damag e from the cover ed peril of a windstorm, and such denial was an independe nt g round for the trial court to deny the m o t i o n t o compel appra isal. See, e.g. , In re Acadia Ins. Co. , 279 S.W .3d 777, 780 (Tex. App.—Amar illo 2007, orig

. proce eding ) (holding that once an insurer denies a claim, it waives any rig ht to appra isal). Howeve r, the rec ord ref lects that Shree Dee p’s claim was not denied altog ether , PSM I C stated that it was unable to issue pay ment beca

use the cost to repa ir the roof damag e was less than Shree Dee p’s $5,000 deductible. I n the same l et t er , PSM I C invited further information to evalua te the claim in the event of Shree Dee p’s disag ree ment with PSM I C’s estimate of the loss. I n a s i m i l ar context, the court in Sanchez held that there was no unconditional denial of liability by an insurer , and no wa iver of its rig ht to invoke appraisal, based on the i nsurer ’s accepta nce of cover ag e for repa irs to a back door damag ed by hurrica

ne winds and nonpay

ment beca

use the damage am o u n t was below the i nsured’ s deductible. Sanchez , 2010 U.S. Dist. L EXI S 6295, at *12. We disag ree that R el at o rs 11waived appra isal based on the nonpay ment fo r an amount of roof damag e that was initially deter mined by both parties to be less than Shre e De ep’s de ductible.

Unenf orce abili ty und er c ontractlaw Shree Dee p also contends that the appra isal clause is unenfor cea ble under g ener al contra ct law principles beca use (1) the appra isal clause is illusory , lacks mutuality , re q u i res it to relin q u i s h a jury trial on valuation, and is unconsciona ble because the contra ct s tates t hat P SMI C reta ins the ri gh t to deny the claim even afte r appra isal, and (2) any appra isal would be a waste of time beca use P SMI C denied Shree Deep’s roof damag e cla im for l ack of cover ag e. We disag ree . The theory behind unconsciona bility in contra ct law is that courts s h ould not enfor ce a transac tion so one-sided, with so g ross a disparity in the values exchang ed, that no rational contra cting party would have enter ed the contra ct. In re Olshan Found. Rep a i r C o . , 328 S.W .3d 883, 892 (Tex. 2010). Shree Dee p cit es n o authority supporting its contention that an appra isal provision like the one in this p o l i cy i s unconsciona ble, and the Texas Supreme Court rec og nizes the g ener al validity of such appra isal provisions absent illega lity or waiver

. See In re Universal Underwriters , 345 S.W .3d at 407. Fur ther, the plain lang uag e of this appra isal provision states that the parties are bound by the resulting valuation: a decision on t h e “a p p ra i s al of the loss” “will b e binding as to the amount of loss,” but Shree Dee p reta ins its rig ht to sue un d er t h e p o l i cy

an d P S M I C m ay still deny a claim on other g rounds. Finally , as discussed above, PSM I C has not “denie d” having any liability for Shree Dee p’s roof damag e claim, and appra isal is not a “wa ste of time” insofar as it would use the contra ctually ag ree d mec h an i s m fo r establishing the

12amount of a cover ed loss—init ially acknow ledg ed by both parties to this policy as falling below the

$5,000 deductible.

After considering this rec ord, the p arties’ arg uments and controlling case law, we cannot conclude that “the amount of loss would never be neede d,” see Johnson , 290 S.W .3d at 895, rathe r, appra isal may establish Relators’ d ef en s e that the amount of the roof damag e attributable to the Fe bruar y 1 windstorm did not exceed Shree Dee p’s policy deductible. Relators—and Shree Dee p—had an enfor cea ble rig ht to seek appra isal under the t er m s of this policy , and compliance with the ap p raisal provision was not excused, improper, or waived. As such, we conclude that the order denying Relators’ motion to compel appra isal was an abuse of the district court’s discr etion for whic h Relators lac k an ade quate r emedy by appea l.

Abatem ent The Texas Supreme Court has ruled that a trial court’s failure to g rant a motion to a bate is not subject to ma

ndamus. In re Universal Underwriters , 345 S.W .3d at 413 n.5 (citing In re Allstate , 85 S.W .3d at 1 9 6 ) (c o n cl u d i ng that denial of motion to abate is not subject to mandamus beca

use trial court reta ins some discretion as to appra isal’s timing); In re GuideOne , 2013 Tex. App. L EXI S 599, at *6 (expressing no opinion on insurer’ s motion for abate ment); In re Cypress Tex. Lloyds , No. 0 1 -1 1 -0 0 7 1 4 -CV, 2011 Tex. App. L EXI S 9884, at *10-11 (Tex. App.—Houston [1st Dist.] 201 1) (orig

. proce eding ). Given this controlling prec edent, we deny Relators’ pe tition for mandamus as to the motion to abate litigation.

13CONCLUSION Having conclude d that the trial court’s denial o f Re lators’ motion to compel appra isal

was an abuse of its discretion and that Relators lack an adequate reme dy by appea l, we conditionally g rant the petition for wr it of mandamus as to the a ppraisal. See Tex. R. App. P. 52.8( c). The writ will issue only if the trial court fails to vacate or modify the appra isal portion of the underly ing order in acc ordanc e with this opinion. Relators’ petition for mandamus as to the motion to abate litigation is denied, and Rela tors’ motion for tempora ry relief is dismi ssed.

__________________________________________ J eff Rose, J ustice Be fore J ustices Pury ear , Pemberton and Rose Filed: F ebrua

ry 21, 2013

14