Opinion ID: 2167431
Heading Depth: 1
Heading Rank: 4

Heading: The Scope of Appraisal: Causation

Text: State Farm argues that no appraisal is needed here because appraisers cannot decide causation issues. Texas courts have split on this question, [24] as have the few courts elsewhere to address it. [25] But the record here does not establish as a matter of law either that this dispute is about causation or that it is beyond the scope of appraisal.
First, the record does not prove that the dispute here is about causation. In its motion for summary judgment, State Farm asserted that the only shingles on Johnson's roof that were actually damaged by hail were the shingles on the ridge of her roof. A dispute about how many shingles were damaged and needed replacing is surely a question for the appraisers. If the parties must agree on precisely which shingles have been damaged before there can be an appraisal, appraisals would hardly be necessary. What's more, either party could avoid appraisal by simply picking a few extras. The cost of replacing shingles (or anything else) is a function of both price and number ; appraisers must factor in both shingle prices and shingle numbers to decide the amount of loss. To the extent the parties disagree which shingles needed replacing, that dispute would fall within the scope of appraisal. On appeal, State Farm emphasizes it is disputing not just which shingles were damaged, but which were damaged by hail. But nothing in the summary judgment record establishes Johnson's roof was damaged by anything else. In State Farm's denial letter, its summary judgment motion, and even its briefs in this Court, there is neither evidence nor even a hint about what else caused the damage. The trial court could not conclude this was a causation dispute just because State Farm claimed it was. Nor does the record conclusively establish that the parties' dispute is solely about how much of the roof was damaged rather than how much needs to be replaced. Sometimes it may be unreasonable or even impossible to repair one part of a roof without replacing the whole. [26] The policy provides that State Farm will pay reasonable and necessary costs to repair or replace damaged property, and repair or replacement is an amount of loss question for the appraisers. [27] On this record, the trial court could not conclude as a matter of law that the parties' dispute was about causation rather than something else.
Even if the parties' dispute involves causation, that does not prove whether it is a question of liability or damages. Causation relates to both liability and damages because it is the connection between them. For example, the Texas Pattern Jury Charges place causation in both the broad-form liability questions, [28] and in the broad-form damage questions that limit damages to those resulting from a particular occurrence, [29] and exclude damages due to other causes. [30] In the abstract, it is hard to say whether causation is more a question of liability or damages. But in actual cases, causation usually falls into one category or the other. Thus, when different causes are alleged for a single injury to property, causation is a liability question for the courts. For example, in Wells v. American States Preferred Insurance Co., appraisers assessed foundation damage due to plumbing leaks (a covered peril) as 0 but damage due to settling (an excluded peril) as $22,875.94. [31] The Dallas Court of Appeals set aside the appraisal, holding appraisers could decide the amount of damage but not what caused it. [32] Appraisers can decide the cost of repairs in this context, but if they can also decide causation there would be no liability questions left for the courts. By contrast, when different types of damage occur to different items of property, appraisers may have to decide the damage caused by each before the courts can decide liability. For example, in Lundstrom v. United Services Automobile Ass'n, the appraisers assessed $4,226.19 for damages due to water (a covered peril) but made no finding for damages due to mold (as to which coverage was disputed). [33] Rejecting the argument that appraisal is barred whenever causation factors into the award, the court of appeals affirmed the water damage award, and rendered mold damage moot by finding no coverage. [34] In this context, courts can decide whether water or mold damage is covered, but if they can also decide the amount of damage caused by each, there would be no damage questions left for the appraisers. The same is true when the causation question involves separating loss due to a covered event from a property's pre-existing condition. Wear and tear is excluded in most property policies (including this one) because it occurs in every case. If State Farm is correct that appraisers can never allocate damages between covered and excluded perils, then appraisals can never assess hail damage unless a roof is brand new. [35] That would render appraisal clauses largely inoperative, a construction we must avoid. [36] This was the conclusion we reached in Gulf Insurance Co. of Dallas v. Pappas , a case in which a fire worsened pre-existing sags in the floors and roof of a building. [37] The parties hotly disputed how much the floors sagged before the fire, and whether the building's interior should be repaired or completely replaced to restore it to its previous condition. [38] The court of appeals held these issues were for the appraisers rather than the jury, [39] and by refusing the writ we adopted that opinion. [40] If appraisers cannot take pre-existing wear and tear into consideration in valuing the amount of loss, then we should have reversed it instead. Indeed, appraisers must always consider causation, at least as an initial matter. An appraisal is for damages caused by a specific occurrence, not every repair a home might need. When asked to assess hail damage, appraisers look only at damage caused by hail; they do not consider leaky faucets or remodeling the kitchen. When asked to assess damage from a fender-bender, they include dents caused by the collision but not by something else. Any appraisal necessarily includes some causation element, because setting the amount of loss requires appraisers to decide between damages for which coverage is claimed from damages caused by everything else. This of course does not mean appraisers can rewrite the policy. No matter what the appraisers say, State Farm does not have to pay for repairs due to wear and tear or any other excluded peril because those perils are excluded. But whether the appraisers have gone beyond the damage questions entrusted to them will depend on the nature of the damage, the possible causes, the parties' dispute, and the structure of the appraisal award (as discussed more fully below). State Farm cannot avoid appraisal at this point merely because there might be a causation question that exceeds the scope of appraisal.
Even if the appraisal here turns out to involve not just damage but liability questions, that does not mean appraisal should be prohibited as an initial matter. This case comes to us in an unusual posture. At least a dozen Texas cases involve appraisals of hail damage, every one challenging an appraisal after it had taken place. [41] By contrast, this appraisal has yet to occur. That makes a big difference for several reasons. First, appraisal is intended to take place before suit is filed; this Court and others have held it is a condition precedent to suit. [42] Appraisals require no attorneys, no lawsuits, no pleadings, no subpoenas, and no hearings. It would be a rare case in which appraisal could not be completed with less time and expense than it would take to file motions contesting it. Allowing litigation about the scope of appraisal before the appraisal takes place would mark a dramatic change in Texas insurance practice, and surely encourage much more of the same. Second, in most cases appraisal can be structured in a way that decides the amount of loss without deciding any liability questions. As already noted, when an indivisible injury to property may have several causes, appraisers can assess the amount of damage and leave causation up to the courts. When divisible losses are involved, appraisers can decide the cost to repair each without deciding who must pay for it. [43] When an insurer denies coverage, appraisers can still set the amount of loss in case the insurer turns out to be wrong. [44] And when the parties disagree whether there has been any loss at all, nothing prevents the appraisers from finding $0 if that is how much damage they find. Third, the scant precedent involving disputes about the scope of appraisal suggests that appraisals generally resolve such disputes. The final appraisal award here may substantiate State Farm's claim that only the ridgeline suffered hail damage, or reach some in-between figure that proves acceptable to all concerned. Litigating the scope of appraisal is wasteful and unnecessary if the appraisal itself can settle this controversy. Finally, even if an appraisal award is flawed, that can be easily remedied by disregarding it later. Thus, when insureds objected to appraisal procedures that were allegedly inaccurate, unreliable, and biased, we held in 2002 that the appraisal should go forward and the results could be challenged later if the insureds were dissatisfied. [45] If an appraisal is not an honest assessment of necessary repairs, that can be proved at trial and the award set aside. [46] But in every property damage claim, someone must determine the amount of loss, as that is what the insurer must pay. An appraisal clause binds the parties to have the extent or amount of the loss determined in a particular way. [47] Like any other contractual provision, appraisal clauses should be enforced. There may be a few times when appraisal is so expensive and coverage is so unlikely that it is worth considering beforehand whether an appraisal is truly necessary. [48] But unless the amount of loss will never be needed (a difficult prediction when litigation has yet to begin), appraisals should generally go forward without preemptive intervention by the courts.