Court Opinion

ID: 4765487
Source: CourtListenerOpinion
Date Created: 2021-08-13 00:02:34.194965+00
Date Added: 2024-06-11T08:09:11.024114
License: Public Domain

Case: 20-20567    Document: 00515976291         Page: 1     Date Filed: 08/12/2021

           United States Court of Appeals
                for the Fifth Circuit
                                                                    United States Court of Appeals
                                                                             Fifth Circuit

                                                                           FILED
                                                                     August 12, 2021
                                 No. 20-20567                         Lyle W. Cayce
                                                                           Clerk

   Randy Randel; Debra Randel,

                                                          Plaintiffs—Appellants,

                                     versus

   Travelers Lloyds of Texas Insurance Company,

                                                          Defendant—Appellee.

                 Appeal from the United States District Court
                     for the Southern District of Texas
                          USDC No. 4:19-CV-2883

   Before Jones, Southwick, and Costa, Circuit Judges.
   Gregg Costa, Circuit Judge:
         After a fire at their home, Randy and Debra Randel filed a claim on
   their homeowner’s insurance policy with Travelers Lloyds of Texas.
   Although Travelers made some early payments, the Randels asserted that
   much more was owed. The parties agreed to an appraisal. The appraisal
   award came in closer to the Randels’ view of the damages. Travelers paid
   the additional amount.
         Payment of the appraisal award leaves two principal questions for this
   appeal. First, does the payment of the appraisal award prevent a plaintiff
Case: 20-20567       Document: 00515976291         Page: 2   Date Filed: 08/12/2021

                                    No. 20-20567

   from continuing to pursue a breach of contract claim against an insurer?
   Second, can an insurer be liable under the Texas Prompt Payment of Claims
   Act for failing to timely pay the full damages it owed even though it timely
   made sizeable payments in response to the claim? We answer both questions
   yes. Payment and acceptance of an appraisal award means there is nothing
   left for a breach of contract claim seeking those same damages. But a plaintiff
   may still have a claim under the prompt payment law after it accepts an
   appraisal award. The Supreme Court of Texas recently held that even a
   preappraisal payment that seemed reasonable at the time does not bar a
   prompt-payment claim if it does not “roughly correspond” to the amount
   ultimately owed. See Hinojos v. State Farm Lloyds, 619 S.W.3d 651, 658 (Tex.
   2021).
                                         I.
            A Fourth of July fire in the Randels’ garage caused damage to their
   home. They notified their home insurer, Travelers, the following day. The
   homeowner’s policy provided coverage for damage to the dwelling, other
   structures, personal property, and loss of use (or additional living expense)
   caused by “Fire and Lightning” and “Sudden and Accidental Damage from
   Smoke.”
            Travelers responded the same day, acknowledging receipt of the
   claim, issuing the Randels a $10,000 advance for damage to their personal
   property, and inspecting the property with the Randels and their restoration
   contractor. The Randels authorized their contractors to secure and repair
   the property, but a few weeks later, after a disagreement about how to
   undertake certain repairs, the Randels told the contractor to stop all repair
   work.
            In August, Travelers provided its estimate of the damage to the
   dwelling: $179,232.16. After subtracting the deductible and depreciation

                                         2
Case: 20-20567      Document: 00515976291         Page: 3   Date Filed: 08/12/2021

                                   No. 20-20567

   costs, Travelers paid the Randels $126,720.86.       In October, Travelers
   completed its personal property estimate of $53,270.49. Over the next
   several months, Travelers also made three loss-of-use payments totaling
   $24,446.33.
          The Randels’ public adjuster provided a much higher estimate of
   damage to the dwelling: $499,448.69. Around this time, Travelers also
   reinspected the property to complete the personal property claim. According
   to Travelers, the reinspection revealed that after the Randels fired the
   contractors, repairs ceased, and thus any additional damage resulted from the
   Randels’ failure to mitigate. Travelers thus declined coverage for additional
   damage to the property.
          To try and resolve the disagreement over the damage to the dwelling,
   the Randels invoked the policy’s appraisal provision. Travelers initially
   argued that appraisal was inappropriate, so the Randels filed a petition in
   Texas state court to compel appraisal. Travelers answered that there was no
   justiciable controversy because it had since agreed to participate in an
   appraisal.    That answer nonetheless maintained that appraisal was not
   appropriate because the dispute was about coverage under the policy rather
   than the amount of damages.
          The parties submitted for appraisal the dwelling and personal
   property claims but excluded the loss-of-use claim. An appraisal award
   granted $317,030.70 actual cash value in dwelling damages and $100,331.02
   actual cash value in personal property damage.
          Travelers paid the award within five business days. Once it deducted
   prior payments and the policy deductible, the total postappraisal payout was
   $164,435.23 for the dwelling and $21,098.22 for personal property. Finally,
   Travelers issued its fourth and final payment on the Randels’ loss-of-use

                                         3
Case: 20-20567         Document: 00515976291              Page: 4       Date Filed: 08/12/2021

                                          No. 20-20567

   claim, bringing the total loss-of-use payout to $46,657.22. All told, Travelers
   paid the Randels $533,529.88.
           Full payment of the appraisal award did not end the parties’ dispute.
   Several weeks before the appraisal award issued, the Randels had sued
   Travelers in state court. They alleged that Travelers underpaid their claims
   in violation of the insurance policy, acted in bad faith, 1 and violated the Texas
   Prompt Payment of Claims Act (the Act). The Randels continued to press
   these claims after Travelers paid the appraisal amount.
           After removing the case to federal court, Travelers successfully
   moved for summary judgment on all claims. The court concluded that the
   Randels’ acceptance of the appraisal payment ended their breach of contract
   claim for damages to the dwelling and determined that the Randels were not
   entitled to additional benefits for loss of use. Without a breach of contract
   claim, Randel could not maintain a claim for bad faith. As for the prompt-
   payment claims, the court held that Travelers complied with the Act’s
   deadlines for the loss-of-use claim and that Travelers dodged liability on the
   property-damage claims by making reasonable preappraisal payments.
                                                II.
           We begin with the breach of contract claim for damages to the
   dwelling. The Randels argue that their receipt of the appraisal payment does
   not bar their breach of contract claim for damage to the dwelling. This is so,
   they contend, because Travelers waived an estoppel argument by contesting
   liability early in the litigation. But much of the caselaw the Randels rely on

           1
             It does not appear that the Randels are seeking to revive their bad faith claim on
   appeal. In any event, it rises or falls with the breach of contract claim. See, e.g., Liberty
   Nat’l Fire Ins. Co. v. Akin, 927 S.W.2d 627, 629 (Tex. 1996). Our affirming the dismissal
   of the contract claim thus also supports the dismissal of the bad faith claim.

                                                4
Case: 20-20567         Document: 00515976291                Page: 5       Date Filed: 08/12/2021

                                           No. 20-20567

   addresses a different issue: whether an insurer may, through its defenses and
   litigation conduct, waive its ability to invoke the appraisal process. See, e.g.,
   In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 407–08 (Tex.
   2011). That ship has sailed here; the parties agreed to an appraisal and an
   award issued.
           It is also the case that the mere issuance of an appraisal award does not
   bar a breach of contract claim. Appraisal only sets the amount of damages,
   so an insurer can still defend a breach of contract claim on liability grounds
   after an award issues. See Barbara Techs. Corp. v. State Farm Lloyds, 589
   S.W.3d 806, 822 n.12 (Tex. 2019) (recognizing that postappraisal, an insurer
   may “refuse to pay the appraisal amount and maintain its denial of
   liability”). 2 When the insurer continues to maintain a coverage defense, the
   appraisal award becomes binding only if the court ultimately finds coverage.
   In that situation, the insurer wants to continue litigating the breach claim as
   a successful coverage defense to avoid payment of the award.
           Although the issuance of an appraisal award does not bar a breach of
   contract claim, payment and acceptance of the award does.                             See id.
   (recognizing that in paying an appraisal award, an insured is “essentially
   admitting it was incorrect to deny liability initially”). That is what happened
   here. The following rule thus applies: “[T]he insurer’s payment of the award
   bars the insured’s breach of contract claim premised on a failure to pay the
   amount of the covered loss.” Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 129

           2
              Refusing to pay the award or paying it as an admission of liability are not an
   insurer’s only options when faced with an appraisal award. A third option is to pay the
   award while still reserving the right to contest liability. Barbara Techs., 589 S.W.3d at 822
   n.12. In that situation, payment of the award prevents further interest from accruing on a
   prompt-payment claim in the event the insured is later found liable. Travelers does not
   pursue that option. It is not continuing to contest liability in an effort to obtain a refund of
   its appraisal payment.

                                                  5
Case: 20-20567       Document: 00515976291           Page: 6    Date Filed: 08/12/2021

                                      No. 20-20567

   (Tex. 2019); see also Blum’s Furniture Co. v. Certain Underwriters at Lloyds
   London, 459 F. App’x 366, 368 (5th Cir. 2012) (“Under Texas law, when an
   insurer makes timely payment of a binding and enforceable appraisal award,
   and the insured accepts the payment, the insured is ‘estopped by the
   appraisal award from maintaining a breach of contract claim against [the
   insurer].’” (quoting Franco v. Slavonic Mut. Fire Ins. Ass’n, 154 S.W.3d 777,
   787 (Tex. App.—Houston [14th Dist.] 2004, no pet.))). This rule applies
   even when the appraisal award values the covered loss in an amount greater
   than the insurer had initially assessed and even when the insurer initially
   denies the insured’s claim. Ortiz, 589 S.W.3d at 132–33. Acceptance of the
   appraisal payment thus bars the Randels’ breach claim seeking payment for
   the dwelling damage the appraisal award covered.
            Despite the Randels’ insistence that Travelers’ preappraisal “no
   coverage” position somehow means the breach claim is still alive, they do not
   cite a single case allowing a breach claim to continue after payment and
   acceptance of an appraisal award. That is for good reason. Even putting aside
   labels like estoppel and waiver, there is nothing left to litigate once a plaintiff
   has received full damages on a claim. Damages are an element of a breach-
   of-contract claim. See Pathfinder Oil & Gas, Inc. v. Great W. Drilling, Ltd.,
   574 S.W.3d 882, 890 (Tex. 2019). As the Randels have received every dollar
   they are owed for dwelling coverage, there is nothing left to litigate on this
   claim.
            The loss-of-use claim was not submitted to appraisal. But there is no
   evidence that Travelers failed to pay any amounts due. Travelers made four
   loss-of-use payments totaling $46,657.22. The Randels fail to explain why
   the amount paid was insufficient.
            We affirm the dismissal of the contract claims.

                                           6
Case: 20-20567     Document: 00515976291           Page: 7   Date Filed: 08/12/2021

                                    No. 20-20567

                                        III.
          An insured’s payment of an appraisal award may defeat a contract
   claim, but it does not automatically prevent a prompt-payment claim.
   Barbara Techs., 589 S.W.3d at 822. That is because an insurer may be liable
   under the Texas Prompt Payment of Claims Act even when it pays in full if
   that payment was not timely. Id. The statute provides that the insurer, upon
   receiving all requested information necessary to evaluate the claim, must pay
   the claim within 60 days. Tex. Ins. Code § 542.058(a). If the full
   payment occurs after that deadline, the insurer is responsible for 18 percent
   interest through the date of payment and attorney’s fees. Id. at § 542.060(a).
          The district court dismissed the prompt-payment claim relating to
   dwelling and personal property coverage because although Travelers’ early
   payments were less than the amount it ultimately owed, the early payments
   were in an amount it deemed reasonable. That ruling is understandable given
   the state of the law when the district court ruled. A few years ago, we made
   an Erie guess that the Supreme Court of Texas would not impose prompt-
   payment liability so long as a timely preappraisal payment of the claim was
   for a “reasonable” amount. Mainali Corp. v. Covington Specialty Ins. Co., 872
   F.3d 255, 259 (5th Cir. 2017). Determining whether the Mainali preappraisal
   payment was reasonable was easy—that insurer paid more preappraisal than
   it ultimately owed. Id. But like the district court here, courts applying
   Mainali found preappraisal payments to be reasonable even when the
   amounts were significantly less than what was ultimately owed. See, e.g.,
   Gonzalez v. Allstate Vehicle and Prop. Ins. Co., 474 F.Supp.3d 869, 876 (S.D.
   Tex. 2020) (finding reasonable an insurer’s preappraisal payment 8.12 times
   smaller than the appraisal award); Crenshaw v. State Farm Lloyds, 425 F.
   Supp. 3d 729, 740 (N.D. Tex. 2019) (finding reasonable an insurer’s
   preappraisal payment 3.64 times smaller than appraisal award).

                                         7
Case: 20-20567         Document: 00515976291              Page: 8       Date Filed: 08/12/2021

                                          No. 20-20567

           While this case was on appeal, the Supreme Court of Texas provided
   the answer we could only guess at four years ago. It held that that “a
   reasonable payment should roughly correspond to the amount owed on the
   claim.” Hinojos, 619 S.W.3d at 658. Because the insurer in Hinojos paid
   “significantly less within the statutory deadline than the amount the
   appraisers ultimately determined that it owed on the claim”—the difference
   being $23,000, id. at 654—its payment was not timely. Id. at 657 n.34.
   Although the result in Mainali still stands given that it involved an
   overpayment, the reasonableness standard it applied turned out to be too
   broad. We now know that to avoid prompt-payment liability, a preappraisal
   payment must “roughly correspond” to the amount ultimately owed. Id. at
   658.
           Today we need not decide just how close a preappraisal payment
   needs to be to “roughly correspond” with the final amount owed. There is a
   substantial gap of roughly $185,000 between the preappraisal dwelling and
   personal property payments and the appraisal award. That difference is
   much greater than the Hinojos underpayment.                    Indeed, Travelers now
   concedes that its preappraisal payment was not reasonable given the recent
   guidance from the state high court. Travelers’ preappraisal payment thus is
   not a defense to liability under the Texas Prompt Payment of Claims Act. As
   a result of this recent clarification of Texas law, the claim seeking interest for
   late payment of dwelling coverage must be remanded. 3

           3
             While now conceding that its preappraisal payment was not reasonable, Travelers
   argues that an alternative ground for affirming exists: that the Randels never responded to
   its reasonable requests for additional information, so the payment clock never started
   ticking. Tex. Ins. Code § 542.055(b). But having scoured the summary judgment
   briefing in the trial court, including the record citation defense counsel provided at oral
   argument, we do not see where Travelers raised this ground for summary judgment. The
   district court’s order did address Travelers’ requests for additional information but only as
   it pertained to the Randels’ loss-of-use benefits. As this argument was not raised as a basis

                                                8
Case: 20-20567        Document: 00515976291              Page: 9      Date Filed: 08/12/2021

                                         No. 20-20567

           The result is different, however, for the Randels’ prompt-payment
   claim for the loss-of-use benefits. We agree with the district court, for the
   reasons it stated, that Travelers made timely payments of the full amount of
   those benefits.
                                             ***
           The judgment of the district court is AFFIRMED IN PART and
   REVERSED IN PART. The prompt-payment claim relating to dwelling
   and personal property coverage is REMANDED.

   for summary judgment in the district court, which deprived the Randels of an opportunity
   to respond, we will not consider it as an alternative ground for affirming. We leave it for
   the district court to decide on remand whether Travelers may press this issue as a summary
   judgment ground on the remaining prompt-payment claim.

                                               9