Mainali Corporation v. Covington Specialty Ins Co.
2017 U.S. App. LEXIS 18294
| 5th Cir. | 2017Background
- Mainali Corporation owned a gas station and convenience store insured by Covington Specialty Insurance under a commercial policy covering building, contents, pumps, canopy/awnings, and business income; policy paid actual cash value unless property was repaired/replaced.
- A 2014 fire damaged the Property; Covington paid $389,255.59 on an actual-cash-value basis after investigation by an independent adjuster.
- Mainali sued alleging it was owed more (breach of contract, bad faith, fraud, Texas Insurance Code and DTPA violations). Covington invoked the policy’s appraisal clause.
- The appraisal panel awarded actual cash value $387,925.49 and replacement cost $449,349.61, stating the award was “inclusive of all FIRE damages.” Covington, which had already paid more than the panel’s total, paid an additional $15,175.82 to align allocations with the panel’s building split.
- District court granted summary judgment for Covington on all claims. On appeal, the central legal question concerned whether a post-appraisal payment is subject to Texas’s Prompt Payment of Claims Act interest/penalties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the appraisal award can be set aside as incomplete so breach-of-contract claim survives | Mainali: appraisal award omitted damages for pumps, canopy/awnings, and code upgrades, so award is not inclusive | Covington: appraisal award expressly states it is inclusive of all fire damages; Mainali bears burden to show otherwise | Court: No evidence award excluded those items; appraisal binding; breach claim fails |
| Whether post-appraisal payments trigger Prompt Payment of Claims Act penalties (Tex. Ins. Code ch. 542) | Mainali: additional post-appraisal payment was untimely and subject to 18% penalty/fees under Chapter 542 | Covington: appraisal is a contractually agreed mechanism; timely payment of appraisal award precludes statutory penalties; pre-award payments were reasonable | Court: Followed Texas precedent—timely payment of appraisal award bars Chapter 542 penalties; no statutory violation |
Key Cases Cited
- Franco v. Slavonic Mut. Fire Ins. Ass’n-CIC, 154 S.W.3d 777 (Tex. App.—Houston [14th Dist.] 2004) (appraisal awards are binding and enforceable)
- Lundstrom v. United Servs. Auto. Ass’n, 192 S.W.3d 78 (Tex. App.—Houston [14th Dist.] 2006) (appraisal estops parties from contesting amount of damages)
- TMM Invs., Ltd. v. Ohio Cas. Ins. Co., 730 F.3d 466 (5th Cir. 2013) (effect of appraisal provision leaves liability issues to court but fixes damages)
- Garcia v. State Farm Lloyds, 514 S.W.3d 257 (Tex. App.—San Antonio 2016) (timely payment of appraisal award precludes prompt-payment penalties)
- Breshears v. State Farm Lloyds, 155 S.W.3d 340 (Tex. App.—Corpus Christi 2004) (invoking appraisal process does not violate prompt-payment requirements when insurer provides reasonable payment)
- Higginbotham v. State Farm Mut. Auto Ins. Co., 103 F.3d 456 (5th Cir. 1997) (distinguishes denial/rejection cases from post-appraisal payment context)