MLCSV10 v. Stateside Enterprises, Inc.
866 F. Supp. 2d 691
S.D. Tex.2012Background
- Two consolidated insurance-case actions in federal court arising from Hurricane Ike damage to a Texas shopping center; policy issued by Massachusetts Bay; insureds MLCSV10 and Stateside claimed underpayment and pursued appraisal under the policy; appraisers and umpire were selected, with cross-relationship concerns between VeriClaim and UBS; appraisal award issued February 2011 totaling $784,311.39 (hurricane) and $185,815.67 (vandalism) and later reduced to $540,732.17 and $85,815.67 after deductible/payments; MLCSV10 and Stateside sought to dispute the appraisal and pursue extracontractual claims (bad faith, TIC, DTPA), while defendants argued the award was binding and complete and thus precluded other claims; MLCSV10 also entered a Settlement Agreement assigning exclusive rights to prosecute policy-based claims to MLCSV10 and bad-faith claims to Stateside; after appraisal, Massachusetts Bay tendered payment and the plaintiffs moved for partial denial of summary judgment based on alleged appraisal defects; the court granted in part and denied in part, finding parts of the award incomplete and others binding, and granting Hanover defendants’ summary-judgment on breach-of-contract claims; a status conference was set for April 16, 2012.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Compliance with policy requirements | McCool/Lochridge biased or failed to disclose; award not fully compliant. | No bias; disclosure failure insufficient to void award. | Partial noncompliance (ductwork) may justify setting aside part; entire award not vacated. |
| Bias or appearance of partiality | Preexisting VeriClaim-UBS relationship created appearance of partiality. | Preexisting relationship alone insufficient to show bias; no control or financial stake shown. | No enforceable appearance of partiality; summary judgment upheld on bias grounds. |
| Accident or mistake | Award not based on sound methodology; result due to accident/mistake. | Appraisers chose between competing values; not accident or mistake. | No basis to set aside for mistake or accident. |
| Exceeding appraisal authority | Appraisers decided on coverage/causation issues; outside the scope. | Causation/damages determinations within appraisal scope; coverage remains for courts. | Appraisers did not exceed authority on CMU/damage issues; ductwork issue partially unresolved. |
| Breach-of-contract vs appraisal payment | Incomplete award means no complete tender; breach claim survives. | Tendering under a binding award bars breach claim. | Breach claim survives to the extent the award was incomplete (ductwork); Hanover breach claims granted. |
Key Cases Cited
- Franco v. Slavonic Mut. Fire Ins. Ass'n, 154 S.W.3d 777 (Tex.App.-Houston 2004) (preexisting relationships alone do not show bias; appraisal awards receive deference)
- Gardner v. State Farm Lloyds, 76 S.W.3d 140 (Tex.App.Houston [1st Dist.] 2002) (preexisting relationships require more than arm's-length relationships to show bias)
- JM Walker LLC v. Acadia Ins. Co., 356 Fed.Appx. 744 (5th Cir. 2009) (appraisal awards are binding and require a showing of authority to disregard)
- Lundstrom v. United Servs. Auto. Ass’n-CIC, 192 S.W.3d 78 (Tex.App.-Houston [14th Dist.] 2006) (appraisers may decide damages; liability questions reserved for courts; authority limits apply to causation/damage)
- State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009) (clarifies the damages-vs-liability distinction in appraisal context)
- TUCO, Inc. v. Burlington Northern Santa Fe Ry., 960 S.W.2d 629 (Tex. 1997) (evident partiality standard in arbitration; appearance of partiality analyzed for vacating arbitrations)