589 S.W.3d 127
Tex.2019Background
- Ortiz submitted a homeowners claim to State Farm for wind/hail damage; State Farm’s inspections valued covered damage below the $1,000 deductible, while a public adjuster valued it at $23,525.99.
- Ortiz sued for breach of contract, statutory and common-law bad faith, and alleged Prompt Payment Act remedies after receiving State Farm’s lower estimates.
- State Farm later demanded appraisal under the policy; the trial court compelled appraisal, which produced an award setting replacement cost and actual cash value above State Farm’s initial estimates.
- State Farm paid the appraisal award (less deductible) about seven business days after receiving it and then moved for summary judgment, arguing payment resolved Ortiz’s claims.
- The trial court ultimately granted summary judgment for State Farm on all claims; the court of appeals affirmed as to breach and bad faith but did not address the Prompt Payment Act claim; the Texas Supreme Court granted review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of appraisal payment on breach of contract claim | Ortiz: paying only after appraisal does not excuse breach for failing to timely pay covered benefits | State Farm: payment of appraisal award satisfies policy and forecloses breach claim based on underpayment | Payment of an enforceable appraisal award bars breach-of-contract claim premised on failure to pay covered loss |
| Effect of appraisal payment on statutory/common-law bad faith | Ortiz: appraisal outcome shows bad faith undervaluation; seeks attorney’s fees and treble damages under Ins. Code ch. 541 | State Farm: payment of award cured any withheld benefits; Ortiz has no actual damages left to support bad faith remedies | Bad faith claims (statutory and common-law) barred to the extent the only actual damages sought are policy benefits already paid; attorney’s fees and treble damages require underlying actual damages |
| Recoverability of attorney’s fees and treble damages under ch. 541 when benefits paid post-appraisal | Ortiz: attorney’s fees and treble damages are recoverable even if policy benefits later paid | State Farm: ch. 541 conditions fees/trebling on recovery of actual damages; no actual damages remain after payment | Attorney’s fees and treble damages under ch. 541 are premised on recovery of actual damages; absent independent injury, they cannot be recovered when policy benefits have been paid |
| Effect of appraisal payment on Prompt Payment of Claims Act (Ins. Code ch. 542) claim | Ortiz: appraisal/payment does not bar statutory penalties under chapter 542 | State Farm: payment of appraisal award precludes chapter 542 penalties | Appraisal payment does not as a matter of law bar a claimant’s chapter 542 claim; the Prompt Payment Act claim may proceed (case remanded in light of Barbara Technologies) |
Key Cases Cited
- In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404 (Tex. 2011) (explains waiver standard for appraisal and encourages use of appraisal to short-circuit litigation)
- In re Allstate Ins. Co., 85 S.W.3d 193 (Tex. 2002) (distinguishes appraisal as resolving amount of loss, not liability)
- State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009) (describes appraisal as efficient mechanism and limits scope to damages)
- USAA Texas Lloyds v. Menchaca, 545 S.W.3d 479 (Tex. 2018) (explains that contract and extra-contractual claims are distinct and defines when policy benefits may serve as actual damages for statutory claims)
- Nalle Plastics Family Ltd. P’ship, 406 S.W.3d 168 (Tex. 2013) (clarifies attorney’s fees are distinct from damages and the Legislature’s role in authorizing fees)
- Vail v. Tex. Farm Bureau Mut. Ins. Co., 754 S.W.2d 129 (Tex. 1988) (recognizes policy-benefits withheld can constitute actual damages for statutory claims)
- Allison v. Fire Ins. Exch., 98 S.W.3d 227 (Tex. App.—Austin 2002) (observes appraisal estops parties from contesting the value of damages)