Question:  Can an insurer still be liable to an insured when it initially denied a claim but later paid the insured the full amount of loss as determined through the appraisal process provided in the policy?

Answer:  Yes. Even though the insurer did not breach the insurance contract, an insurer can still be liable for a violation of the Texas Prompt Payment of Claims Act.

Better late than never is not always true, especially when you are dealing with insurance. The Texas Supreme Court issued an opinion in 2019—Barbara Technologies Corporation v. State Farm Lloyds—whose holding dealt with the late payment of insurance claims and has been cited several times by the Texas Supreme Court in the two years since it was issued.

The Story

In Barbara Technologies, an insured filed suit against its insurance company, State Farm Lloyds, for failing to timely pay a claim under the Texas Prompt Payment of Claims Act.  Barbara Technologies contracted with State Farm Lloyds for property insurance covering their commercial property in San Antonio, Texas. The property was damaged from wind and hail so Barbara Technologies filed a claim. State Farm inspected the property and denied the claim because they alleged the damage was only $3,155.57 which was far less than the deductible owed by Barbara Technologies. Barbara requested a second inspection and State Farm obliged finding no additional damage.

The Lawsuit

Barbara Technologies then filed suit. State Farm invoked the appraisal provision under the policy.  Seven months after invocation of the appraisal process, the appraisers agreed to an appraised value of $195,345.63 which was well in excess of the company’s deductible. State Farm paid the appraisal award less depreciation and deduction, and Barbara Technologies accepted the payment.

That would seem to be the end of the matter. But Barbara Technologies insisted on continuing with its lawsuit and filed a motion for summary judgment on its claim for violation of the Texas Prompt Payment of Claims Act. State Farm responded with its own motion for summary judgment.

The trial court held that State Farm wins. The court granted State Farm’s motion because the insurance company paid the appraisal award. Barbara Technologies appealed and argued that its claim for violation of the Texas Prompt Payment of Claims Act survived payment by the insurance company. The appellate court agreed with the trial court that State Farm wins and affirmed the judgment in favor of State Farm. Barbara Technologies appealed to the Texas Supreme Court.

And the Answer is . . .

The Texas Supreme Court disagreed with the lower courts. The Court held that nothing in the invocation of the appraisal process alters or suspends any Texas Prompt Payment of Claims Act requirements or deadlines. As a result, State Farm’s payment of the appraisal value neither established liability under the policy nor foreclosed its liability for damages under the Texas Prompt Payment of Claims Act. The Court reversed the appellate court and trial court and sent the case back to the trial court to continue to be litigated.

The Lesson

All of this came out of the Texas Supreme Court’s holding in USAA Texas Lloyds Co. v. Gail Manchaca which opened the door for insurers to be liable for statutory violations without necessarily being liable for breaching the insurance contract. Since the Barbara Technologies case, there have been at least six other cases in the Texas Supreme Court with similar situations allowing insureds to continue to pursue insurance companies after payment of appraisal awards all of which cited Barbara Technologies. Although all of these cases involved wind and hail damage claims, the reasoning can be applied in other situations. The bottom line is paying a claim may not be enough to end litigation between an insurer and insured.

Scot Pierce, Esq. is a trial lawyer and transactional attorney.  Click on his picture for his profile page.

Disclaimer: This post contains general opinions and analysis, is solely for educational purposes, and should not be treated as advice for any specific case.