Nat'l Sec. Fire & Cas. Co. v. Hurst

• Decision Date: 23 May 2017
• Docket Number: NO. 14-15-00714-CV,14-15-00714-CV
• Citation: 523 S.W.3d 840
• Parties: NATIONAL SECURITY FIRE & CASUALTY COMPANY, Action Claim Service, Inc. and Aaron Timmins, Appellants v. Ozier HURST, Appellee
• Court: Texas Court of Appeals

523 S.W.3d 840

NATIONAL SECURITY FIRE & CASUALTY COMPANY, Action Claim Service, Inc. and Aaron Timmins, Appellants

v.Ozier HURST, Appellee

NO. 14-15-00714-CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion Filed May 23, 2017

Rehearing Overruled July 25, 2017

Robert Joseph Killeen Jr., Houston, TX, for Appellants.

Gregory F. Cox, Beaumont, TX, for Appellee.

Panel consists of Justices Busby, Donovan, and Wise.

OPINION

John Donovan, Justice

National Security Fire & Casualty Company, Action Claim Service, Inc., and Aaron Timmins (collectively "appellants") bring this appeal from a judgment entered in accordance with the jury's verdict in favor of Ozier Hurst, National's insured. For the reasons stated below, we reverse and render.

BACKGROUND

Dissatisfied with the initial estimate and payment, homeowner Ozier Hurst sued his insurer, National Security Fire & Casualty Company, the adjusting firm, Action Claim Services, Inc., and the independent adjuster, Aaron Timmins, for contractual and extra-contractual claims arising from wind-related damages sustained by his home during Hurricane Ike. Six hundred and seventy days after the hurricane, Hurst submitted a damage claim to National. National then assigned the claim to Action, who in turn dispatched Timmins to assess the damage done to Hurst's house. In accordance with Timmins' appraisal, National paid Hurst $3,524.56 (accounting for the $1,000 policy deductible), which Hurst accepted. Although Hurst cashed the check, he did not use any of the money to repair his property, nor did he request re-inspection or inspection of additional property. Hurst proceeded to file suit on September 7, 2010.

Hurst counsel invoked the Policy's appraisal clause¹ on February 19, 2014. Both parties hired appraisers. National hired Mark West and Hurst hired Shannon Cook. West and Cook could not agree on the amount of Hurst's loss. Furthermore, they could not agree upon an umpire to resolve the impasse, so the MDL Court was requested to appoint one.

The MDL Court appointed Judge Mark Davidson as umpire and on September 25, 2014, he issued Hurst an award of $7,166.36. On October 25, 2014, National issued a check to Hurst and his counsel for $3,641.80 representing the difference between the amount of the umpire's award and the amount originally paid to Hurst for his claim. Hurst did not move to set aside the award. Hurst never returned nor cashed National's check but continued pursuing the underlying litigation.

Trial was held and the jury found in favor of Hurst. The jury found National liable for breach of contract and awarded $3,641.80 as damages. The jury determined September 25, 2014, as the date National secured final proof of loss. The jury found National, Action, and Timmins engaged in an unfair or deceptive act or practice that caused damages to Hurst by failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when the liability under the insurance policy had become reasonably clear.² Further, the jury found Action and Timmins engaged in an unfair or deceptive act or practice that caused damages to Hurst by refusing to pay a claim without conducting a reasonable investigation.³ The jury assessed $41,396.71 as damages for these acts. The jury found Action and Timmins, but not National, knowingly engaged in such conduct and awarded $12,500 in damages against Action and $12,500 in damages against Timmins. The jury found National breached its duty of good faith and fair dealing and awarded $25,000 as damages.

The trial court denied all post-trial motions and in accordance with the jury's verdict signed a Final Judgment awarding Hurst $55,993.60 from National, $22,731.22 from Action, $22,731.22 from Timmins, prejudgment interest, post judgment interest, 18% penalty interest, court costs, $75,000.00 in attorney's fees for trial, $50,000.00 in conditional appellate fees, and $35,000.00 in conditional fees for an appeal to the Texas Supreme Court. The trial court allowed the motion for new trial to be overruled by operation of law. National now appeals on behalf of itself, Action, and Timmins.⁴

ANALYSIS AND DISCUSSION

We first address appellants' argument that the trial court erred in failing to grant a directed verdict. They contend the full and timely payment of the appraisal award precludes as a matter of law any award for breach of contract, penalty interest, or any statutory or common-law bad faith violations.

Standard of Review

A motion to disregard the jury's findings and direct a verdict should be granted when the evidence is conclusive and one party is entitled to recover as a matter of law, Mancorp, Inc. v. Culpepper , 802 S.W.2d 226, 227 (Tex. 1990), or when a legal principle precludes recovery. JSC Neftegas-Impex v. Citibank, N.A. , 365 S.W.3d 387, 396 (Tex. App.—Houston [1st Dist.] 2011, pet. denied) ; see also Coastal Ref. & Mktg., Inc. v. Coastal Offshore Ins., Ltd. , No. 14-94-01140-CV, 1996 WL 87205, at *2 (Tex. App.—Houston [14th Dist.] Feb. 29, 1996, no writ) (not designated for publication). To the extent that such a ruling is based on a question of law, it is reviewed de novo. See In re Humphreys , 880 S.W.2d 402, 404 (Tex. 1994) ("[Q]uestions of law are always subject to de novo review."); Elliott v. Whitten , No. 01-02-00065-CV, 2004 WL 2115420, at *3 (Tex. App.—Houston [1st Dist.] September 23, 2004, pet. denied) (mem. op.).

Appraisal Clauses

Appraisal clauses appear in almost every homeowner, property, or automobile insurance policy in Texas, and they are generally enforceable absent illegality or waiver. State Farm Lloyds v. Johnson , 290 S.W.3d 886, 889 (Tex. 2009) ; see also In re Universal Underwriters of Tex. Ins. Co. , 345 S.W.3d 404, 406-07 (Tex. 2011). In an appraisal clause, the insurer and insured agree to an extra-judicial "remedy for any disagreement regarding the amount of loss" owed the insured. Breshears v. State Farm Lloyds , 155 S.W.3d 340, 344 (Tex. App.—Corpus Christi 2004, pet. denied). From a policy point of view, appraisal clauses allow the insured and insurer to resolve disputes about damages with greater efficiency by eliminating the cost and delay of traditional litigation. Universal Underwriters , 345 S.W.3d at 407.

Every reasonable presumption will be indulged to sustain an appraisal award. Franco v. Slavonic Mut. Fire Ins. Ass'n , 154 S.W.3d 777, 786 (Tex. App.—Houston [14th Dist.] 2004, no pet.) (citing Providence Lloyds Ins. Co. v. Crystal City Indep. Sch. Dist. , 877 S.W.2d 872, 875 (Tex. App.—San Antonio 1994, no writ) ); see also United Neurology, P.A. v. Hartford Lloyd's Ins. Co. , 101 F.Supp.3d 584, 595 (S.D. Tex.), aff'd , 624 Fed.Appx. 225 (5th Cir. 2015) ; State Farm Lloyds v. Johnson , 290 S.W.3d 886, 895 (Tex. 2009). Appraisal clauses estop a party from contesting the issue of damages in a lawsuit based on an insurance contract, leaving only the question of liability for the court. Id. If a party seeks to avoid an appraisal award, the burden of proof is theirs to raise an issue of material fact as to why the resolution they contractually agreed to should be set aside. Lundstrom v. United Servs. Auto Ass'n-CIC , 192 S.W.3d 78, 87 (Tex. App.—Houston [14th Dist.] 2006, pet. denied) (citing Franco , 154 S.W.3d at 786 ). An otherwise binding appraisal award may be set aside when (1) the award was made without authorization; (2) it was the result of fraud, accident or mistake; or (3) it failed to comply with the requirements of the insurance policy. Id.

If the appraisal award is not set aside, this contractual process settles the issue of damages, and settlement of the full amount owed estops the insured from bringing a breach of contract claim against the insurer. Franco , 154 S.W.3d at 787. "[T]he reason an insured is estopped from maintaining a breach of contract claim against the insurer after receiving full payment of an appraisal award is that the very object of the binding appraisal process is to avoid litigation on the issue of damages and not to facilitate liability." Devonshire Real Estate & Asset Mgmt., LP v. Am. Ins. Co. , No. 2014 WL 4796967, at *16 (N.D. Tex. Sept. 26, 2014) (citing Breshears , 155 S.W.3d at 343 ). This reasoning applies with special force where the parties agreed to provide for a binding appraisal process in their contract. Id.; see also United Neurology , 101 F.Supp.3d at 618 ; Amine v. Liberty Lloyds of Tex. Ins. Co. , No. 01-06-00396-CV, 2007 WL 2264477, at *3 (Tex. App.—Houston [1st Dist.] Aug. 9, 2007, no pet.) (stating that the purpose of an appraisal clause is to provide a binding, extra-judicial remedy for any disagreement regarding the amount of the loss).

Breach of Contract

National contends Hurst's breach of contract claim was estopped by the appraisal award. Hurst argues that because he did not accept National's tendered payment—he neither executed the release nor cashed the check—his breach of contract claim was not estopped.

"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]." ’ Blum's Furniture Co. v. Certain Underwriters at Lloyds London , 459 Fed.Appx. 366, 368 (5th Cir. 2012) (quoting Franco , 154 S.W.3d at 787 ). We do not dispute this, but in both Franco and Blum's Furniture, the insured accepted payment of the award. See Franco, 154 S.W.3d at 787 ; Blum's Furniture , 459 Fed.Appx. at 367. Accordingly, neither of those cases determined whether acceptance of the payment was a necessary condition for estoppel.

Generally, tender of the full amount owed pursuant to the conditions of an appraisal clause is all that is required to estop the insured from raising a breach of contract claim. See Brownlow v. United Servs. Auto. Ass'n , No. 13-03-758-CV, 2005 WL 608252, at *2 (Tex. App.—Corpus Christi Mar. 17, 2005, pet. denied) (mem. op.); Toonen v. United...