Court allows bad faith claims to proceed despite payment of appraisal award;
denies insurer's motion for summary judgment.
Insurance companies frequently argue that when the insurer invokes appraisal
and pays the award, the policyholder cannot prevail on a breach of contract
claim which, in turn, precludes him from prevailing on a bad faith claim
under the Insurance Code and DTPA. They argue that a breach of contract
is a prerequisite to a bad faith claim. Despite well-reasoned arguments
from policyholders, this tactic has sometimes been successful, resulting
in abatement of bad faith claims during the appraisal process and, upon
payment of the appraisal award, summary judgment in the insurance company's favor.
But some recent intermediate appellate court rulings in such cases have
favored policyholders, recognizing that breach of contract and bad faith
claims are independent of one another and holding that an insurance company
may be liable for bad faith even though it did not breach the insurance
contract. The Corpus Christi Court of Appeals recently upheld a bad faith
award even though the jury found that the carrier did not breach the contract.
The Insurance Code, the court said, creates a statutory duty -- separate
and apart from the insurer's duty under the policy -- to conduct a
reasonable investigation and cover all damages that would have been discovered
in a reasonable investigation.
Last Friday, relying on these recent cases and others, Daly & Black,
P.C., successfully defeated a motion for summary judgment on our client's
bad faith claims filed by AAA.
Our client's roof was damaged in a storm. AAA initially denied his
claim and later, after our client asked for reinspection, found what it
called "minimal damage" totaling $3300. When our client continued
to challenge AAA's handling of his claim, AAA invoked appraisal pursuant
to the insurance policy. AAA's chosen appraiser and our client's
appraiser agreed that the damage was not "minimal," but in fact
totaled almost $18,000. AAA timely paid the award. In its motion for summary
judgment, AAA argued that its payment of the appraisal award negated our
client's breach of contract claim and therefore precluded a bad faith
claim. The court squarely rejected this argument, agreeing with our lawyers
that even if AAA did not breach the insurance contract, it may have nonetheless
committed bad faith by failing -- prior to invoking appraisal -- to uphold
its statutory duty to conduct a reasonable investigation and cover all
damages that would have been discovered in such an investigation. A copy
of the court's order can be found
This is a significant victory. The ruling in this case, and the rulings
in the cases mentioned above, indicate that courts are not willing to
absolve insurance companies of tort liability based on payment of an appraisal
award. When insurance companies recognize that they cannot use the appraisal
process to insulate themselves from bad faith liability, and that they
will be held accountable for violations of their statutory duty to their
insureds, they may be more likely to act reasonably in the first instance
rather than wrongfully denying, delaying, and underpaying claims. These
pro-policyholder are also important because they compromise the leverage
gained by the insurance company when it invokes appraisal. If a bad faith
claim can survive payment of an appraisal award, there is no reason to
abate the claim until after appraisal is complete.
We look forward to achieving similar results in other cases and resolving
our clients' claims as efficiently, as expeditiously, and as favorably
Contact us for more information.