By Joe Cavanah
On June 19, 2020, The Texas Supreme Court affirmed its pivotal opinion in Barbara Technologies Corporation v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019), reh’g denied (Dec. 13, 2019). See Marchbanks v. Liberty Ins. Corp., No. 18-0977, 2020 WL 3393472, at *2 (Tex. June 19, 2020).
In Barbara Technologies, State Farm insured a facility in San Antonio that sustained storm damage. State Farm investigated Barbara Technologies’ claim, and ultimately denied it, concluding that the deductible exceeded the amount of loss. Barbara Technologies filed suit, alleging, among other things, damages under the Texas Prompt Payment of Claims Act (“PPCA”). Six months later, State Farm invoked the appraisal clause. Under the policy’s appraisal provision, each party hired an independent appraiser to assess the amount of loss, and if the appraisers disagreed, an independent umpire would establish the amount of loss. The parties’ appraisers in Barbara Technologies, however, agreed the loss was $195,345.63, not $3,153 as State Farm originally claimed. State Farm paid Barbara Technologies the full amount owed, less deductible and depreciation. Thereafter, Barbara Technologies amended its Petition to include only a claim for violating the PPCA.
Disapproving of prior case law, the Barbara Technologies Court held that insurers may face liability under the PPCA if they are liable under the policy yet delayed payment beyond the applicable statutory deadline, regardless of use of the appraisal process. The Court’s analysis rested largely on USAA Texas Lloyds Company v. Menchaca, which provides that “the Insurance Code supplements the parties’ contractual rights and obligations by imposing procedural requirements” on claims handling. USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 488 (Tex. 2018). Menchaca’s reasoning laid the groundwork for the Court to hold that payment of an appraisal award does not bar PPCA claims. This is a reversal from prior cases, which held “that full and timely payment of an appraisal award under the policy precludes an insured from recovering penalties under the [PPCA] as a matter of law.”See Garcia v. Lloyds, 514 S.W.3d 257, 275 (Tex. App.—San Antonio 2016, pet. denied), abrogated by Barbara Techs., 589 S.W.3d at 819; see also In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556, 563-64 (Tex. App.— Houston [14th Dist.] 2010, orig. proceeding), abrogated by Barbara Techs., 589 S.W.3d at 819. In Ortiz v. State Farm Lloyds, a companion case to Barbara Technologies, the Court similarly held that payment of an appraisal award will not foreclose an insurer’s liability if an insured suffers an injury independent of the loss of benefits. Ortiz v. State Farm Lloyds, 589 S.W.3d 127, 135 (Tex. 2019), reh’g denied (Dec. 13, 2019).
Recently, the Court reaffirmed these holdings, in Marchbanks v. Liberty Insurance Corporation, which holds that an insurer’s payment of an appraisal award does not bar an insured’s claim for damages under the PPCA as a matter of law. See Marchbanks, 2020 WL 3393472, at *2.
Accordingly, insurers should be aware that invoking an appraisal provision does not insulate them from damages under the PPCA. Conversely, insureds should be aware that the PPCA can provide a statutory remedy that operates independently from a private appraisal clause. What additional claims for damages independent of the loss of policy benefits will be recognized is still unclear. However, Manchaca, Marchbanks, Ortiz, and Barbara Technologies were all decided between 2018 and 2020. Thus, it stands to reason that the Texas Supreme Court may be considering that question soon.