Recent Case Shows That Its Time For Reform of Insurance Abuse of Appraisal Process

Insurers shouldn't be given special treatment or be allowed to use appraisal to delay the claims process.

The recent Texas case, Germania Farm Mutual Insurance Associations illustrates the many ways that insurers can manipulate appraisal to delay payment of claims and highlights the need for reform.

The case arose from the insurers petition for writ of mandamus following a denial of a motion to compel appraisal by the trial court. The insurer requested appraisal a little over a year after the loss, sought reconsideration two months later and ultimately sought mandamus six months later after its motion for reconsideration was denied. The insured claimed prejudice due to the delay but only through conclusory allegations in an affidavit by counsel. Unsurprisingly, the Texas Court of Appeals, Corpus Christi-Edinburgh, granted the petition and compelled arbitration.

This case illustrates the following points:

• Texas courts favor appraisal as a way of resolving disputes about the amount of loss.

• Waiver will be difficult to prove and will require specific allegations of prejudice, not just the passage of time.

• The insurer can seek appraisal even when fully denying a claim.

• The insurer’s breach of the contract does not waive the insurer’s ability to seek appraisal.

• Appraisal is a condition precedent to suit.

  
  

The last three points are the most problematic, giving insurers the ability to use appraisal as a last-ditch effort to delay claim payment rather than a legitimate means of resolving disputes.

Waiver

First, when an insurer denies a claim, they are asserting that there is no loss, no coverage, and nothing to decide. Under the traditional law of waiver, waiver occurs when a party engages in intentional conduct that is inconsistent with its assertion of a known right. A claim denial is inconsistent with appraisal and presents a classic waiver situation.

Material Breach

Second, a material breach does excuse non-performance by the other party to the terms of a contract. Why does the insurer get an exception from this hornbook law?

Condition Precedent

Finally, whether something is a condition precedent to suit depends upon the language of the insurance policy. In fact, many policies say that the parties "can" or "may" institute appraisal. This language is hardly mandatory. However, in reaching the conclusion that appraisal was a condition precedent to suit, the court of appeals did not look at the policy language at all, but merely cited to previous case law.

Longstanding Rules of Contract Law Should Apply to Insurers Too.

Insurers should not get better treatment under the law than other parties to a contract and the rules relating to contractual constructions should be applied to insurance policies just like other contracts. Unfortunately, Texas law began establishing a preference for appraisal as a means of resolving disputes in the last twenty years, and this preference seems to drive some of this legal reasoning.

The result of this preference is to allow an insurer to refuse to attempt to determine whether there is a loss at all for months if not years, deny the claim, and then seek appraisal only after forcing the insured to initiate litigation to recover benefits. All the while, the insured may be out of their home, out of business, or otherwise facing calamity and fighting anxiously for the insurance backstop that they assumed they had when they paid premiums. Please contact us if you need help with your insurance dispute.