The Dallas Court of Appeals has affirmed a trial court order rejecting homeowners’ contractual and extracontractual claims against an insurer who properly paid the amount of the appraisal award and potential statutory interest pursuant to the policy.
Michael Knopp and Sandra Rybicki-Knopp v. State Farm Lloyds (No. 05-22-00749-CV; July 30, 2024) arose from a dispute between homeowners and State Farm over alleged damage to the homeowners’ roof from a March 2019 hailstorm. An independent adjuster determined that there was some hail damage to roof vents, valley metal, aluminum wall coping, exhaust caps, and rain caps, but that to the extent composite roof tiles showed any damage, it was “not consistent with wind or hail damage”. The adjuster estimated the cost of repairs to be about $8,800, which after depreciation and the policy deductible came to just over $3,500. State Farm enclosed a check for that amount with a copy of the adjuster’s report. Plaintiffs disagreed, and State Farm had an engineer look at the roof again. Once more, the inspection showed no damage to roof tiles, so State Farm denied coverage because the type and amount of damage did not qualify as “accidental direct physical loss” under the policy.
Plaintiffs invoked the policy’s appraisal clause in December 2020. The appraisers determined that the replacement value of the roof exceeded $96,000. State Farm rejected the appraisers’ award form, which also valued the roof’s “actual cost” (maximum replacement cost at time of loss) at $91,475.77. Eventually, Plaintiffs sued State Farm and its adjusters for breach of contract and violations of Chapters 541 (statutory bad faith) and 542 (late payment). Further, because so much time had passed since the appraisal award was first issued, Plaintiffs’ independent “estimate report” showed that actual repair costs had increased. They accounted for this by raising their actual damage request to $105,044.03, attorney’s fees to $26,261.01, and interest to $24,634.01. State Farm paid the amounts initially stipulated in the policy: $77,686.12 in actual damages, $20,432.21 in “potential” statutory interest, and $15,000 in attorney’s fees related to the late payment claim. It moved for summary judgment on this basis, stating it paid the “full” amounts required by relevant policies and statutes, and in doing so, disposed of Plaintiffs’ contractual and extracontractual claims. Moreover, emphasizing the policy’s explicit language, State Farm objected to the admission of the “estimate report”, upon which Plaintiffs based their claim for higher damages. The trial court sustained the objection and granted summary judgment for State Farm. Plaintiffs appealed.
In an opinion by Justice Pederson, III, the court of appeals affirmed. Citing SCOTX’s ruling in Ortiz v. State Farm Lloyds, 589 S.W. 3d 127 (Tex. 2019), the court found that, as a matter of law, State Farm did not breach policy by refusing to pay the appraisal award on demand. Since the policy stated that the “appraisal award determines the monetary amount of [roof damage]”, the award is legally binding as to that amount. However, the policy also provides that only State Farm can “determine if coverage applies to each item in dispute”, meaning the award does not establish insureds’ “right to policy benefits” or carrier liability (Ortiz). Consequently, since the award did not establish State Farm’s liability, it was never contractually obligated to pay the award on demand or, for that matter, at any time. Under Ortiz, by fully paying the appraisal award when it did, State Farm “discharge[d] [its] liability for a claim under the insurance policy.” Plaintiffs’ breach of contract claim was thus barred.
Plaintiffs next alleged post-appraisal bad faith in violation of § 541.060, Insurance Code, arguing that State Farm violated the statute by refusing to pay the appraisal award until after “[they were] forced to file a lawsuit.” However, as the court noted, this claim sought only “lost policy benefits” as “actual” damages, which State Farm paid in accordance with the policy. Further, under Ortiz, State Farm’s payment prohibited Plaintiffs’ recovery of court costs, attorney’s fees, and treble damages. Plaintiffs responded that because State Farm’s “bad faith” caused an “independent injury” by allowing the market cost of repair to rise (as shown in the “estimate report”), they could recover “actual damages caused by the insurer’s bad-faith conduct” (relying on Menchaca). The court didn’t take the bait, pointing out that the independent-injury rule only applies “if damages are separate from and differ from benefits under the contract.” As the court previously held, the damages were the same “lost” benefits that State Farm had already paid.
Similarly, Plaintiffs asserted that State Farm was liable for interest and attorney’s fees under Chapter 542A. However, they conceded that by virtue of SCOTX’s decision in Rodriguez v. Safeco Ins. Co. of Ind., 684 S.W.3d 789 (Tex. 2014), they had no claim for attorney’s fees. The court concluded that this concession “impliedly concedes that appellee paid them the full appraisal award plus any possible interest”, extinguishing Plaintiffs’ Chapter 542A claim. Finally, the court decided to uphold trial court’s dismissal of Plaintiffs’ claims, finding that even if the trial court erred in excluding Plaintiffs’ “estimate report,” the error was not reversible because Plaintiffs’ independent injury claim was invalid and could not have influenced the trial court’s judgment.
TCJL Research Intern Shaan Rao Singh contributed to the research for and composition of this article.
