In an important decision interpreting Chapter 542A, Insurance Code, enacted by the Legislature in 2017 to curb abuses in claims for property damage arising from hail, wind, or rainstorms, the Dallas Court of Appeals has held that an insurer that pays the amount of the appraisal award and prepays interest prior to a judgment can avoid paying attorney’s fees under the statutory formula.
Louis Rosales, Sr. v. Allstate Vehicle and Property Insurance Company (No. 05-22-00676; delivered May 16, 2023) arose from a 2020 hailstorm in Mesquite. Plaintiff filed a claim with Allstate for roof damage. Because two Allstate adjusters determined that the damages were less than plaintiff’s deductible, Allstate denied the claim. Plaintiff filed suit in 2021, alleging breach of contract, bad-faith violations, and breach of the Prompt Payment Act (Chapter 542, Insurance Code) and subsequently invoked the appraisal clause of his policy. The appraisers determined the cash value of the loss as $14,869. Allstate issued payment for $11,751, the amount of the award less plaintiff’s deductible. It also issued a check for $1,408 “to cover any additional interest [plaintiff] could possibly allege to be owed” under Chapter 542. Allstate proceeded to move for traditional summary judgment on plaintiff’s contract and bad faith claims and that, because Allstate had paid everything it owed on the claim, plaintiff was not entitled to attorney’s fees under Chapter 542A. The trial court granted the motion. Plaintiff appealed.
In opinion by Justice Miskel, joined by Justice Pederson III, the court of appeals affirmed. Chapter 542A, among other reforms, limited statutory interest in a Chapter 542 claim to 5% (as opposed to 18%) and tied an award of attorney’s fees to the amount awarded in the judgment. Under the statutory formula, the amount of reasonable and necessary attorney’s fees is reduced if the amount to be awarded in the judgment for the claim under the insurance policy is less than the amount alleged to be owed. Allstate argued that since it paid the appraisal award and an amount sufficient to cover statutory interest, there was no “amount to be awarded in the judgment” and, consequently, no liability for attorney’s fees. Plaintiff countered that preemptively paying statutory damages to avoid attorney’s fees violated SCOTX’s ruling in Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019). In that case SCOTX held that the insurer’s full payment of the loss established by the appraisal process did not “excuse an insurer liable under the policy from having to pay [Chapter 542] damages merely because it tendered payment based on an appraisal award, or to foreclose any further proceedings to determine the insurer’s liability under the policy.” 589 S.W.3d, at 819.
The court agreed with plaintiff that Barbara Technologies stands for the proposition that payment of the appraisal award did not foreclose the recovery of statutory interest or attorney’s fees under Chapter 542, but Barbara Technologies was not decided under Chapter 542A’s statutory formula. Here, Allstate paid the appraisal award and an amount sufficient to cover the 5% statutory interest. Since the appraisal award is “binding as to the maximum amount of damages to or loss of [plaintiff’s] property . . . there remains no ‘amount to be awarded in the judgment’ for [plaintiff’s] ‘claim under the insurance policy for damage or loss to the covered property.’” Consequently, “Chapter 542A’s formula must result in an award of zero attorney’s fees.” Moreover, the existence of interest “described as statutory damages” is beside the point, because the determination of attorney’s fees under § 542A.007(otea)(3)(A) depends on damages awarded for a claim under the policy, not awarded by the statute.
The court goes on to cite a number of federal district court decisions concurring with its reading of Chapter 542A, as well as some going the other way. The only Texas authority on the subject came from the Houston [14th] Court of Appeals, which “held that an insurer who paid the appraisal award and statutory interest was not entitled to summary judgment on a [Chapter 542] claim.” Like Barbara Technologies, however, that case was decided under Chapter 542, not the 2017 statute. The court rejected plaintiff’s contention that allowing prepayment of damages to zero out attorney’s fees “gutted” the statute, reasoning that, based on SCOTX’s decision in JCB, Inc. v. Horsburgh & Scott Co., 597 S.W.3d 881 (Tex. 2019), plaintiffs in contract actions have a duty to mitigate damages, just as defendants in Chapter 542 cases “are encouraged to pay what is owed before trial.” Indeed, the possible liability for attorney’s fees in such cases is part of the insurer’s incentive to pay disputed amounts before trial.
Justice Molberg dissented but did not file an opinion. In light of the logic of Justice Miskel’s analysis, we’re not sure what he could have said anyway. The whole point of Chapter 542A was to put a stop to a very specific abuse of Chapter 542 in the natural disaster context: to mitigate the filing of bad faith lawsuits in cases in which the insurer adjusted and paid a claim in good faith but got sued anyway for an 18% penalty plus attorney’s fees. This is the very type of case Chapter 542A was designed for, and it worked exactly the way it was supposed to.