Paying an appraisal premium does not always preclude the responsibility for prompt payment: 5th circuit
Considering two main issues in an insurance dispute between Texas homeowners and their insurance company, the United States Court of Appeals for the Fifth Circuit awarded each party a gain and a loss.
The dispute in Randel v. Travelers Lloyds of Texas is about the insurer’s handling of a claim filed by Randy and Debra Randel following a July 4 fire that broke out in their garage and damaged their home.
According to the Fifth Circuit panel, the two issues it had to consider in this case are:
- “Does the payment of the assessment indemnity prevent a plaintiff from continuing to bring an action for breach of contract against an insurer?” “
- “Can an insurer be liable under the Texas Prompt Payment of Claims Act for not paying on time all of the damages it owed even though it made payments on time?” important in response to the complaint? “
The answer to both questions, the Court determined, is “yes”.
The Randels notified the insurer the day after the fire and the travelers made an advance payment on the claim. The Randels felt the amount was insufficient.
Acknowledging the claim upon receipt, Travelers issued an advance check for $ 10,000 to the Randels and inspected the property with the Randels and their contractor.
The Randels allowed their contractors to repair the property, but later told them to stop after they disagreed on some repairs.
In August, travelers estimated the damage to the Randels’ property at $ 179,232.16 and paid the Randels $ 126,720.86 after deductible and depreciation charges. In October, the insurer estimated the couple’s loss of personal property at $ 53,270.49. Travelers also paid $ 24,446.33 in three loss-of-use payments over several months, the court said.
The Randels felt that the damage estimate made by the travelers was insufficient. An insurance adjuster hired by the couple estimated the damage to their home at $ 499,448.69, well above Travelers’ estimate.
In Travelers ‘view, “after the Randels fired the contractors, the repairs ceased and, therefore, any further damage resulted from the Randels’ inability to mitigate. The travelers thus refused to cover the additional damage caused to the property ”, indicates the notice.
Randels invoked the evaluation provision of the policy, which Travelers initially opposed but ultimately agreed to.
“The parties submitted the housing and personal property claims for assessment, but excluded the loss of use claim. An appraisal award awarded an actual monetary value of $ 317,030.70 in damage to the home and an actual cash value of $ 100,331.02 in personal property damage, ”the opinion says.
Travelers paid the premium – less past payments and the policy deductible – within five business days. Ultimately, the insurer paid $ 533,529.88 on the claim, an amount that included payments for personal property and loss of use, as well as damage to the home.
The Randels, however, brought a lawsuit in state court, alleging “that the travelers underpaid their claims in violation of the insurance policy, acted in bad faith and violated the law of the Texas Prompt Payment of Claims. Act. The Randels continued to assert these claims after Travelers paid the appraisal amount, ”the opinion says.
The case was transferred to federal court where Travelers obtained summary judgment on the claims against her. The District Court “concluded that the Randels’ acceptance of the appraisal payment terminated their breach of contract claim for damage to the accommodation and determined that the Randels were not entitled to additional benefits for loss of enjoyment “, indicates the opinion of the fifth circuit. Therefore, the district court ruled that the Randels could not uphold their bad faith claim without a breach of contract claim.
The 5e The Circuit Court agreed that Randels’ breach of contract claim was properly dismissed by the lower court.
“Although the issuance of a valuation scholarship does not preclude a claim for breach of contract, payment and acceptance of the scholarship does”, 5e Circuit’s opinion states, citing a Texas Supreme Court decision in Ortiz v. State Farm Lloyds. “[T]Payment of compensation by the insurer excludes the insured’s claim for breach of contract based on failure to pay the amount of the loss covered.
The court found no evidence that Travelers failed to pay the amounts it owed, but Randel’s claim for prompt payment was another matter.
Citing the Texas Supreme Court decision in Barbara Tech. Corp. vs. State Farm Lloyds, the fifth circuit noted that payment of the full amount of an assessment allowance does not necessarily erase a request for prompt payment. “This is because an insurer may be liable under the Texas Prompt Payment of Claims Act even if it pays in full if that payment was not made in a timely manner,” the notice reads.
“The district court dismissed the request for prompt payment for housing and personal property coverage because although travelers’ advance payments were less than the amount they were ultimately owed, the advance payments were in an amount that he considered reasonable “, indicates the opinion of the fifth circuit.
However, while the Randels case was on appeal, “the Texas Supreme Court provided the answer we could only guess four years ago,” the opinion says. “He felt that” a reasonable payment should roughly match the amount owed on the claim. ‘”
The Court noted that in this case it did not need to determine how close the final amount owed was to the payment made before the appraisal, as the figures were so far apart. “There is a substantial difference of approximately $ 185,000 between the pre-appraisal payments for housing and personal property and the appraisal award,” the opinion says.
“Travelers now concede that his pre-assessment payment was unreasonable given recent directives from the state’s High Court. Pre-payment at traveler assessment is therefore not a defense to liability under the Texas Prompt Payment of Claims Act. As a result of this recent clarification of Texas law, the claim for interest for late payment of housing coverage must be returned, ”the court concluded.