In a remarkable departure from a recent trend heavily favoring insurance companies against their policyholders in property insurance coverage disputes, the Texas Supreme Court this week closed what would likely have become a favorite insurance company liability escape hatch, and re-opened the door for a wronged policyholder to pursue bad faith damages for an insurer’s egregious misconduct. The insured’s appellate breakthrough resulted from the work of Gravely Attorneys and Counselors, a powerhouse Texas insurance law firm.
The undisputed facts underlying the hotly contested case - TopDog Properties v GuideOne National Insurance Company - concerned significant wind and hail damage to apartment buildings owned and operated by commercial property owner TopDog. The loss was covered by their GuideOne insurance policy.
TopDog claimed that GuideOne intentionally undervalued the cost to repair the damage. After TopDog requested GuideOne reevaluate the damage and even requested the parties submit the disagreement to the “appraisal” process, GuideOne refused, claiming that only the insurance company could request appraisal.
Typically, insurance policies include a process for resolving these kinds of disagreements about the amount of a covered loss – a fair and independent appraisal process that either party can call upon to resolve the disagreement. The policyholder and the insurer each pick an appraiser, and if they are unable to agree, those appraisers then pick a third appraiser – an “umpire” – to break the tie.
GuideOne, however, was up to something else. Rather than allow the policyholder to have fair access to appraisal, GuideOne’s policy contained an appraisal clause under which only GuideOne could request appraisal, effectively forcing its policyholder to file a lawsuit just to get its claim paid if GuideOne refused to participate in appraisal. That is what GuideOne did, forcing TopDog to prosecute a lawsuit.
Only after TopDog was forced to incur the expense and delay of a filing a lawsuit did GuideOne finally request an appraisal of the loss. After nearly two years of delays, GuideOne’s appointed appraiser agreed with TopDog that GuideOne had undervalued the loss by a whopping 98 percent.
Prior to this Texas Supreme Court decision, the case would have ended with GuideOne finally paying only the appraiser’s loss valuation even though the property owner had to go through the lengthy claims process and actually file a lawsuit, thus incurring further losses including appraisal cost, attorney’s fees, and other expenses involved in waiting years for their legitimate policy payment. Such a rule would actually reward an insurer for deliberately refusing to pay a loss it knew was covered and forcing the policyholder to file a lawsuit, since doing so would cost the insurer no more than if it had paid the true value of the loss in the first place.
After the ruling in TopDog v. GuideOne, the pay-the-appraisal-amount scheme (however late in the process) is no longer a defense for Texas insurance companies facing additional damage claims for using such delay tactics against their policyholders.
“In this landmark decision the Texas Supreme Court eliminated the insurance companies’ get out of jail free card. Unilateral appraisal clauses can no longer protect insurers who refuse to pay obvious covered losses in good faith”, said TopDog’s attorney Jonathan Lisenby of Gravely Attorneys and Counselors.
Gravely lawyer Brendan McBride adds, “By slamming the door on this scheme, the Texas Supreme Court has made it clear that a policyholder can recover damages other than just the amount of the covered loss, including attorney’s fees, prompt payment penalties, and even punitive bad faith damages to punish the insurer’s misconduct, regardless of whether an insurer tries to hide behind a unilateral appraisal clause.”
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About Gravely: Gravely is a Texas insurance coverage dispute law firm that helps commercial and public property owners recover compensation when their insurance company has incorrectly disputed, wrongly delayed, or fraudulently denied their property damage claim. The Gravely appellate division is active in supporting the rights of Texas property owners and policy holders when legal matters go awry in trial courts. The Gravely Texas insurance bad faith law firm was founded by author and noted attorney Marc Gravely. For more information: www.gravelylaw.com