Texas Appellate Court Confirms that Insurer’s Payment of Appraisal Award Precludes Common Law and Statutory Bad Faith Claims

Amy L. Piccola
Published November 15, 2017

Ortiz v. State Farm Lloyds, No. 04-17-00252-CV, 2017 WL 5162315 (Tex. Ct. App. Nov. 8, 2017).

Oscar Ortiz submitted a claim to State Farm for damage to his property resulting from wind and a hailstorm. After inspecting the property, State Farm determined that the damages to the property amounted to $723.53, an amount not exceeding Ortiz’s deductible. State Farm performed a second inspection and identified some additional damage, but again concluded that Ortiz was not entitled to payment because that new total still did not exceed Ortiz’s deductible.

Ortiz sued State Farm, asserting contractual and extra-contractual claims, including claims of common law and statutory bad faith. In response, State Farm invoked the appraisal process provided in Ortiz’s policy resulting in the abatement of the suit pending completion of the appraisal process. Eventually, an appraisal award of $9,447.52 was issued and, two weeks later, State Farm paid Ortiz $4,243.93, an amount representing the appraised value of the loss minus the deductible and recoverable depreciation. State Farm then filed a motion for summary judgment asserting that its payment of the appraisal award estopped Ortiz from maintaining a breach of contract claim and precluded his bad faith claims. The trial court agreed, granting summary judgment in State Farm’s favor. Ortiz appealed.

In its opinion, the Court of Appeals reviewed two seminal Texas cases that provide the framework for assessing common law and statutory bad faith claims. First, the Court noted that Garcia v. State Farm Lloyds established that in order to defeat a motion for summary judgment on a common law bad faith claim, the insured had the burden of raising a genuine issue of material fact that the insurer failed to timely investigate the claim or that the insurer committed some act, so extreme, that it would cause injury independent of the policy claim. 514 S.W.3d at 264. The Court then explained that the Texas Supreme Court’s recent ruling in USAA Texas Lloyds Co. v. Menchaca—which outlined five rules governing the relationship between contractual and extra-contractual claims, including a rule providing that even where the insured cannot establish a contractual right to policy benefits, those benefits can be recovered as actual damages if the insurer’s statutory violation caused the insured to lose those rights—did not require the Court to revisit the Garcia decision or to reverse the at-issue summary judgment order. Instead, the Court concluded that because Ortiz failed to present evidence satisfying the Garcia “extreme action” standard or establishing an independent loss not flowing from the original denial of policy benefits and otherwise did not lose his policy benefits in light of the fact that State Farm timely paid the appraisal award, he could not establish a claim of bad faith—either common law or statutory—and the trial court’s decision must be affirmed.

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