The United States 5th Circuit Court of Appeals issued an opinion on August 12, 2021, that is noteworthy for Insurance Law attorneys. The opinion is styled, Randy Randel; Debra Randel v. Travelers Lloyds of Texas Insurance Company.
After a fire at their home, the Randels filed a claim for benefits from their home insurance company, Travelers. Eventually the parties agreed to an appraisal and the appraisal award was closer to the Randel’s view of the damages. Travelers had already paid an amount they thought was proper. After the appraisal Travelers paid the full appraisal amount.
The Randels brought suit against Travelers for breach of contract and violation of the Texas Prompt Payment of Claims Act. The breach of contract claim was denied by the Court but the Texas Prompt Payment of Claims violation went forward in the lawsuit.
The Court explained it’s ruling.
An insured’s payment of an appraisal award may defeat a contract claim, but it does not automatically prevent a prompt-payment claim. That is because an insurer may be liable under the Texas Prompt Payment of Claims Act even when it pays in full if that payment was not timely. The statute at Section 542.058(a) provides that the insurer, upon receiving all requested information necessary to evaluate the claim, must pay the claim within 60 days. If the full payment occurs after that deadline, the insurer is responsible for 18 percent interest through the date of payment and attorney’s fees pursuant to Section 542.060(a).
The district court dismissed the prompt-payment claim relating to dwelling and personal property coverage because although Travelers’ early payments were less than the amount it ultimately owed, the early payments were in an amount it deemed reasonable. That ruling is understandable given the state of the law when the district court ruled. A few years ago, this Court made an Erie guess that the Supreme Court of Texas would not impose prompt-payment liability so long as a timely preappraisal payment of the claim was for a “reasonable” amount. Determining whether the preappraisal payment was reasonable was easy—that insurer paid more preappraisal than it ultimately owed. But like the district court here, courts applying this ruling found preappraisal payments to be reasonable even when the amounts were significantly less than what was ultimately owed.
While this case was on appeal, the Supreme Court of Texas provided the answer this Court could only guess at four years ago. It held that that “a reasonable payment should roughly correspond to the amount owed on the claim.” Because the insurer in previous cases paid “significantly less within the statutory deadline than the amount the appraisers ultimately determined that it owed on the claim”—the difference being $23,000, its payment was not timely. This Court now knows that to avoid prompt-payment liability, a preappraisal payment must “roughly correspond” to the amount ultimately owed.
Today this Court need not decide just how close a preappraisal payment needs to be to “roughly correspond” with the final amount owed. There is a substantial gap of roughly $185,000 between the preappraisal dwelling and personal property payments and the appraisal award. Travelers now concedes that its preappraisal payment was not reasonable given the recent guidance from the state high court. Travelers’ preappraisal payment thus is 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 seeking interest for late payment of dwelling coverage must be remanded.