When there has been a fire or other catastrophic damage to property, time is critical. Under Texas Law, property owners are entitled to prompt payment of insurance benefits. But can a Texas insurer get around prompt-payment laws by paying the insured less than their full benefits and delaying the rest? In Randel v Travelers Lloyds, the Fifth Circuit Court of Appeals decided partial payments were insufficient to satisfy the insured’s obligations in that case.
Randy and Debra Randel’s home was damaged after a Fourth of July fire in their garage. They notified their home insurer, Travelers Lloyds of Texas Insurance Company, of the loss the very next day. They sought home insurance benefits under a policy that included coverage for damage to the dwelling, structures, personal property, and loss of use caused by fire and smoke.
Travelers issued the Randels a $10,000 advance that day and sent a representative to inspect the property with their restoration contractor. However, a month later it estimated the damage to the dwelling at a mere $170,232.16 and paid out $126,720.86. In October, it estimated the total personal property damage at $53,270.49. Travelers also made a total of four loss-of-use benefits payments. The Randels’ public adjuster set the damage to the dwelling much higher, at $499,448.69. Travelers refused to pay any additional damages, claiming the Randels had failed to mitigate their damage after they fired their contractors.
Eventually, the Randels invoked their insurance policy’s appraisal provision. Travelers tried to argue that was inappropriate as well, and the Randels filed a petition to compel appraisal. Travelers relented, and the appraisal award came in at $317,030.70 in damage to the dwelling and $100,331.02 to their personal property. Travelers paid the appraisal award within five days and the Randels accepted the payment. However, they did not dismiss their lawsuit, which had been removed to federal court. Instead, they alleged that Travelers underpaid their claims in violation of the insurance policy and in bad faith, and violated the Texas Prompt Payment of Claims Act.
Appraisal provisions like the kind in Travelers’ homeowners insurance policy are a form of alternative dispute resolution designed to avoid property insurance lawsuits. The Fifth Circuit Court summed up Texas law on the issue saying:
“It is also the case that the mere issuance of an appraisal award does not bar a breach of contract claim. Appraisal only sets the amount of damages, so an insurer can still defend a breach of contract claim on liability grounds after an award issues. … Although the issuance of an appraisal award does not bar a breach of contract claim, payment and acceptance of the award does.”
In other words, if Travelers had sent the Randels a check for the appraisal award amount, they still could have continued their lawsuit for breach of contract and argued that the insurer acted in bad faith. However, once they cashed that check, those claims were settled along with the payment, since “there is nothing left to litigate once a plaintiff has received full damages on a claim.”
However, the Fifth Circuit ruling wasn’t entirely in the insurer’s favor. It held that the Randel’s lawsuit for violations of the Texas Prompt Payment of Claims Act could continue, even though the insurer eventually paid the appraisal amount. The Act requires an insurer to pay each claim within 60 days of receiving all requested information necessary to evaluate the claim. Untimely payment means the insurer is responsible for 18% interest through the date of payment as well as attorney’s fees. The Fifth Circuit said the Randel’s claim survived because an insurer can make benefits payments in full, and that payment may still be unreasonably delayed.
The small partial payment Travelers made before the appraisal was not enough to defeat the Randel’s claims either. Earlier in 2021, the Texas Supreme Court decided Hinojos v State Farm Lloyds. In that case, the Court said that to avoid a prompt-payment lawsuit, a “reasonable payment should roughly correspond to the amount owed on the claim.” Because Travelers’ pre-appraisal payment fell roughly $185,000 short of the appraisal amount, it was not a reasonable payment, and the Randels could seek interest and attorney fees under the Texas Prompt Payment of Claims Act.
The Randel decision is a cautionary decision for property owners and insurers alike. It shows how important it is to engage knowledgeable and experienced real property attorneys and responsible contractors at the very start of your property insurance claims. If you don’t, you could accept payment that is less than what you owe, or miss out on compensation when your insurer waits too long to make a reasonable payment on your claim for insurance benefits.
At Patel Anderson, LLP, we want you to get all the damages you deserve after a fire or other property incident. Our real property and litigation attorneys work with commercial property owners to ensure prompt and proper payment of their insurance claims. If you have sustained a loss to your commercial property, contact us today to speak with our team about your legal needs.