I want I had a greenback for each one who has stated, “It is a slam dunk dangerous religion case.” One lesson I repeatedly inform readers of this weblog is that there isn’t any such factor as a straightforward lawsuit. The second is that allegations in a criticism are one factor, and proof to fulfill a choose or jury is one other. A current Texas case following a profitable appraisal end result is an instance of those classes.1
The case, determined final week, concerned a policyholder who acquired a considerably larger appraisal award than the insurer’s preliminary fee. Regardless of this substantial discrepancy, the court docket discovered no dangerous religion, reinforcing the long-standing authorized precedent that an insurer’s reliance on an appraisal course of doesn’t, by itself, set up misconduct. In different phrases, simply because the appraisal award was a lot larger than the preliminary funds, courts is not going to challenge that the distinction was brought on by a scarcity of fine religion therapy.
On the coronary heart of this case was a policyholder who suffered important property injury and filed a declare with their insurer. After conducting its preliminary evaluation, the insurer issued a fee that the policyholder believed was inadequate to cowl the true extent of the loss. Annoyed by the perceived underpayment, the policyholder invoked the coverage’s appraisal provision, which allowed impartial appraisers to find out the suitable quantity owed. The appraisal course of finally yielded an award far better than the insurer’s unique supply, main the policyholder to argue that the preliminary underpayment was proof of dangerous religion.
Regardless of the dramatic distinction between the preliminary fee and the ultimate appraisal award, the court docket remained steadfast in its software of Texas regulation, which holds that an insurer doesn’t act in dangerous religion just because it initially underpays a declare. The court docket emphasised that the insurer adopted the contractual appraisal course of and, upon receiving the ultimate award, promptly paid the complete quantity. As a result of the insurer adhered to the coverage’s dispute decision mechanism and the policyholder didn’t supply extra proof of wrongful conduct, the court docket discovered no foundation for dangerous religion legal responsibility.
Texas regulation requires greater than an incorrect declare valuation to help a discovering of dangerous religion. Texas courts require that the policyholder show that the insurer knowingly engaged in unfair or misleading practices, acted with out a cheap foundation, or exhibited reckless disregard for the insured’s rights. On this case, there was no proof that the insurer intentionally undervalued the declare with malicious intent or tried to deceive the policyholder. As a substitute, the court docket decided that the unique low fee resulted from a dispute over valuation fairly than an intentional effort to disclaim advantages.
Underneath present Texas regulation, fee of an appraisal award typically precludes a foul religion declare until the policyholder can show an unbiased harm past the underpayment itself. This commonplace prevents routine disputes over declare quantities from escalating into dangerous religion litigation until there’s clear proof of wrongful conduct.
Policyholders going through important variations between preliminary declare funds and appraisal awards could discover this authorized doctrine irritating. It raises questions in regards to the effectiveness of regulation holding insurers accountable when their preliminary valuations fall far beneath what an goal appraisal determines to be honest. I highlighted this subject in final week’s publish, Dangerous Religion Insurance coverage Practices Shielded By “Get Out of Jail Free” Late Funds:
This ruling highlights a significant flaw in the way in which Texas courts deal with dangerous religion insurance coverage claims. It sends a transparent message to insurers: if you happen to ultimately pay what you owe—irrespective of how lengthy you drag it out—you may keep away from any actual penalties for wrongful declare practices. The result’s an uneven taking part in area the place policyholders undergo via monetary uncertainty, property deterioration, and authorized battles whereas insurance coverage corporations use delay ways as a calculated enterprise technique.
The logic behind shielding insurers from dangerous religion legal responsibility after a late fee is deeply flawed. When a policyholder recordsdata a respectable declare, they accomplish that as a result of they want the cash to restore their house, exchange their belongings, or get well from a loss immediately. A wrongful denial or extended delay doesn’t simply create inconvenience—it will possibly power enterprise homeowners and households into monetary misery, depart buildings in disrepair, and disrupt lives. It undermines the rationale why People buy insurance coverage within the first place. The truth that an insurer can later “repair” the scenario with a fee—together with curiosity—doesn’t erase the hurt brought on by the preliminary refusal to pay or roadblocks inflicting delay.
If a financial institution wrongly foreclosed on somebody’s house and later reversed course by providing the home-owner compensation plus curiosity, that wouldn’t undo the injury of being wrongfully evicted. But, within the insurance coverage world, this sort of hurt is routinely excused beneath the guise of authorized precedent. Texas courts, citing circumstances like Ortiz and Navarra v. State Farm Lloyds, now constantly rule that when a fee is made via appraisal, policyholders haven’t any additional recourse—until they’ll show an unbiased harm….
For policyholders and public adjusters navigating Texas insurance coverage regulation, this case serves as a reminder that the mere reality of an insurer underpaying a declare—even by a major margin—will not be sufficient to ascertain dangerous religion. Texas courts require concrete proof that the insurer acted unfairly, dishonestly, or recklessly in dealing with the declare. With out such proof, even substantial variations between an insurer’s preliminary valuation and an appraisal award is not going to essentially help a profitable dangerous religion lawsuit.
As I learn the opposing temporary filed by the policyholder, I didn’t see any reference to any dangerous religion skilled opinions with supporting proof of dangerous religion conduct. Many dangerous religion circumstances involving insurance coverage misconduct require displaying what requirements of fine religion conduct are and that the insurer didn’t act in that method. This case is likely to be as a lot a few lack of proof as another lesson.
Whereas this ruling reinforces present authorized precedent, it additionally raises necessary concerns for policyholders who consider they’ve been mistreated. Though an appraisal award itself doesn’t show dangerous religion, different elements—resembling intentional delay ways, knowingly lowballing claims, or disregarding clear proof of harm—should still give rise to legitimate authorized claims.
Policyholders who suspect wrongful conduct ought to doc their interactions with insurers fastidiously, instantly search authorized steerage even earlier than demanding appraisal, and discover all out there choices for making certain all rights are protected.
Thought For The Day
“Smart males communicate as a result of they’ve one thing to say; fools as a result of they need to say one thing.”
— Plato
1 Dillen v. QBE Ins. Corp., No. 4:23-cv-2043 (S.D. Tex. Feb. 11, 2025).
