I want I had a greenback for each one who has stated, “It is a slam dunk unhealthy religion case.” One lesson I repeatedly inform readers of this weblog is that there isn’t any such factor as a simple 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 obtained a considerably larger appraisal award than the insurer’s preliminary fee. Regardless of this substantial discrepancy, the court docket discovered no unhealthy 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 won’t undertaking that the distinction was attributable to a scarcity of fine religion remedy.
On the coronary heart of this case was a policyholder who suffered important property harm 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 larger than the insurer’s unique provide, main the policyholder to argue that the preliminary underpayment was proof of unhealthy 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 legislation, which holds that an insurer doesn’t act in unhealthy 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 provide extra proof of wrongful conduct, the court docket discovered no foundation for unhealthy religion legal responsibility.
Texas legislation requires greater than an incorrect declare valuation to assist a discovering of unhealthy religion. Texas courts require that the policyholder exhibit that the insurer knowingly engaged in unfair or misleading practices, acted with no affordable 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 somewhat than an intentional effort to disclaim advantages.
Below present Texas legislation, fee of an appraisal award typically precludes a foul religion declare except the policyholder can show an impartial damage past the underpayment itself. This normal prevents routine disputes over declare quantities from escalating into unhealthy religion litigation except there may be 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 legislation holding insurers accountable when their preliminary valuations fall far beneath what an goal appraisal determines to be truthful. I highlighted this concern in final week’s publish, Unhealthy Religion Insurance coverage Practices Shielded By “Get Out of Jail Free” Late Funds:
This ruling highlights a serious flaw in the best way Texas courts deal with unhealthy religion insurance coverage claims. It sends a transparent message to insurers: if you happen to finally pay what you owe—regardless of how lengthy you drag it out—you may keep away from any actual penalties for wrongful declare practices. The result’s an uneven enjoying area the place policyholders undergo by monetary uncertainty, property deterioration, and authorized battles whereas insurance coverage corporations use delay techniques as a calculated enterprise technique.
The logic behind shielding insurers from unhealthy religion legal responsibility after a late fee is deeply flawed. When a policyholder information a professional declare, they achieve this as a result of they want the cash to restore their residence, substitute their belongings, or recuperate from a loss instantly. A wrongful denial or extended delay doesn’t simply create inconvenience—it will probably drive enterprise house owners and households into monetary misery, go away constructions in disrepair, and disrupt lives. It undermines the explanation why People buy insurance coverage within the first place. The truth that an insurer can later “repair” the state of affairs with a fee—together with curiosity—doesn’t erase the hurt attributable to the preliminary refusal to pay or roadblocks inflicting delay.
If a financial institution wrongly foreclosed on somebody’s residence and later reversed course by providing the house owner compensation plus curiosity, that wouldn’t undo the harm of being wrongfully evicted. But, within the insurance coverage world, this type 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 after a fee is made by appraisal, policyholders don’t have any additional recourse—except they’ll show an impartial damage….
For policyholders and public adjusters navigating Texas insurance coverage legislation, this case serves as a reminder that the mere reality of an insurer underpaying a declare—even by a major margin—just isn’t sufficient to determine unhealthy 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 won’t essentially assist a profitable unhealthy religion lawsuit.
As I learn the opposing temporary filed by the policyholder, I didn’t see any reference to any unhealthy religion skilled opinions with supporting proof of unhealthy religion conduct. Many unhealthy religion circumstances involving insurance coverage misconduct require exhibiting what requirements of fine religion conduct are and that the insurer did not act in that method. This case is likely to be as a lot a few lack of proof as every other lesson.
Whereas this ruling reinforces present authorized precedent, it additionally raises vital concerns for policyholders who consider they’ve been mistreated. Though an appraisal award itself doesn’t show unhealthy religion, different components—resembling intentional delay techniques, 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 rigorously, instantly search authorized steerage even earlier than demanding appraisal, and discover all accessible choices for guaranteeing 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 should say one thing.”
— Plato
1 Dillen v. QBE Ins. Corp., No. 4:23-cv-2043 (S.D. Tex. Feb. 11, 2025).
