USA – TEXAS Trends and Developments Contributed by: Rodrigo (Diego) Garcia Jr. and Kolby J. Keller, Thompson, Coe, Cousins & Irons, LLP
The final argument regarding the qualifications of appraisers was presented without support from the insured, and the court determined it had no bearing on whether the dispute revolved around coverage rather than the amount of loss. Disagreement about the amount of loss The insured argued that there was no disagreement between the parties as to the amount of loss that would trigger the policy’s appraisal provision. The court disagreed on the basis that the insurer took the position it had paid all that was owed under the policy for the claim, combined with the fact the insurer con- sistently viewed the amount of loss to be significantly less than the insured claimed. This was all that was needed to invoke the appraisal provision of the policy. Insured’s bad-faith argument Lastly, the insured argued that the insurer’s failure to adjust the claim timely and in good faith, failure to pay the amount owed, and assertions of unfounded cov- erage defences amounted to prior material breaches of the policy. The insured relied on prior fundamental principles of contract law asserting that when one party to a contract commits a material breach, the other party is discharged from further performance. The court disagreed with this argument, claiming there are two exceptions to the enforcement of an appraisal provision, illegality and waiver. The court determined, neither was at issue in this case. The court also claimed that attempting to determine if there was a prior breach by the insurer “puts the case before the horse” because it was “incompatible with mandatory contractual remedy and against strong public policy favoring appraisal clauses” in insurance policies. Ultimately, this holding was consistent with the Texas Supreme Court’s opinion in State Farm Lloyds v John- son , where the court held, appraisal is intended to take place before suit because: “Appraisals require no attorneys, no lawsuits, no pleadings, no subpoenas, and no hearings. It would be a rare case in which appraisal could not be com- pleted with less time and expense than it would take to file motions contesting it. Allowing litigation about the scope of appraisal before the appraisal takes place would mark a dramatic change in Texas insur-
ance practice and surely encourage much more of the same.” (290 S.W.3d 886, 894 (Texas 2009)). Moreover, this opinion provides clarification on whether appraisal is appropriate for the parties when coverage is at issue. Here, coverage never seemed to be in question. The facts presented and outlined by the court in the opin- ion clearly exhibit coverage was provided for damage caused by the broken water supply line. The real dis- pute stemmed from the cost of the repair and how the work was being performed. The scenario in this case was appropriate for the appraisal process. Texas Department of Insurance’s Proposed Changes in Appraisal The Texas legislature introduced SB 458 (2025) with its new insurance code Chapter 1812 which requires personal auto and residential property policy to carry a conforming appraisal provision which applies to poli- cies delivered, issued or renewed, on or after 1 Sep- tember 2026. As an important reminder, commercial policies and policies issued by the Texas Windstorm Insurance Association (TWIA) are excluded from these requirements. So, what does the conforming appraisal provision include? This is still unknown at the time of writing (September 2026). However, the following are the proposed changes: • Mandatory appraisal without requiring an impasse. With this proposed change, the parties do not need to reach an impasse before either party can invoke the appraisal process. This means an insured or carrier can invoke appraisal at any point after the claims decision and the other party must partici- pate in the appraisal process. • When an award is issued, the award is binding upon the parties. This remains consistent with current case law but codifies the ways in which an award can be set aside. The three ways an award can be set aside and not be binding on the parties are: (i) it was made without authority; (ii) it was not made in substantial compliance with the provision; or (iii) there was fraud, an accident, or a material mistake relevant to the appraisal. • Additionally, when carriers issue a coverage let- ter accepting or rejecting the claim under Texas Insurance Code 542.056, carriers must include the
359 I NSURANCE L I T IGATI O N 2026
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