ALERT
NOVEMBER 15, 2012
Does a Bad Faith Cause of Action Survive an Appraisal Award?
The Answer May Be, “It Depends.”
Two recent federal court decisions – Texas and Utah – examine this issue,
reaching the same result based on dif ferent analyses.
Alicia G. Curran • 214. 462.3 021 • acurran@cozen.com
Scott B. Galla • 215.6 65.2109 • sgalla@cozen.com
Intermodal Equipment Logistics, U.S. District Court f or
the Southern D istrict of Texas
Earlier this year, the U.S. District Co urt for the Southern
District of Texas ruled an insured can pursu e its bad faith claim
even where the insurer made timely payme nt of the appraisal
award and the court dism issed the breach of contr act claim on
summary judgment. Intermodal Equip. Log istics, LLC and
Sea Train Logistics, LLC v. Hartfor d Accident & Indem. Co.,
No. 3:10-cv-00 458 (S.D. Tex. Galveston Div. May, 24, 2012).
Intermodal Equipment Logistic s (Intermodal) made claims to
Hartford Accident and Indemnity Com pany (Hartford) for its
business income loss c aused by Hurricane Ike, which hit the
Texas shores in 2008. Hartfo rd valued and paid $208,00 0 for
the loss. Intermodal l ed suit against Hartford in September
2010, alleging Hartford grossly, and in bad faith, undervalued
Intermodal’s losses and breac hed the insurance contr act. The
parties agreed to me diate, but when this failed in May 2011,
Hartford successfully c ompelled appraisal in accordance with
the standard appraisal provision in its policy. The appraisal
nished in January 2012 and awarded Inter modal $705,539,
which Hartfo rd timely paid.
The court held that t imely payment of the appraisal award
negated the breach of contr act claim as a matter of law. Id.
(citing Franco v. Slavonich Mutual Fire Insurance Ass’n,
154 S.W.3d 777, 787 (Tex. App. -- Houston, [14th Dist] 2004,
no pet.) (payment and acceptance of a binding ap praisal
award estops further pr osecution of a breach of contract
claim); Blum’s Furniture Co., Inc. v. Certain Under writers
at Lloyds London, 2012 WL 181413 (5th Cir. Jan. 24, 2012)
(unpublished), and Breshears v. State Farm Lloyds, 155
S.W.3d 340 (Tex. App. -- Corpus Christi, 2 004, no pet.)). In
dismissing Intermodal’s breac h of contract claim, the c ourt
conrmed that an insur ed may not use the difference between
the amount originally paid by the i nsurer and the appraisal
award as evidence of breach of cont ract.
The general rule provide s that an insurance bad faith cla im
rst requires an underly ing breach of the insurance contract.
However, the court here ruled the bad f aith claim survived,
citing the following thre e exceptions to the genera l rule:
1. An insured proves that a carr ier “denied or
delayed the payment of the insured’s claim
when it knew or should have know[n] that it was
reasonably clear that the c laim was covered.”
2. An insured sues unde r the Texas Insur ance
Code as well as the Decepti ve Trade Practices
Act by proving the insurer “unduly delayed
payment of its claim after its li ability became
reasonably clear.”
3. An insured demonst rates that the insurer
“committed some extr eme acts that caused
injury independent of the policy claim.”
The court held th at Intermodal submitted sufcient evidenc e
to create a fact issue as to whether any of th e three potential
exceptions applied. It fur ther held that in accordance with
Universe Life Ins. Co. v. Giles, 95 0 S.W.2d 48, 49 (Tex. 1987),
such an issue was one for the jur y (or factnder) to decide.
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