In re Universal Underwriters of Tex. Ins. Co.

345 S.W.3d 404

54 Tex. Sup. Ct. J. 931

In re UNIVERSAL UNDERWRITERS OF TEXAS INSURANCE COMPANY, Relator.

No. 10–0238.

Supreme Court of Texas.

Argued Dec. 8, 2010.Decided May 6, 2011.

Don Martinson, Rebecca Raper, Fanning Harper Martinson Brandt & Kutchin, P.C., Dallas, TX, for Relator Universal Underwriters of Texas Insurance Company.Scott M. Keller, The Law Offices of Scott M. Keller, Robert Nathan Grisham, The Law Offices of Robert N. Grisham II, Dallas, TX, for Real Party in Interest Grubbs Infiniti, Ltd.Wade Caven Crosnoe, Thompson Coe Cousins & Irons, L.L.P., Austin, TX, for Amicus Curiae Insurance Council of Texas and Property Casualty Insurers.Peter M. Kelly, Kelly Durham & Pittard LLP, Houston, TX, George (Tex) Quesada, Sommerman & Quesada, L.L.P., Dallas, TX, James B. Lewis, Lewis & Hildebrand PC, Houston, TX, for Amicus Curiae Texas Trial Lawyers Association.Brendan K. McBride, The McBride Law Firm, San Antonio, TX, for Amicus Curiae Texas Apartment Assoc., Inc., Texas Assoc. of School Boards.William F. Merlin Jr., Merlin Law Group, P.A., Houston, TX, for Amicus Curiae United Policyholders.Gardner C. Pate, Locke Lord Bissell & Liddell LLP, Austin, TX, for Amicus Curiae Texas Building Owners and Managers Association.Howard M. Bookstaff, Hoover Slovacek LLP, Houston, TX, for Amicus Curiae Houston Apartment Association, Inc. (“HAA”).Karen Phillips, Texas Automobile Dealers Association, Austin, TX, for Amicus Curiae Karen Phillips.Connie Niemann Heyer, Niemann & Niemann, L.L.P., Austin, TX, for Amicus Curiae Texas Community Association Advocates.Chief Justice JEFFERSON delivered the opinion of the Court.

Appraisal clauses, a common component of insurance contracts, spell out how parties will resolve disputes concerning a property's value or the amount of a covered loss. When the parties disagree, but neither seeks appraisal until one has filed suit, has the party demanding appraisal waived its right to insist on the contractual procedure? Because we conclude that, absent conduct indicating waiver and a showing of prejudice, it has not, we conditionally grant relief.

I. Background

Grubbs Infiniti, a car dealership in the Dallas–Fort Worth area, suffered hail damage to buildings on its property. When Grubbs filed a claim with its insurer, Universal Underwriters, a claims representative inspected the property. Universal subsequently paid Grubbs $4,081.95 for the damage. Grubbs asked Universal to reinspect the property, contending that the claim had not been properly investigated or fully paid. Universal sent an engineer to reinspect the property, after which it issued a $3,000 supplemental payment to cover scuff marks on the roof. In November 2008, Universal explained that

[i]f you would like to have your roof expert discuss the findings with [the engineer], please advise and we will put the two parties in touch with one another. We will hold our file open for 15 days pending any further contact from you regarding this matter.

....

... Should you disagree with [Universal's] decision as set forth in this letter, please review your policy and govern yourself accordingly being mindful of the policy requirement that legal action contesting [Universal's] decision on this claim must be brought within 24 months and 1 day from the date you discover the loss, but no sooner than 90 days after you file a sworn proof of loss.

Please feel free to contact me ... if you should have any questions.

Universal also sent Grubbs a copy of the engineer's roof inspection report. Grubbs made no further inquiries or demands for payment.

Four months later, Grubbs sued Universal for underpayment of its claim, alleging breach of contract, breach of the duty of good faith and fair dealing, as well as violations of the Deceptive Trade Practice–Consumer Protection Act, Insurance Code, and Prompt Payment of Claims Act. In response, Universal invoked the policy's appraisal clause, which provides, in pertinent part,

[i]f YOU or WE can't agree on the value of the property or the amount of YOUR property LOSS, either of us can demand in writing, an appraisal within 20 days of such demand. Then, each will select a competent and disinterested appraiser who will, in turn, select a competent and disinterested umpire....

The appraisal shall be then made at a reasonable time and place. Each appraiser will state his appraisal of the value or LOSS. If they can't agree, they will submit their differences to the umpire. The value of the property or amount of the LOSS will be determined by a written agreement of any two of them. Such an agreement is binding.

Universal moved to compel an appraisal and to abate all other proceedings in the interim. Grubbs alleged that Universal waived its right to appraisal by not invoking it sooner. When the trial court denied the motion, Universal unsuccessfully sought mandamus relief from the court of appeals. 345 S.W.3d at 412. Universal petitioned this Court,¹ and, after hearing oral argument, we conditionally grant relief.II. Waiver of appraisal clauses

Appraisal clauses, commonly found in homeowners, automobile, and property policies in Texas, provide a means to resolve disputes about the amount of loss for a covered claim. See State Farm Lloyds v. Johnson, 290 S.W.3d 886, 888 (Tex.2009). These clauses are generally enforceable, absent illegality or waiver. See id. (“ ‘In the absence of fraud, accident, or mistake, the parties having agreed that the amount of loss shall be determined in a particular way, we are constrained to hold that such stipulation is valid.’ ”(quoting Scottish Union & Nat'l Ins. Co. v. Clancy, 71 Tex. 5, 8 S.W. 630, 631 (1888))). Appraisals can provide a less expensive, more efficient alternative to litigation, and we recently held that they “should generally go forward without preemptive intervention by the courts.” Id. at 895.

Indeed, appraisals have proceeded for well over a century with little judicial involvement. Id. at 889 (noting that only five of our prior decisions involved appraisals). Of our three cases to address waiver of appraisal clauses, only one found that waiver had actually occurred. See Del. Underwriters v. Brock, 109 Tex. 425, 211 S.W. 779, 780–81 (1919) (waiver due to insurer's selection of biased arbitrator, in violation of the policy); Am. Cent. Ins. Co. v. Bass, 90 Tex. 380, 38 S.W. 1119, 1119–20 (1897) (same); Scottish Union, 8 S.W. at 632 (no waiver). In that case, we held that an insurer could not claim as a defense that the insured failed to submit to an appraisal because the insurer did not nominate a “disinterested appraiser” as the policy required. Brock, 211 S.W. at 780.

We have explained that

[to] constitute waiver the acts relied on must be such as are reasonably calculated to induce the assured to believe that a compliance by him with the terms and requirements of the policy is not desired, or would be of no effect if performed. The acts relied on must amount to a denial of liability, or a refusal to pay the loss.

Scottish Union, 8 S.W. at 632. Or, as we more recently concluded, “[w]aiver requires intent, either the intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.” In re Gen. Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex.2006) (quotations omitted). ²

Grubbs asserts that Universal waived its right to invoke appraisal by waiting eight months, from the date that Grubbs asked for a reinspection of its property to the date that Grubbs sued, before demanding an appraisal. Grubbs argues that this delay was unreasonable as a matter of law, citing a number of cases in which our courts of appeals found appraisal demands untimely when made as little as thirty-nine days from the date of disagreement. See, e.g., Int'l Serv. Ins. Co. v. Brodie, 337 S.W.2d 414, 416 (Tex.Civ.App.-Fort Worth 1960, writ ref'd n.r.e.) (noting that the parties disputed whether it had been thirty-nine or seventy-two days from the date of disagreement); Boston Ins. Co. v. Kirby, 281 S.W. 275, 276 (Tex.Civ.App.-Eastland 1926, no writ) (noting that insurer waited fifty-eight days after receiving proof of loss to make demand for appraisal); Am. Fire Ins. Co. v. Stuart, 38 S.W. 395, 396 (Tex.Civ.App.1896, no writ) (“The retention of the proofs of loss by appellant for an unreasonable time without objection would be a waiver of any defect therein.”). These decisions, however, were not based solely on the length of delay, but rather on the parties' conduct, as indications of waiver.³ In Brodie, for example, after several attempts to reach a settlement, the insurer wrote to the insured that “[i]t would be superfluous” to further enumerate the claims, and that “there appears to be no item that has or will need a point of compromise.” Brodie, 337 S.W.2d at 416. The court concluded that “[t]his [wa]s evidence of a failure to agree. The Company could then pay what Mrs. Brodie demanded, do nothing, or demand an appraisal.” Id. The fact that thirty-nine or seventy-two days had passed during their negotiations was not determinative of the waiver issue. Instead, the expression of the parties' unwillingness to negotiate further indicated that the clause should have been invoked. In other words, while the time period may be instructive in interpreting the parties' intentions, it alone is not the standard by which courts determine the reasonableness of a delay. See Equitable Life Assurance Soc. v. Ellis, 105 Tex. 526, 152 S.W. 625, 629 (1913) (“A waiver may be created by acts, conduct, or declarations.” (quotations omitted)); Scottish Union, 8 S.W. at 632 (describing the kind of “acts relied on” that constitute waiver).

A. Delay must be measured from the point of impasse.

Thus, while an unreasonable delay is a factor in finding waiver, reasonableness must be measured from the point of impasse, as several cases have recognized. See In re Slavonic Mut. Fire Ins. Ass'n, 308 S.W.3d 556, 562 (Tex.App.-Houston [14th Dist.] 2010, no pet.) (...