Texas Supreme Court Ruling Clarifies Attorney’s Fees Post Appraisal in Chapter 542A Claims

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The Texas Supreme Court issued an opinion in Rodriguez v. Safeco Ins. Co. of Ind. addressing the certified question from the U.S. Court of Appeals for the Fifth Circuit: In an action under Chapter 542A of the Texas Prompt Payment of Claims Act, does an insurer’s payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney’s fees? The Court ruled in the affirmative, barring recovery of attorney’s fees in Chapter 542A suits where the carrier has paid the appraisal award and any possible interest.

In the following analysis, I review the fee provisions of Chapter 542A, their effect, and how the Texas Supreme Court’s recent ruling will aid in the defense of first-party insurance lawsuits in Texas arising from forces of nature claims.


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Chapter 542A’s Attorney’s Fee Provisions

Chapter 542A of the Texas Insurance Code was enacted in 2017 to address growing trends in storm litigation and was aimed at limiting recoverable attorney’s fees in such cases when pre-suit notice letters claim unreasonable sums. It governs first-party suits in Texas arising from forces of nature such as earthquakes, wildfires, floods, tornadoes, lightning, hurricanes, hail, wind, snowstorms, or rainstorms.

Under Chapter 542A, a claimant must send its insurer notice providing the specific amount alleged to be owed by the insurer for the claimed damage or loss of covered property. Tex. Ins. Code § 542A.003(b)(2). This has a direct effect on the calculation of attorney’s fees in suits under Chapter 542A. Section 542.007(a)(3) provides a mathematical equation for the calculation of attorney’s fees. Under this equation, the “amount to be awarded in the judgment to the claimant for the claimant’s claim under the insurance policy” is divided by the amount the claimant alleged to be owed in their notice letter under 542A.003.

If the resulting figure is 0.8 or greater, the claimant is entitled to a full recovery of reasonable and necessary attorney’s fees. If the resulting figure is less than 0.2, the claimant is not entitled to recover any attorney’s fees. Finally, if the resulting figure is equal to or greater than 0.2 but less than 0.8, the claimant is entitled to recover a proportional amount of their reasonable and necessary attorney’s fees calculated by multiplying the figure determined by § 542.007(a)(3) by the amount of the policy benefits to be awarded in the judgment.


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The Rodriguez Case

In Rodriguez v. Safeco Ins. Co. of Ind., the plaintiff, Mario Rodriguez, sued his insurer, Safeco, over a dispute regarding underpaid policy benefits from a 2019 tornado claim. Despite Safeco initially paying $27,449.88 for damages, Rodriguez claimed an additional $29,500. After unsuccessful mediation, Safeco opted to invoke its policy’s appraisal provision. The appraisal panel valued the damage at $36,514.52. Subtracting prior payments, Safeco paid $32,447.73, plus $9,458.40 for potential interest. Safeco argued that this payment, including interest, fulfilled its policy obligations and precluded any further litigation, including attorney’s fees.

The Texas Supreme Court agreed with Safeco in this circumstance. The Court cited precedent, stating that payment of an appraisal award and interest in Chapter 542A claims settles the insurer’s obligations under the policy. Under this scenario, a plaintiff cannot recover any judgment amount for the claim under the policy because payment of an appraisal award and interest satisfy an insurer’s obligations under the policy. The judgment amount to be divided by the pre-suit notice figure under the Chapter 542A equation would be $0. Accordingly, the Chapter 542A attorney’s fees equation will always result in a numerical value of 0, which is below the 0.2 threshold for recovery of attorney’s fees.

In other words, an insurer’s payment of the appraisal award and interest bars recovery of attorney’s fees by a plaintiff in Chapter 542A cases.

Applicability to Defense of First-Party Claims

The Rodriguez decision, at least with respect to forces of nature suits to which Chapter 542A applies, will allow carriers to wield appraisal as a more effective means of dispute resolution even after a plaintiff has filed suit. Chapter 542A cases are almost always made up of a scope of covered damages dispute, a coverage dispute, or a mix of the two. Appraisal will be best utilized as a dispute resolution tool in cases that comprise solely of a scope of covered damages dispute.


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In these instances, a carrier has already identified covered damage and a plaintiff disagrees with the carrier’s assessment of the scope and/or costs of the covered damage. The identification of covered damages during the claim stage likely creates a fact issue that would preclude successful dispositive motion practice. It is also unlikely that a jury would reach a zero verdict for the carrier in this instance. While mediation serves as the obvious first step in dispute resolution, mediation can be unsuccessful for myriad reasons, especially when dealing with an unreasonable party.

Carriers may now invoke appraisal after a failed mediation to effectively settle any dispute as to the scope and/or cost of damages. A carrier would pay the appraisal award, minus any prior payments and applicable policy deductibles, and interest, which definitively settles a plaintiff’s claim under the policy without the need for a carrier to pay any claimed attorney’s fees. Appraisal in Chapter 542A cases post-Rodriguez is unique in that no other dispute resolution tool effectively voids a plaintiff’s claim for attorney’s fees.

It is important to note that appraisal is not an effective means of dispute resolution for carriers in coverage issue cases given that appraisal panels do not have the power to determine coverage in Texas. Appraisal also has the potential to yield an unfavorably large award. As this dispute resolution tool is utilized, particular circumstances may warrant a finding of waiver of the right to invoke appraisal, however, such a finding is disfavored by Texas courts. See In re Universal Underwriters of Tex. Ins. Co., 345.

Ansel Stroud

Ansel M. Stroud is an insurance defense litigation at Segal McCambridge. He may be reached at [email protected].

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