TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-13-00003-CV
In re Public Service Mutual Insurance Company, Reed Insurance Adjusters,
and Steven L. Matthews
ORIGINAL PROCEEDING FROM COMAL COUNTY
M E M O R AN D U M O P I N I O N
Relators Public Service Mutual Insurance Company (PSMIC), Reed Insurance
Adjusters, and Steven L. Matthews filed a petition for writ of mandamus and motion for temporary
relief from the district court’s order directing the parties to complete mediation and denying
Relators’ motion to abate the underlying cause and to compel an appraisal required by the
commercial property insurance policy that PSMIC issued to real parties in interest, Shree Deep LLC
and Asha Ram Ltd. d/b/a Best Value Inn and Suites (Shree Deep). We conditionally grant the
petition for writ of mandamus to compel the appraisal, deny the petition for mandamus as to the
motion to abate, and dismiss the motion for temporary relief.
BACKGROUND
The challenged order stems from Relators’ motion to compel appraisal and abate
litigation in a suit that Shree Deep filed against them, alleging breach of contract and violations
of the insurance code and Texas Deceptive Trade Practices Act based on PSMIC’s nonpayment
of policy benefits for motel roof damage attributed to a February 1, 2011 windstorm. The policy
insured the property from January 1, 2011 to January 1, 2012 and had a $5,000 deductible.
Shree Deep made a claim for roof damage but withdrew it before a scheduled
inspection, initially acknowledging to PSMIC that the damage was less than the policy’s deductible.
Steven L. Matthews of Reed Insurance Adjusters proceeded to inspect the roof damage for PSMIC,
finding the roof damage was minimal and estimating the value of the loss at $1,000.23. Months
after withdrawing the claim, Shree Deep retained public insurance adjuster Gary Pennington, and
Pennington hired engineer Jim Linehan, who concluded that there was extensive damage requiring
new roofs. PSMIC’s adjuster Matthews subsequently hired engineer Eric D. Moody, who conducted
an investigation and determined that the shingle-loosening damage to the roof did not result from
the February 1 windstorm. PSMIC sent a letter to Shree Deep’s adjuster on September 23, 2011,
providing copies of Moody’s report and Reed’s $1,000.23 estimate and explaining that because the
amount was “substantially less than the insured policy deductible of $5,000, PSM w[ould] be unable
to issue payment to the insured under the claim for the damage repairs.” The letter also invited
further information to evaluate the claim:
Should you not agree with PSM’s evaluation of the claim as reported, A Proof
of Loss form is enclosed with this letter. Your completion of it in accord with your
evaluation of the insured damage is invited, along with a copy of estimate or
contractor’s bid in support. PSM will consider any such further submission and
advise you if there are any changes on the claim evaluation, in light of the new
information.
After receiving the March 23 letter, Shree Deep’s adjuster referred the claim to counsel for litigation.
Shree Deep sent a DTPA notice letter to PSMIC on January 31, 2012. PSMIC responded on
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March 7, 2012, reasserting its position that “the covered damages in this claim do not exceed the
policy’s deductible.”
Shree Deep filed the underlying suit against Relators on March 30, 2012, contending
that the parties disputed both policy coverage for the claim and the amount of the loss. Relators
argued that the latter was the crux of their dispute. The case progressed, Shree Deep obtained an
October 22, 2012 trial setting,1 and on September 19, 2012, Relators filed a motion to compel
appraisal and abate litigation, invoking the following provision from Shree Deep’s policy:
APPRAISAL
If we and you disagree on the amount of loss, either may make written demand for an
appraisal of the loss. In this event, each party will select a competent and impartial
appraiser and notify the other of the appraiser selected within 20 days of
such demand. The two appraisers will select an umpire. If they cannot agree within
15 days upon such umpire, either may request that selection be made by a judge of
a court having jurisdiction. Each appraiser will state separately the amount of loss.
If they fail to agree, they will submit their differences to the umpire. A decision
agreed to by any two will be binding as to the amount of loss. Each will:
1. Pay its chosen appraiser; and
2. Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal:
a. You will retain your right to bring a legal action against us, subject to the
provisions of the Legal Action Against Us Property Loss Condition; and
b. We will still retain our right to deny the claim.
1
Relators allege that Shree Deep obtained the trial setting without conferring with
opposing counsel.
3
The relevant part of the policy’s “Legal Action Against Us” provision made “full compliance with
all the terms of this insurance” a condition precedent to filing suit against PSMIC under the policy.
After a hearing, the trial court denied the motion, ordered the parties to complete
mediation, and required the parties to agree to a mediator.2 Relators then filed this petition for
mandamus and motion for temporary relief.
ANALYSIS
To obtain mandamus relief, a relator must show that the trial court clearly abused its
discretion and that the relator has no adequate remedy by appeal. In re Southwestern Bell Tel. Co.,
226 S.W.3d 400, 403 (Tex. 2007) (citing In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36
(Tex. 2004)). Mandamus relief is appropriate when the trial court denies a motion to compel an
appraisal, vitiating the insurer’s right to defend a breach of contract claim. In re Universal
Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 412 (Tex. 2011) (citing In re Allstate Co. Mut. Ins.
Co., 85 S.W.3d 193, 196 (Tex. 2002) (orig. proceeding)).
Appraisal
Appraisal clauses in insurance contracts set forth a process for resolving
disputes about a property’s value or the amount of a covered loss. Id. at 405. These clauses are
usually enforceable, absent illegality or waiver. Id. at 407. Further, “[w]hile trial courts have some
2
Initially, the trial court granted the motion to compel appraisal and to abate litigation after
a hearing at which Shree Deep did not appear. The trial court granted Shree Deep’s motion to set
aside that order after the parties disputed whether additional notice of the hearing should have been
sent to Shree Deep’s counsel by e-mail, which he had requested after a fire in his office building.
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discretion as to the timing of an appraisal, they do not have discretion to ignore a valid appraisal
clause entirely.” State Farm Lloyds v. Johnson, 290 S.W.3d 886, 893 (Tex. 2009).
Relators argue that the trial court erred in denying its motion to compel compliance
with a valid appraisal provision in the insurance contract because it vitiates their ability to defend
Shree Deep’s breach of contract claim. Shree Deep responds that mandamus relief is improper
because: (1) compliance with the appraisal provision was excused by PSMIC’s failure to pay policy
benefits, which was a prior material breach of the contract; (2) the parties’ dispute includes a
coverage issue that is inappropriate for appraisal; (3) even if appraisal were appropriate, PSMIC
waived any such appraisal right, and (4) the appraisal provision is unenforceable under general
contract principles. We consider each of these arguments in turn.
Excuse from compliance for failure to pay
In response to the Relators’ arguments about the general enforceability of the
appraisal provision, Shree Deep contends, without citation to authority, that it was excused from
complying with the appraisal provision because PSMIC materially breached the policy by failing
to pay policy benefits for the covered peril of windstorm damage. As Relators observed, courts have
disfavored similar arguments that nonpayment of a claim excused an insured’s participation in
appraisal. See, e.g., Sanchez v. Property & Cas. Ins. Co. of Hartford, No. H-09-1736, 2010 U.S.
Dist. LEXIS 6295, at *25 n.10 (S.D. Tex. Jan. 27, 2010) (noting that claimant cited no authority for
proposition that mere allegation of insurer’s breach of insurance contract relieves insured of
obligation to participate in appraisal, and if insureds could escape appraisal with anticipatory breach
or repudiation allegations whenever coverage or claims-handling disputes arose, “appraisal clauses
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would be virtually a nullity”); In re Security Nat’l Ins. Co., No. 14-10-00009-CV, 2010 Tex. App.
LEXIS 2911, at *19 (Tex. App.—Houston [14th Dist.] Apr. 22, 2010, orig. proceeding) (mem. op.)
(rejecting argument that insurer was not entitled to enforce right to appraisal because it had
breached its contractual obligations by failing to pay timely and complete policy benefits for the
costs to properly repair the damage to the commercial property); see In re State Farm Lloyds, Inc.,
170 S.W.3d 629, 634–35 (Tex. App.—El Paso 2005, orig. proceeding) (holding that insurer’s alleged
failure to comply with other policy provisions did not show intent to dispense with policy’s
requirements that would allow insurer to arrive at amount of loss).
Acceptance of Shree Deep’s prior-breach argument would compel payment of a
disputed-value claim before the appraisal, curtailing the utility of its inclusion in the contract. The
Texas Supreme Court disapproves of such construction of an appraisal clause. See Johnson,
290 S.W.3d at 893 (noting that courts must avoid construing appraisal clauses in manner that would
render such clauses largely inoperative). We are not persuaded by Shree Deep’s argument against
enforcement of the appraisal provision in this policy.
Propriety of appraisal with coverage issue
Shree Deep further contends that appraisal is improper where coverage issues remain.
In support of its contention that valuation of the loss is not the only disputed issue, Shree Deep
points to correspondence from PSMIC’s counsel stating that the roofing materials were aged and that
prior repairs indicated the damage predated the commencement of coverage on January 1, 2011.3
3
Shree Deep’s adjuster acknowledged that Shree Deep had made some roof repairs due to
damage from a January 15, 2010 windstorm.
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Shree Deep contends that the primary issue in this case involves a battle of the engineering experts
about whether a February 1, 2011 windstorm (covered) or a storm before January 1, 2011 (predating
coverage) caused the motel roof damage. Relying on an excerpt from State Farm Lloyds v. Johnson,
290 S.W.3d 886, 892 (Tex. 2009), a case with an analogous dispute about hail damage to a
homeowner’s roof, Shree Deep argues that when there are different causes for a single injury to
property, causation is a liability question for courts, not appraisers. See id. (citing Wells v. American
States Preferred Ins. Co., 919 S.W.2d 679, 685–86 (Tex. App.—Dallas 1996, writ denied)).
However, in Johnson, the Texas Supreme Court expressed strong favor for
enforcement of appraisal clauses in insurance contracts, even when concerns arise about the scope
of the appraisal. Id. at 893 (“Even if the appraisal here turns out to involve not just damage
but liability questions, that does not mean that appraisal should be prohibited as an initial matter.”);
see Sanchez, 2010 U.S. Dist. LEXIS 6295, at *9 (noting Texas Supreme Court’s policy favoring
enforcement of appraisal clauses in contracts regardless of concerns that might exist about scope
of appraisal). The Court observed that appraisal clauses are a common feature in most property
insurance policies for resolving disputes about the value of a covered claim and concluded that
appraisals should generally proceed without preemptive intervention by the courts “unless the
amount of loss will never be needed.” Johnson, 290 S.W.3d at 888–89, 895.
Relators point out that Johnson also recognized appraisers’ responsibility for
separating loss due to a covered event from a property’s pre-existing condition. See id. at 892. The
court reasoned that if appraisers could never allocate damages between covered and excluded
perils, then appraisals could never assess hail damage unless a roof were brand new. Id. The court
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advised against such a construction because it would “render appraisal clauses largely inoperative.”
Id. at 893. The court further stated that causation must always be a consideration for appraisers,
at least initially, because an appraisal is for damages caused by a particular occurrence, not every
repair that a property might require. Id. “Any appraisal necessarily includes some causation element
because setting the ‘amount of loss’ requires appraisers to decide between damages for which
coverage is claimed from damages caused by everything else.” Id. The court concluded that parties
could not avoid appraisal merely because there might be a causation question that exceeded the scope
of appraisal. Id.
Based on this controlling law, we similarly conclude that the appraisal provision in
this policy may not be disregarded simply because coverage or causation issues about which storm
caused the roof damage may overlap with issues about of the amount of the loss and repair costs.
Waiver of appraisal
Shree Deep argues alternatively that even if appraisal were appropriate here, Relators
waived any such right. “[W]aiver requires intent, either the intentional relinquishment of a known
right or intentional conduct inconsistent with claiming that right.” In re Universal Underwriters,
345 S.W.3d at 407 (quoting In re General Elec. Capital Corp., 203 S.W.3d 314, 316 (Tex. 2006)).
Because waiver is an affirmative defense, the burden of showing waiver is on the party challenging
the right to appraisal. In re State Farm Lloyds, 170 S.W.3d at 634. To establish waiver, the party
challenging appraisal must show that (1) the parties reached an impasse—“a mutual understanding
that neither will negotiate further,” and (2) any failure to demand appraisal within a reasonable
time prejudiced the opposing party. In re Universal Underwriters, 345 S.W.3d at 410, 412. The
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Texas Supreme Court has cautioned that prejudice is difficult to prove when, as in this case, the
policy gives both sides the same opportunity to demand appraisal. See id. at 412. Courts “will not
infer waiver where neither explicit language nor conduct indicates that such was the party’s intent.”
Id. at 410.
1. Waiver by delay
Shree Deep contends that appraisal is intended to take place before suit is filed,
see Johnson, 290 S.W.3d at 894, and Relators waived any such right through their unreasonable
delay in requesting it. Shree Deep argues that the point of impasse was reached and Relators should
have invoked appraisal either after PSMIC’s September 23 letter denying Shree Deep’s claim,
or when Shree Deep sent its January 31 DTPA demand letter. Relators argue that their counsel
continued efforts to work with Shree Deep to resolve the amount of the disputed loss even after suit
was filed on March 30, 2012, and that in their view, an impasse was not reached until August 1,
2012, when PSMIC first learned about Shree Deep’s estimated repair costs for the claimed damage.
The Texas Supreme Court has held that the reasonableness of any delay in asserting an appraisal
demand must be measured from the point of impasse, when there is “a mutual understanding that
neither will negotiate further.” In re Universal Underwriters, 345 S.W.3d at 408, 410.
The record reflects that Shree Deep’s counsel had discussions with Relator’s counsel
near the end of June, after suit had been filed, about attending mediation while Shree Deep’s “actual
damages were only $30,000” and “instead of discovery.” Based on this evidence, it appears that the
parties were still exploring resolution of this claim as late as June 2012—meaning that three months
before Relators filed their motion to compel appraisal, there was still not a mutual understanding that
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neither of these parties would negotiate further—and the measurement of time for purposes of
establishing an unreasonable delay had not yet begun. See id. at 410; see also In re GuideOne Mut.
Ins. Co., No. 09-12-00581-CV, 2013 Tex. App. LEXIS 599, at *3 (Tex. App.—Beaumont Jan. 24,
2013) (orig. proceeding) (mem. op.) (distinguishing between existence of dispute and development
of impasse and noting that parties were still negotiating by engaging in mediation years after filing
suit). Even if the point of impasse is measured from the filing of Shree Deep’s suit, as done in some
cases, see e.g., In re Universal Underwriters, 345 S.W.3d at 410, the policy at issue here placed no
time limit on making the demand for appraisal and stated that the insured retained the right to
sue after appraisal. In a similar context, the court in GuideOne conditionally granted mandamus and
rejected an argument that the insurer had unreasonably delayed invoking the appraisal clause by
waiting to do so until four years after filing its answer and just two months before trial. Id. at *2–3.
We are not persuaded that Shree Deep has met its burden of showing that Relators waived their
contractual right to appraisal by unreasonably delaying to invoke it.
Nor has Shree Deep made the “difficult” showing that it has been prejudiced by a
delay in asserting the contractual right to appraisal. See In re Universal Underwriters, 345 S.W.3d
at 412. Shree Deep argues that Relators’ filing of the motion to compel caused the loss of the
first trial setting on October 22, 2012, and will impose increased litigation time and expense, but the
trial court heard nothing in support of that argument. Without some evidence of the extra expense
that Shree Deep would not have incurred but for the delay in demanding appraisal, there is no
showing of prejudice. See In re GuideOne, 2013 Tex. App. LEXIS 599, at *6 (concluding that there
was no showing of prejudice where record failed to establish that insured’s litigation expenses would
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not have been incurred if insurer moved for appraisal earlier). Further, as the Texas Supreme Court
has noted, a party sensing that an impasse has been reached could avoid prejudice by demanding
an appraisal itself. In re Universal Underwriters, 345 S.W.3d at 412 (“[I]t is difficult to see how
prejudice could ever be shown when the policy, like the one here, gives both sides the same
opportunity to demand appraisal.”). Because a showing of prejudice is essential to establishing
waiver, this record does not support Shree Deep’s argument that Relators waived their contractual
right to appraisal.
2. Waiver by denial of claim
In a footnote, Shree Deep also contends that PSMIC’s September 23 letter
denied Shree Deep’s claim for roof damage from the covered peril of a windstorm, and such
denial was an independent ground for the trial court to deny the motion to compel appraisal.
See, e.g., In re Acadia Ins. Co., 279 S.W.3d 777, 780 (Tex. App.—Amarillo 2007, orig. proceeding)
(holding that once an insurer denies a claim, it waives any right to appraisal). However, the record
reflects that Shree Deep’s claim was not denied altogether, PSMIC stated that it was unable to issue
payment because the cost to repair the roof damage was less than Shree Deep’s $5,000 deductible.
In the same letter, PSMIC invited further information to evaluate the claim in the event of
Shree Deep’s disagreement with PSMIC’s estimate of the loss. In a similar context, the court in
Sanchez held that there was no unconditional denial of liability by an insurer, and no waiver of its
right to invoke appraisal, based on the insurer’s acceptance of coverage for repairs to a back door
damaged by hurricane winds and nonpayment because the damage amount was below the
insured’s deductible. Sanchez, 2010 U.S. Dist. LEXIS 6295, at *12. We disagree that Relators
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waived appraisal based on the nonpayment for an amount of roof damage that was initially
determined by both parties to be less than Shree Deep’s deductible.
Unenforceability under contract law
Shree Deep also contends that the appraisal clause is unenforceable under general
contract law principles because (1) the appraisal clause is illusory, lacks mutuality, requires it to
relinquish a jury trial on valuation, and is unconscionable because the contract states that PSMIC
retains the right to deny the claim even after appraisal, and (2) any appraisal would be a waste of
time because PSMIC denied Shree Deep’s roof damage claim for lack of coverage. We disagree.
The theory behind unconscionability in contract law is that courts should not
enforce a transaction so one-sided, with so gross a disparity in the values exchanged, that no rational
contracting party would have entered the contract. In re Olshan Found. Repair Co., 328 S.W.3d
883, 892 (Tex. 2010). Shree Deep cites no authority supporting its contention that an appraisal
provision like the one in this policy is unconscionable, and the Texas Supreme Court recognizes
the general validity of such appraisal provisions absent illegality or waiver. See In re Universal
Underwriters, 345 S.W.3d at 407. Further, the plain language of this appraisal provision states that
the parties are bound by the resulting valuation: a decision on the “appraisal of the loss” “will
be binding as to the amount of loss,” but Shree Deep retains its right to sue under the policy
and PSMIC may still deny a claim on other grounds. Finally, as discussed above, PSMIC has
not “denied” having any liability for Shree Deep’s roof damage claim, and appraisal is not a
“waste of time” insofar as it would use the contractually agreed mechanism for establishing the
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amount of a covered loss—initially acknowledged by both parties to this policy as falling below the
$5,000 deductible.
After considering this record, the parties’ arguments and controlling case law, we
cannot conclude that “the amount of loss would never be needed,” see Johnson, 290 S.W.3d at 895,
rather, appraisal may establish Relators’ defense that the amount of the roof damage
attributable to the February 1 windstorm did not exceed Shree Deep’s policy deductible.
Relators—and Shree Deep—had an enforceable right to seek appraisal under the terms of this
policy, and compliance with the appraisal provision was not excused, improper, or waived. As
such, we conclude that the order denying Relators’ motion to compel appraisal was an abuse of the
district court’s discretion for which Relators lack an adequate remedy by appeal.
Abatement
The Texas Supreme Court has ruled that a trial court’s failure to grant a motion
to abate is not subject to mandamus. In re Universal Underwriters, 345 S.W.3d at 413 n.5 (citing
In re Allstate, 85 S.W.3d at 196) (concluding that denial of motion to abate is not subject to
mandamus because trial court retains some discretion as to appraisal’s timing); In re GuideOne,
2013 Tex. App. LEXIS 599, at *6 (expressing no opinion on insurer’s motion for abatement);
In re Cypress Tex. Lloyds, No. 01-11-00714-CV, 2011 Tex. App. LEXIS 9884, at *10-11
(Tex. App.—Houston [1st Dist.] 2011) (orig. proceeding). Given this controlling precedent, we
deny Relators’ petition for mandamus as to the motion to abate litigation.
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CONCLUSION
Having concluded that the trial court’s denial of Relators’ motion to compel appraisal
was an abuse of its discretion and that Relators lack an adequate remedy by appeal, we conditionally
grant the petition for writ of mandamus as to the appraisal. See Tex. R. App. P. 52.8(c). The writ
will issue only if the trial court fails to vacate or modify the appraisal portion of the underlying order
in accordance with this opinion. Relators’ petition for mandamus as to the motion to abate litigation
is denied, and Relators’ motion for temporary relief is dismissed.
__________________________________________
Jeff Rose, Justice
Before Justices Puryear, Pemberton and Rose
Filed: February 21, 2013
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