Petition for Writ of Mandamus Conditionally Granted and Opinion filed July
30, 2019.
In The
Fourteenth Court of Appeals
NO. 14-19-00490-CV
IN RE AUTO CLUB INDEMNITY COMPANY, Relator
ORIGINAL PROCEEDING
WRIT OF MANDAMUS
County Civil Court at Law No. 1
Harris County, Texas
Trial Court Cause No. 1111475
OPINION
The relator in this original proceeding is Auto Club Indemnity Company
(“AAA”). AAA is an insurer that issued a home insurance policy to Angie and Jay
Lee (“the Lees”). AAA filed a petition for writ of mandamus asking this court to
compel the Honorable George Barnstone, presiding judge of the County Civil Court
at Law No. 1 of Harris County, to vacate his March 26, 2019 order, which set aside
an appraisal award of $0 as the amount of loss to the Lees’ property.
We conditionally grant relief because no evidence supports the trial court’s
setting aside the appraisal award.
FACTUAL AND PROCEDURAL BACKGROUND
The Lees sent AAA a demand letter, alleging that as a result of an insured
peril, they suffered significant damages to their home. The demand letter requested
an appraisal of the amount of the loss as provided for by the Lees’ insurance policy.
On June 6, 2018, the Lees filed suit against AAA alleging an action for breach
of contract and demanding an appraisal.
AAA sent a letter responding to these claims dated June 8, 2018. The letter
points out that the Homeowners Policy at issue provides:
SECTION I – PERILS INSURED AGAINST
COVERAGE A (DWELLING) . . .
We insure against physical loss to the property described in Coverage
A (Dwelling) and Coverage B (Personal Property) caused by a peril
listed below, unless the loss is excluded in Section 1.
Exclusions:
...
3. Windstorm, Hurricane and Hail.
This peril does not cover:
...
b. loss caused by rain, snow, sand or dust, whether or not driven by
wind, unless the direct force of wind or hail makes an opening in
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the roof or wall and the rain, snow, sand or dust enters through this
opening and causes the damage.
The letter takes the position that interior damage due to windstorm, hurricane, or hail
is not covered unless the damage is caused by water entering through a storm created
opening. The letter states that AAA did not observe a storm created opening during its
inspections, and the Lees have not provided any photos or a report reflecting the
existence or location of a storm created opening. The letter states that the damages AAA
found were due to the following conditions, which pre-existed the storm:
During its investigation of these prior claims, AAA observed and noted
that any damage to the roof was the result of wear and tear, damage
because of a tree limb rubbing on the roof, an open nail hole, and
deteriorated masonry at the base of the chimney – which is situated in the
vicinity of the claimed interior water damage.
The Lees filed a motion to compel an appraisal and to abate the suit during
the appraisal process. AAA filed a response objecting to appraisal as premature and
requesting, among other things, an order permitting AAA to re-inspect the property
and an examination under oath. On August 3, 2018, the trial court signed an order
compelling an appraisal but also granting AAA most of the relief it requested.
AAA designated Randall Taylor as its appraiser. The Lees designated Scott
Berkenkamp as their appraiser. Because the parties’ designated appraisers could not
agree, they selected an umpire to complete the appraisal process, Randy LeBlanc.
On February 6, 2019, LeBlanc met with the parties’ designated appraisers and
inspected the property. On March 4, 2019, LeBlanc and the appraiser designated by
AAA, Taylor, issued an appraisal award in which they certified that they conscientiously
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performed the duties assigned to them and have appraised the value of all losses
presented. The appraisal award summarizes the damages and their causes as follows:
AllStar [LeBlanc] met with the Appraisers and inspected the roof and
exterior of risk. AllStar found NSR [no storm-related] damages to the risk
due to hail or wind that would warrant replacement. Note that the area
damaged by water intrusion is due to the flashing that has been improperly
installed. The flashing is loose and not caulked properly, allowing water
intrusion when it rains. We also documented the rear slope on garage,
showing damages due to tree rub.
AllStar documented the interior of the risk and found damage due to water
intrusion around chimney crown cap (mortar cracked due to age) and
improper flashing. We also noted settlement issues within the home.
In the appraisal award, LeBlanc and Taylor found the actual cash value and
replacement cost of the loss to be $0 and awarded $0. As support, eighty-four (84)
photos of various parts of the house are attached to the appraisal award.
The Lees filed a motion to set aside the appraisal award, to which AAA
responded. After a hearing at which no testimony was offered, the trial court signed
an order setting aside the appraisal award.
MANDAMUS STANDARD
To obtain mandamus relief, a relator generally must show both that the trial
court clearly abused its discretion and that relator has no adequate remedy by appeal.
In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig.
proceeding). A trial court clearly abuses its discretion if it reaches a decision so
arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if
it clearly fails to analyze the law correctly or apply the law correctly to the facts. In
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re Cerberus Capital Mgmt. L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig.
proceeding) (per curiam). “Under an abuse of discretion standard, we defer to the
trial court’s factual determinations if they are supported by evidence, but we review
the trial court’s legal determinations de novo.” In re Labatt Food Serv., L.P., 279
S.W.3d 640, 643 (Tex. 2009) (orig. proceeding). “The relator must establish that the
trial court could reasonably have reached only one decision.” Walker v. Packer, 827
S.W.2d 833, 840 (Tex. 1992) (orig. proceeding). “Even if the reviewing court would
have decided the issue differently, it cannot disturb the trial court’s decision unless
it is shown to be arbitrary and unreasonable.” Id.
ANALYSIS
A. Abuse of Discretion
“Appraisal awards made under the provisions of an insurance contract are
binding and enforceable, and a court will indulge every reasonable presumption to
sustain an appraisal award.” Lundstrom v. United Servs. Auto Ass’n-CIC, 192 S.W.3d
78, 87 (Tex. App.—Houston [14th Dist.] 2006, pet. denied). “Because a court indulges
every reasonable presumption to sustain an appraisal award, the burden of proof is on
the party seeking to avoid the award.” Id. “There are, however, three situations in which
the results of an otherwise binding appraisal may be disregarded: (1) when the award
was made without authority; (2) when the award was made as a result of fraud, accident,
or mistake; or (3) when the award was not in compliance with the requirements of the
policy.” Id.; Franco v. Slavonic Mut. Fire Ins., 154 S.W.3d 777, 786 (Tex. App.—
Houston [14th Dist.] 2004, no pet.).
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In their motion to set aside the appraisal award, the Lees, who had the burden of
proof, argued that the award should be set aside because: (1) “the appraisal is not an
honest assessment of the damages”, and (2) “Defendant’s appraiser and the umpire acted
outside the scope of their authority by rendering coverage decisions instead of simply
determining the amount of loss.” The Lees did not contend that the award was not in
compliance with the requirements of the policy. The only evidence the Lees offered in
support of their motion was the appraisal award.
As to the Lees’ first contention, there is no evidence in the appraisal award that
LeBlanc and Taylor made their award as a result of fraud or that their award was not an
honest assessment. Their award of $0 is consistent with their findings that the damages
they found pre-existed the storm or were caused by pre-existing conditions.
Next, the Lees argue that LeBlanc and Johnson acted outside the scope of their
authority by rendering coverage decisions instead of determining the amount of the loss,
and that this is shown by the fact that they awarded $0, even though they found damage
to the house. Implicit in the Lees’ argument is that appraisers lack authority to determine
whether the damages pre-existed the storm or were caused by pre-existing conditions.
This argument was rejected by the Texas Supreme Court in State Farm Lloyds
v. Johnson, 290 S.W.3d 886 (Tex. 2009). The supreme court stated, “the scope of
appraisal is damages, not liability.” Id. at 890. But “[e]ven if the parties’ dispute
involves causation, that does not prove whether it is a question of liability or
damages.” Id. at 891. The supreme court set forth the following standards for
determining whether a causation dispute is a question of liability for the courts to
decide or a question of damages for the appraisers to decide:
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In the abstract, it is hard to say whether causation is more a question of
liability or damages.
But in actual cases, causation usually falls into one category or the
other. Thus, when different causes are alleged for a single injury to
property, causation is a liability question for the courts. For example,
in Wells v. American States Preferred Insurance Co., appraisers
assessed foundation damage due to plumbing leaks (a covered peril) as
“0” but damage due to settling (an excluded peril) as $22,875.94.31.
The Dallas Court of Appeals set aside the appraisal, holding appraisers
could decide the amount of damage but not what caused it. Appraisers
can decide the cost of repairs in this context, but if they can also decide
causation there would be no liability questions left for the courts.
By contrast, when different types of damage occur to different items of
property, appraisers may have to decide the damage caused by each
before the courts can decide liability. . . .
The same is true when the causation question involves separating
loss due to a covered event from a property’s pre-existing
condition. Wear and tear is excluded in most property policies
(including this one) because it occurs in every case. If State Farm is
correct that appraisers can never allocate damages between covered and
excluded perils, then appraisals can never assess hail damage unless a
roof is brand new. That would render appraisal clauses largely
inoperative, a construction we must avoid.
Indeed, appraisers must always consider causation, at least as an
initial matter. An appraisal is for damages caused by a specific
occurrence, not every repair a home might need. When asked to assess
hail damage, appraisers look only at damage caused by hail; they
do not consider leaky faucets or remodeling the kitchen. When asked
to assess damage from a fender-bender, they include dents caused by
the collision but not by something else. Any appraisal necessarily
includes some causation element, because setting the “amount of
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loss” requires appraisers to decide between damages for which
coverage is claimed from damages caused by everything else.
Id. at 892–93 (emphasis added). Thus, Johnson is clear that when different types of
damage occur to different items of property, appraisers have authority to consider
causation and to separate loss due to a covered event from a property’s pre-existing
condition.
Our court has interpreted Johnson as recognizing that: (1) appraisals necessarily
include a 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, and (2) appraisers may separate loss due to a covered event from a
property’s pre-existing condition. See Texas Windstorm Ins. Ass’n v. Dickinson Indep.
Sch. Dist., 561 S.W.3d 263, 276 (Tex. App.—Houston [14th Dist.] 2018, pet. filed).
Federal courts have likewise interpreted Johnson as holding that appraisers
act within their authority when they distinguish damage caused by pre-existing
conditions from damage caused by the storm. See TMM Investments, Ltd. v. Ohio
Cas. Ins. Co., 730 F.3d 466, 474–75 (5th Cir. 2013) (reversing an order setting aside
the appraisal award because, under Johnson, it was entirely appropriate for the
appraisers to consider whether damage was caused by pre-existing conditions, as
they did); MLCSV10 v. Stateside Enterprises, Inc., 866 F. Supp. 2d 691, 705 (S.D.
Tex. 2012) (The appraiser’s causation evaluation of the damage to the roof
“involved no more than ‘separating loss due to a covered event from a property’s
pre-existing condition.’ Under Texas law, such a causation determination relates to
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damages and is properly addressed by the appraisers.”) (citing and quoting in part
Johnson, 290 S.W.3d at 892–93).
In the appraisal award, LeBlanc and Taylor found only damages that were
pre-existing or caused by pre-existing conditions, such as improperly installed
flashing, tree rub, and mortar cracked due to age. As the Texas Supreme Court held
in Johnson, LeBlanc and Taylor had authority to determine, as they did, whether the
damages they found were pre-existing or caused by a pre-existing condition. The
appraisal award does not show that LeBlanc and Taylor acted outside of the scope of
their authority.
Because the record contains no evidence that the appraisal award was a result of
fraud or was made without authority, we conclude that the trial court failed to correctly
apply the law to the facts and clearly abused its discretion by setting the appraisal award
aside.
B. No Adequate Remedy by Appeal
The Texas Supreme Court has held that a trial court’s abuse of discretion in failing
to enforce an appraisal clause cannot be adequately remedied by appeal. See In re
Allstate Cty. Mut. Ins. Co., 85 S.W.3d 193, 196 (Tex. 2002) (orig. proceeding). The
supreme court explained: “In Walker v. Packer, this Court reaffirmed the principle that
‘an appeal will not be an adequate remedy where the party’s ability to present a viable
claim or defense at trial is vitiated or severely compromised by the trial court’s discovery
error.’ A refusal to enforce the appraisal process here will prevent the defendants from
obtaining the independent valuations that could counter at least the plaintiffs’ breach of
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contract claim. We conclude that the failure to order the appraisals will vitiate or severely
compromise the defendants’ defenses to those claims.” Id. Similarly, our court has
recognized that denial of an appraisal vitiates or severely compromises the defendant’s
ability to defend a breach-of-contract claim and that the relator therefore does not have
an adequate remedy by appeal for such denial. See In re Sec. Nat. Ins. Co., No. 14-10-
00009-CV, 2010 WL 1609247, at *6 (Tex. App.—Houston [14th Dist.] Apr. 22, 2010,
orig. proceeding) (mem. op.) (citing In re Allstate County Mut. Ins. Co.).
We see no material difference between a trial court’s improper refusal to enforce
an appraisal clause and a trial court’s improper setting aside an appraisal award—they
both may vitiate or severely comprise the defendant’s ability to defend against the
plaintiff’s breach of contract claim. The appraisal award’s finding of pre-existing
conditions and a loss of $0 provides AAA a defense that was vitiated or severely
compromised by the setting aside of the award. Accordingly, we conclude that AAA
lacks an adequate remedy by appeal when, as here, the trial court abused its discretion
by setting aside an appraisal award of $0.1
CONCLUSION
For the above reasons, we conditionally grant the petition for writ of
mandamus, and direct the trial court to vacate its March 26, 2019 order setting aside
1
We note that in In re Thuy Tran, No. 01-17-00413-CV, 2017 WL 2979961 (Tex. App.—Houston
[1st Dist.] July 13, 2017, orig. proceeding) (per curiam) (mem. op.), the First Court of Appeals denied a
petition for writ of mandamus seeking to vacate an order setting aside an appraisal award because it
concluded that the relator had an adequate remedy by appeal. However, the First Court’s opinion does not
reflect that it considered the supreme court’s decision in In re Allstate County Mutual Insurance Co., 85
S.W.3d at 196, and whether the setting aside of the appraisal award severely compromised the relator’s
defense.
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the appraisal award. We are confident the trial court will act in accordance with this
opinion. The writ of mandamus shall issue only if the trial court fails to do so.2
/s/ Jerry Zimmerer
Justice
Panel consists of Justices Christopher, Bourliot, and Zimmerer.
2
On July 23, 2019, AAA filed a motion for temporary relief, asking our court to stay the trial
court’s order setting the matter for a jury trial the week of August 19, 2019, and all proceedings in the trial
court, pending our court’s decision on the petition for writ of mandamus. See Tex. R. App. P. 52.10(a).
Because we have granted the petition and, as a result, the mandamus proceeding is no longer pending, we
deny the motion for temporary relief as moot.
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