Blum's Furniture Co. v. Certain Underwriters at Lloyds London

Case: 11-20221 Document: 00511734246 Page: 1 Date Filed: 01/24/2012

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
January 24, 2012

No. 11-20221 Lyle W. Cayce
Summary Calendar Clerk

BLUM’S FURNITURE COMPANY, Inc.

Plaintiff-Appellant,
v.

CERTAIN UNDERWRITERS AT LLOYDS LONDON

Defendant-Appellee,

Appeal from the United States District Court
for the Southern District of Texas
4:09-CV-3479

Before KING, JOLLY, and GRAVES, Circuit Judges.
PER CURIAM:*
FACTS AND PROCEDURAL BACKGROUND
Certain Underwriters at Lloyds London ("Lloyds") issued to Blum's
Furniture Company ("Blum's") an insurance policy, number PUC 102524
("policy"), covering its business property. During Hurricane Ike in 2008, the
insured's building and contents (collectively "the property") sustained extensive

*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
 Case: 11-20221 Document: 00511734246 Page: 2 Date Filed: 01/24/2012

No. 11-20221

damage. On September 17, 2008, Blum's submitted its claim under the policy
to Lloyds.
On September 26, 2008, T.M. Mayfield & Company, an independent
insurance claims adjuster hired by Lloyds, inspected the property. After
conducting its inspection, T.M. Mayfield & Co. forwarded to Lloyds a detailed
report containing an estimate for payment of Blum's claim. On October 28,
2008, Lloyds requested a proof of loss in exchange for payment of $50,000.00.
Less than a year after Hurricane Ike, Lloyds obtained a second estimate from
BelforUSA. Upon receiving BelforUSA’s report, Lloyds adjusted the claim and
paid Plaintiff approximately $300,000.00. Plaintiff accepted this payment, but
invoked the appraisal provision under the policy on August 10, 2009.
According to the appraisal provision, if the parties to the policy disagreed
on the value of the property loss, either party may make written demand for an
appraisal of the loss. In the event that a party demands appraisal, each party
will select its own impartial appraiser. If the selected appraisers cannot agree
on the value of the loss, the two appraisers will select an umpire to whom the
differences will be submitted. Once an umpire has been selected, an agreement
on the amount of loss by the umpire and either appraiser will be binding.
However, Lloyds still retained its right to deny the claim.
Less than one month later, Blum's filed this lawsuit in Texas state court
asserting causes of action for breach of contract, fraud, conspiracy, and common
law and statutory bad faith claims. Lloyds then removed the lawsuit to federal
court and asserted the defense of estoppel based on the appraisal procedure.
Meanwhile, the appraisal process continued. Each party selected an
appraiser who inspected the property and issued estimates of damage. When
the appraisers could not agree on the proper value of the damage, they selected
an umpire as required under the policy. After more than one year spent in the

2
 Case: 11-20221 Document: 00511734246 Page: 3 Date Filed: 01/24/2012

No. 11-20221

appraisal process, the umpire ultimately issued an award for damage to the
property exceeding $1,000,000.
Thereafter, Lloyds issued two checks to Blum's for the appraisal amount,
less amounts already paid and other deductions provided for by the policy.
Blum's accepted Lloyds's payment of the appraisal amount, but continued to
pursue the breach of contract and extra-contractual claims.
Following the close of discovery, Lloyds filed its motion for summary
judgment. The district court granted Lloyds' motion for summary judgment,
finding that "when an insurer makes timely payment of a binding and
enforceable appraisal award, and the insured accepts that payment, the insured
is ‘estopped by the appraisal award from pursuing a breach of contract claim the
insure[r][sic].'" Blum's Furniture Co. v. Certain Underwriters at Lloyds London,
2011 WL 819491, *1, *3 (S.D. Tex. 2011) (citing Franco v. Slavonic Mut. Fire Ins.
Co., 154 S.W.3d 777, 787 (Tex. App. 2004)). Based on this holding, the district
court found that an insured cannot maintain a common law and/or statutory bad
faith claim where the breach of contract claim fails, unless the insurer's actions
fall within one of the recognized exceptions, to which Blum's has failed to
present any evidence. Id. at *3-*5.
Aggrieved by the district court's grant of summary judgment, Blum's
appealed.
STANDARD OF REVIEW
This court reviews a district court's grant or denial of summary judgment
de novo. Dunn–McCampbell Royalty Interest, Inc. v. Nat'l Park Serv., 630 F.3d
431, 435 (5th Cir.2011). Summary judgment may be granted if there is no
genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law. See Fed.R.Civ.P. 56(c). The moving party bears
the burden of identifying an absence of evidence to support the nonmoving
party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). In determining

3
 Case: 11-20221 Document: 00511734246 Page: 4 Date Filed: 01/24/2012

No. 11-20221

whether summary judgment is appropriate, the evidence and factual inferences
drawn therefrom are to be viewed in a light most favorable to the non-movant,
and all reasonable doubts about the facts should be resolved in favor of the
non-movant. Boston Old Colony Ins. v. Tiner Associates Inc., 288 F.3d 222, 227
(5th Cir. 2002).
Where, as here, jurisdiction is based upon diversity, this court applies the
law of the forum state. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191
(5th Cir. 2010). Accordingly, Texas substantive law controls. In the absence of
a final decision by the Texas Supreme Court addressing the issue at hand, this
court must determine, in its best judgment, how the state's highest court would
resolve the issue if presented with it. Id. Because the Texas Supreme Court has
not addressed the issue at hand, we must make an "Erie guess." Id. at 191-192.
DISCUSSION
In this case, Blum's raises two issues challenging the district court's grant
of summary judgment in favor of Lloyds. These issues, however, hinge upon the
same argument – that Lloyds breached its duty of good faith and fair dealings
with Blum's by failing to promptly pay the full policy claim.
In Liberty Nat'l Fire Ins. Co. v. Akin, the Texas Supreme Court recognized
that "in most circumstances, an insured may not prevail on a bad faith claim
without first showing that the insurer breached the contract." 927 S.W.2d 627,
629 (Tex. 1996). The only recognized exceptions to this rule are if the insurer
"commit[s] some act, so extreme, that would cause injury independent of the
policy claim," or fails "to timely investigate the insured's claim." Republic Ins.
Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995).
Under Texas law, when an insurer makes timely payment of a binding and
enforceable appraisal award, and the insured accepts the payment, the insured
is "estopped by the appraisal award from maintaining a breach of contract claim

4
 Case: 11-20221 Document: 00511734246 Page: 5 Date Filed: 01/24/2012

No. 11-20221

against [the insurer]." Franco v. Slavonic Mut. Fire Ins. Ass'n, 154 S.W.3d 777,
787 (Tex. App. 2004).
According to Blum's, because the appraisal award was greater than the
initial payment made by Lloyds (approximately $300,000), Lloyds' final payment
of the claim was untimely and constituted a breach of contract. Lloyds argues
that Blum's cannot use the difference in the appraisal award and initial payment
as evidence of a breach of contract. See Breshears v. State Farm Lloyds, 155
S.W.3d 340, 343 (Tex. App. 2004) ("The Breshears may not use the fact that the
appraisal award was different than the amount originally paid as evidence of
breach of contract, especially when the contract they claim is being breached
provides for resolution of disputes through appraisal.").
Here, it seems clear that Lloyds did not breach its contract with Blum's.
Blum's made a claim, Lloyds inspected the property, obtained estimates on the
amount of damage, and made an initial payment to Blum's. When Blum's
disputed the amount paid, it invoked the appraisal process to have independent
appraisers determine the amount of covered loss. Upon the conclusion of the
appraisal process, Lloyds paid the difference between the appraisal award and
the initial payment. Furthermore, the district court found that "it is undisputed
that Lloyds paid the appraisal amount in a timely manner after the award was
issued," and that "Blum's accepted that payment." Blum's Furniture Co., 2011
WL 819491, at *3. Therefore, we find that Blum’s has failed to present any
evidence which would establish a genuine issue of material fact regarding its
breach of contract claim against Lloyds.
As stated above, "in most circumstances, an insured may not prevail on a
bad faith claim without first showing that the insurer breached the contract."
Akin, 927 S.W.2d at 629. The only recognized exceptions to this rule are if the
insurer "commit[s] some act, so extreme, that would cause injury independent

5
 Case: 11-20221 Document: 00511734246 Page: 6 Date Filed: 01/24/2012

No. 11-20221

of the policy claim," or fails "to timely investigate the insured's claim." Republic
Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995).
Here, Blum's argues that because the initial payment made by Lloyds was
less than the appraisal award, Lloyds' failure to pay the full amount of the claim
constituted an act, so extreme, that caused injury independent of the policy
claim. Lloyds contends that, based on the general rule, Blum's cannot maintain
an action for bad faith where the breach of contract claim fails, Akin, 927 S.W.2d
at 629, and neither exception applies. Stoker, 903 S.W.2d at 341.
Blum's, however, would have this court believe that it suffered additional
damages because Lloyds initially paid only a portion of the entire claim thereby
forcing Blum's to invoke the appraisal process. To the contrary, Lloyds began
investigating Blum's claim nine days after Blum's submitted its claim. Lloyds
inspected the property damage and obtained estimates from two adjusters.
Based on these estimates, Lloyds adjusted the claim and paid Blum's
approximately $300,000.00. Because Blum's disagreed with the amount of
payment, it invoked the appraisal provision.
It is undisputed that the appraisal process can only determine the value
of damages, while liability is left for the courts to decide. See, e.g., In re
Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 407 (Tex. May 6, 2011).
However, at no time during the claims process did Lloyds dispute the issue of
coverage. Once the appraisal process concluded with an award to Blum's, Lloyds
made payment of that amount and Blum's accepted. Based on the evidence
presented, Blum’s has failed to establish a genuine issue of material fact
regarding its bad faith claims against Lloyds.
CONCLUSION
Based on the foregoing analysis, the judgment of the district court is
AFFIRMED.

6