Court Finds Loss Payment Provisions Ambiguous As to Appraisal Award, Denies Insurer’s Motion for Summary Judgment Against Daly & Black Client

Most insurance policies afford the parties the option of invoking, when the parties cannot agree on the amount of the loss, a process called appraisal where each party appoints an appraiser and the two appraisers determine the amount of the loss or, if they cannot agree, a neutral umpire settles the issue. In some cases, timely payment of an appraisal award under the payment terms set forth in the policy may preclude the insured from pursuing a breach of contract claim.

American Bankers Insurance Company of Florida invoked appraisal of a claim after Daly & Black had filed suit on behalf of our client, Jerry Cody. The appraisal award issued. ABIC notified Mr. Cody a couple of days later that it would pay the award and then paid the award a few days after that. The actual payment was made six business days after the award was issued but within five days of ABIC’s letter notifying Mr. Cody that it would pay. ABIC then filed a motion for summary judgment, arguing that its timely payment of the award defeated Mr. Cody’s contract claim and that lack of success on the contract claim must necessarily eliminate Mr. Cody’s bad faith claims under the Insurance Code and DTPA.

ABIC had a problem. ABIC relied on a payment provision in the policy that says the insurance company must pay a claim within five business days of notifying the insured that it will pay the claim, and claimed that because it paid within five days of when it “accepted” the award and notified Mr. Cody of payment, it had complied with the policy. We pointed out that appraisal is not for the insurance company to accept or reject. Under ABIC’s construction of the policy, an insurance company could avoid incurring a payment obligation with regard to an appraisal award indefinitely so long as it never “accepted” it or notified the insured it intended to pay it. We argued that this is an unreasonable construction of the policy.

Another policy provision, which we argued was applicable, states that when payment is conditioned on performance of some act by the insured, payment must be made within five business days of the date the act is performed. We argued – just like insurance companies or corporate defendants frequently do – that ABIC’s payment obligation was conditional on Mr. Cody’s participation in appraisal, which was complete on issuance of the appraisal award.

Judge Mary Lou Robinson of the Northern District of Texas, Amarillo Divison, denied the motion for summary judgment, holding that the policy is ambiguous as to payment terms and a jury must decide which one applies. Because the motion for summary judgment on Mr. Cody’s contract claim failed, so did the motion for summary judgment on his bad faith claims.

As a result, Mr. Cody will get his day in court, and Daly & Black, P.C., looks forward to continuing to represent him.