Park Board Ltd. v. State Automobile Mutual Insurance Company et al
Filing
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MEMORANDUM OPINION AND ORDER. Defendants' Motion to Dismiss (Dkt. # 39 ) is GRANTED IN PART and DENIED IN PART. Accordingly, Plaintiff's claims are dismissed only to the extent they seek damages for policy benefits that have been paid following the appraisal process. Signed by District Judge Amos L. Mazzant, III on 8/12/2019. (rpc, )
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
PARK BOARD LTD.,
v.
STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY and DANIEL
PROUGH
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Civil Action No. 4:18-cv-382
Judge Mazzant
MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendants State Automobile Mutual Insurance Company and
Daniel Prough’s (collectively, “State Auto”) Motion to Dismiss (Dkt. #39).
After careful
consideration, the motion will be denied.
BACKGROUND
Plaintiff Park Board Ltd. (“Park Board”) purchased an insurance policy (the “Policy”) from
State Auto in January 2017 for a commercial building in Collin County. The Policy includes a
clause entitling the insurer and insured to an “appraisal,” which determines the amount of loss to
damaged property if the Parties disagree on the initial valuation. Either side may demand an
appraisal, which prompts each side to select its own appraiser. The chosen appraisers subsequently
select a third—an “umpire”—or have one appointed by the Court. Working together, the group
will determine the appropriate amount of damage.
In March and April of 2017, Park Board’s property sustained damage from severe wind
and hail storms. Park Board reported a claim to State Auto immediately. State Auto’s adjuster
assessed the claim and found a damage amount of $8,097.85 (below the policy’s $26,006.00
deductible) (Dkt. #42, Exhibit 1 at p. 1, 3). Because the adjuster determined the damage to be less
than the Policy’s deductible, State Auto informed Park Board that it would not pay the claim via
email on April 7, 2017 (Dkt. #42, Exhibit 1 at p. 1). Park Board contends that State Auto failed to
conduct a good faith investigation into the damages and that a reasonable insurer would not have
valued the claim so low. Not satisfied with the result from the adjuster, Park Board sought to
initiate appraisal pursuant to the Policy in January 2018 (Dkt. #30, ¶ 32). According to Park Board,
State Auto denied the request for appraisal in breach of the Policy. In response, Park Board filed
suit in April 2018, a year after the storm occurred. The Parties ultimately initiated the Appraisal
process in August 2018.
State Auto’s appraiser and the umpire signed and issued their findings in April 2019. The
appraisers found that it would cost $211,546.56 to purchase replacement parts for any damages to
the property. They also found that, at the time the wind and hail storms hit, the parts of the property
that were damaged had already depreciated in value by $80,165.61. This means that the “actual
cash value” of the parts needing repairs amounted to $131,380.95. State Auto provided Park Board
with a check for $49,531.29 shortly after. Due to the deductible and prior payments State Auto
had made to Park Board, this payment ensured that the $131,380.95 “actual cash value”
determination was satisfied. 1 Under some circumstances, the Policy provides Park Board with the
full replacement cost for damage to its property—including the amount of depreciation. State
Auto informed Park Board that it would pay the $80,165.16 depreciation amount once repairs were
completed. But it also advised that Park Board has “2 years from the date of the loss in which
to actually complete the repairs in order to collect the balance of the damages”—a date that
has passed. (Dkt. #39, Exhibit 4 at p. 3) (emphasis in original).
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State Board contends that it has actually paid Park Board more than the $131,380.95 by this point.
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State Auto now moves to dismiss Park Board’s claims, arguing that payment of an appraisal
award forecloses any possibility of suit (Dkt. #39, ¶ 3.1). Park Board counters that its claims
should survive because it sustained injury separate from the damage caused by the storm.
LEGAL STANDARD
The Federal Rules of Civil Procedure require that each claim in a complaint include a “short
and plain statement . . . showing that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). Each
claim must include enough factual allegations “to raise a right to relief above the speculative
level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
A Rule 12(b)(6) motion allows a party to move for dismissal of an action when the
complaint fails to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). When
considering a motion to dismiss under Rule 12(b)(6), the Court must accept as true all well-pleaded
facts in the plaintiff's complaint and view those facts in the light most favorable to the
plaintiff. Bowlby v. City of Aberdeen, 681 F.3d 215, 219 (5th Cir. 2012). The Court may consider
“the complaint, any documents attached to the complaint, and any documents attached to the
motion to dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund
V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010). The Court must then
determine whether the complaint states a claim for relief that is plausible on its face. “‘A claim
has facial plausibility when the plaintiff pleads factual content that allows the [C]ourt to draw the
reasonable inference that the defendant is liable for the misconduct alleged.’” Gonzalez v. Kay,
577 F.3d 600, 603 (5th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “But
where the well-pleaded facts do not permit the [C]ourt to infer more than the mere possibility of
misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to
relief.’” Iqbal, 556 U.S. at 679 (quoting FED. R. CIV. P. 8(a)(2)). “This standard ‘simply calls for
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enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary
claims or elements.’” Morgan v. Hubert, 335 F. App’x 466, 470 (5th Cir. 2009) (citation omitted).
This evaluation will “be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Iqbal, 556 U.S. at 679.
Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Id. at
678 (quoting Twombly, 550 U.S. at 570).
DISCUSSION
The Parties dispute whether the completed appraisal forecloses Park Board from bringing
suit. While appraisals function as an alternative to litigation, they do not supplant adjudication.
Sec. Nat. Ins. Co. v. Waloon Inv., Inc., 384 S.W.3d 901, 905 (Tex. App.—Houston [14th Dist.]
2012, no pet.). The amount of appraisal damages is not contestable, but other aspects of the
insurer’s conduct could entitle an insured to relief. Id. The relevant case law supports allowing
Park Board to proceed on its claims to the extent they seek damages beyond those covered in the
appraisal award.
Park Board’s seven causes of action can be separated into three categories: Contractual,
Extra-Contractual, and the Prompt Payment of Claims Act violations. The Court addresses each
in turn.
I.
Breach of Contract
Park Board’s breach of contract claim is based on two breaches:
(1) the initial
undervaluation of the damaged property below the deductible amount, and (2) the denial of its first
request for appraisal. State Auto’s Motion to Dismiss should be granted as to Plaintiff’s first
breach, but denied as to the second.
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It is well established that a breach of contract claim is barred when appraisal is executed
and the award is promptly paid. Blum’s Furniture Co. v. Certain Underwriters at Lloyds London,
459 F. App’x. 366, 369 (5th Cir. 2012). Appraisals function as contractual mechanisms to
determine the amount of damage when the parties have reached an impasse. Ortiz v. State Farm
Lloyds, ___ S.W.3d ___, No. 17-1048, 2019 WL 2710032, at *4 (Tex. June 28, 2019). As a result,
even if an insurer initially undervalued property damage, it will not be in breach where appraisal
has already remedied the disagreement. Id. at *3. An insurer therefore does not breach a policy
merely because the appraisal amount was greater than the adjuster’s initial valuation. But an
insurer may still be liable on a breach separate from the initial valuation.
The Texas Supreme Court’s decision in Ortiz is instructive. In Ortiz, the plaintiff’s home
was damaged by wind and hail. 2019 WL 2710032, at *1. Ortiz subsequently filed a claim with
State Farm Lloyds, his insurance provider. Id. State Farm then sent an adjuster to inspect the
property, who concluded that the amount of the damage was less than that of the deductible. Id.
This meant that Ortiz was not entitled to payment on his claim. Id. Dissatisfied with this result,
the plaintiff retained an adjuster who found that he suffered a loss far exceeding the deductible
amount. Id. State Farm subsequently conducted a second inspection. Id. The second valuation,
while higher than the first, was still under the policy’s deductible amount. Id. After the second
adjustment, Ortiz sued State Farm for breach of contract and various extra-contractual claims. Id.
Because the parties could not agree on the amount of damages, State Farm invoked the appraisal
provision in the Policy. Id. The appraisal process returned a finding of loss greater than the
deductible, which State Farm promptly paid. Id. at *2. State Farm then moved for summary
judgment, arguing that the appraisal payment resolved all claims in the suit. Id. Both the trial
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court and court of appeals found the granting of the motion to be proper and the Texas Supreme
Court agreed—at least as to the breach of contract claims. Id. at *1.
The Texas Supreme Court held that the insurer did not breach the policy for originally
assessing the loss as less than the appraisal award. Id. at *3–*4. On the contrary, appraisals are
included in the policy for the sole purpose of resolving disputes over damage amounts. Ortiz, 2019
WL 2710032, at *4; see also Breshears v. State Farm Lloyds, 155 S.W.3d 340, 343 (Tex. App.—
Corpus Christi–Edinburg 2004, pet. denied) (mem. op.) (explaining that an insured “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 provided for resolution of
disputes through appraisal.”). Because Ortiz had only identified one breach—State Farm’s initial
failure to pay its covered losses—the Texas Supreme Court found that State Farm was entitled to
summary judgment on the breach of contract claim. Ortiz, 2019 WL 10032 at *4.
Here, as in Ortiz, Park Board is alleging that State Auto is in breach of contract. Park
Board claims that State Auto breached the Policy by initially valuing the damage to be less than
the deductible and, therefore, denying its claim. But, as the Texas Supreme Court explained in
Ortiz, the appraisal process already resolves any dispute over the amount of loss pursuant to the
Policy. And the difference in the adjuster’s low damage valuation and the issued appraisal award
does not equate to a breach. Ortiz, 2019 WL 2710032, at *3–*4. Accordingly, Park Board’s
breach of contract claim is extinguished to the extent it is based on State Auto’s failure to initially
pay the claim.
However, Park Board’s breach of contract claim should proceed in part because, unlike in
Ortiz, Park Board alleges that State Auto also violated the Policy separate and apart from the initial
valuation of loss. The Policy’s Appraisal Clause states that, if there is a disagreement as to the
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amount of loss, either party “…may make written demand for an appraisal of the loss” and each
party “will select” an appraiser within twenty days (Dkt. #42, ¶ 13) (emphasis added). Park Board
claims that, following the initial denial of its claim, it demanded appraisal via an email on January
13, 2018, and that State Auto denied the request (Dkt. #30, ¶ 32). The Court acknowledges that
other documents suggest that Park Board requested the appraisal in August 2018. But, at this
stage, the Court accepts Park Board’s allegations as true. As a result, Park Board is entitled to
show that State Auto denied the demand in January in breach of the Policy and seek damages that
only resulted from that breach (rather than the mere denial of benefits).
In sum, Park Board’s breach of contract claim is dismissed to the extent it is based on State
Auto’s “failure” to pay the claim, but denied to the extent the claim is based on State Auto’s refusal
to comply with the January 2018 appraisal demand.
II.
Extra-Contractual Claims
Park Board also brings “extra-contractual” claims for Unfair or Deceptive Acts or Trade
Practices (prohibited by Texas Insurance Code § 541.060(a)), Breach of Common Law Duty of
Good Faith and Fair Dealing, Breach of Express or Implied Warranty, Fraud, and Negligence.
For extra-contractual claims to survive, a breach of contract does not have to be present.
Ortiz, 2019 WL 2710032, at *5 (citing USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479,
489 (Tex. 2018)). However, to recover on extra-contractual claims where an appraisal has been
completed, the plaintiff must allege a “statutory violation that causes an injury independent of the
loss of benefits under the policy.” Id. at *5, *15. This means that the plaintiff must claim “actual
damages” that have not already been paid following the appraisal process. See id. at *5 (finding
appraisal mooted certain bad faith claims where “the only ‘actual damages’ Ortiz seeks are the
policy benefits wrongfully withheld, and those benefits have already been paid pursuant to the
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policy”) (emphasis added). Attorney’s fees, court costs, and treble damages are not considered
actual damages, but would be recoverable on an award of underlying actual damages. Id. at *5.
Like its breach of contract claims, Park Board’s extra-contractual claims are moot to the
extent they seek damages for policy benefits that State Auto paid following the appraisal process.
But Park Board also seeks additional damages through its extra-contractual claims. Under Park
Board’s theory of the case:
(1) State Auto committed the extra-contractual violations in question by consciously
failing to promptly process its claim;
(2) Park Board was consequently unable to timely make certain repairs, which would
have entitled it to depreciation costs under the Policy; and
(3) As a result, Park Board should be able to recover the amount of depreciation costs
it would have been entitled to under the Policy and any other damages resulting
from State Auto’s conduct.
Because Park Board contends that it is not entitled to the $80,000 under the Policy, Park Board’s
extra-contractual claims necessarily seek relief separate from its actual policy benefits. See
Menchaca, 545 S.W.3d at 497 (“[A]n insured can recover benefits as actual damages under the
Insurance Code even if the insured has no right to those benefits under the policy, if the insurer’s
conduct caused the insured to lose that contractual right.”) (emphasis in original). After all, the
appraisal process moots any claims that seek policy benefits to prevent double recovery, and Park
Board has not received payment for the $80,000 it seeks. See Ortiz, 2019 WL 2710032, at *5
(“Ortiz has received all the policy benefits to which he is entitled; thus, no outstanding benefits
remain to be recovered as damages for an alleged statutory violation.”).
State Auto suggests that Park Board may still be entitled to the $80,000 in question under
the Policy once Park Board makes certain repairs. According to State Auto, this means that the
appraisal moots Park Board’s request for the $80,000. But there are serious questions as to whether
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Park Board can still recover the $80,000 under the Policy, as State Auto argues, or whether it can
recover this amount only through its extra-contractual claims. As Park Board correctly notes, State
Auto has indicated that it would pay Park Board the $80,000 in question only if Park Board made
repairs to the property “2 years from the date of the loss,” a date that has passed. (Dkt. #39,
Exhibit 4 at p.3) (emphasis in original). Dismissing Park Board’s extra-contractual claims based
on the appraisal would be premature in light of the limited briefing and evidence before the Court.
This is especially true since State Auto also seeks damages for other harms that may be
independent from policy benefits—namely the interruption caused to its business operations and
its inability to lease property to new tenants while the claims were pending. Park Board’s extracontractual claims consequently survive to the extent described herein.
III.
PPCA Claims
Finally, Plaintiff also brings claims under the Texas Prompt Payment of Claims Act (“the
PPCA”), which sets out guidelines facilitating the timely payment of insurance claims. TEX. INS.
CODE ANN. § 542.054, 542.057. The issue here is whether timely payment of an appraisal award
forecloses an insurer from being in violation of the PPCA. The Court finds that an appraisal does
not bar PPCA claims.
While the PPCA does not explicitly address how the initiation of the appraisal process
affects the timing guidelines, the Texas Supreme Court has clarified how it should be treated in
Barbara Techs. Corp. v. State Farm Lloyds., __ S.W.3d __, No. 17-0640, 2019 WL 2710089, at
*1 (Tex. June 28, 2019). In that case, Barbara Technologies (“Barbara Tech”)’s commercial
property was damaged in a wind and hail storm in March 2013. Id. at *1. Barbara Tech
subsequently filed a claim with its insurer, State Farm, requesting coverage for the repairs. Id.
State Farm inspected the property and found the damage to be less than the deductible, thus
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denying the claim under the policy. Id. Barbara Tech requested a second inspection in February
2014 and State Farm again found the same amount of damage. Id. Barbara Tech filed suit in July
2014, prompting State Farm to invoke the appraisal provision. Id. In August 2015, the appraisal
award was issued and paid (minus depreciation and the deductible). Id. Barbara Tech accepted
the payment, but still claimed it was owed statutory damages for State Farm’s failure to comply
with the PPCA’s sixty-day time limit for payment. Id. While the trial and appellate courts found
that a payment of an appraisal award bars a claim under the PPCA, the Texas Supreme Court held
otherwise. Id. at *2.
Examining Chapter 542 of the PPCA, the Texas Supreme Court interpreted the lack of
appraisal language to mean that the legislature intended neither to impose specific deadlines for
the contractual appraisal process within the scheme, nor to exempt the contractual appraisal
process from the deadlines provided. Id. at *5. Accordingly, the Texas Supreme Court found that
an insured could be entitled to recovery on a showing that (1) it was initially liable for the claim
under the policy and (2) it violated a provision of the PPCA. Id. at *4–*5. Because State Farm
did not accept liability under the policy and had not been found liable, Barbara Tech was not
entitled to PPCA damages as a matter of law. Id. at *16. Conversely, State Farm’s invocation of
appraisal and prompt payment of the award did not exempt it from PPCA damages either. Id. For
these reasons, the Texas Supreme Court remanded the case to first determine liability and then
approach the PPCA timing requirements. Id. at *17.
As in Barbara Tech, Park Board claims entitlement to full policy benefits plus 10% penalty
interest per annum on the amount unreasonably withheld resulting from State Auto’s violation of
the PPCA (Dkt. #30, ¶ 57). Park Board alleges that State Auto wrongfully “denied” its claim until
April 15, 2019 (seven days after State Auto paid the award), well past the PPCA’s time window
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for payment (Dkt. #54, ¶ 10). State Auto counters that it has never denied Park Board’s claim for
benefits and that the only real dispute has been the amount of damages (Dkt. #56 at p. 5). But see
Barbara Techs., 2019 WL 2710089, at *2 (treating a refusal to pay a claim for not hitting the
deductible as a denial). But, while the dispute over whether the claim was denied may be relevant
on a motion for summary judgment, it is not dispositive as to whether a claim under the PPCA
should continue at this stage. As stated, when an appraisal has been completed, the PPCA time
limits only attach on a finding of liability. Id. at *16. State Auto maintains that it has “never
accepted liability” even if Park Board claims otherwise (Dkt. #56, p. 5). Payment of an appraisal
award has no bearing on a finding of liability; its only purpose is to determine the amount of
damages. Breshears, 155 S.W.3d at 343. Because payment of an appraisal award neither
establishes nor forecloses liability, where an insurer has not explicitly assumed it, it is a matter to
be adjudicated. Barbara Techs., 2019 WL 2710089, at *16. State Auto’s prompt payment of the
appraisal award does not immunize it from being in violation of the PPCA. As a result, the motion
to dismiss will be denied as to Park Board’s PPCA claim.
CONCLUSION
.
Defendants’ Motion to Dismiss (Dkt. #39) is GRANTED IN PART and DENIED IN
PART. Accordingly, Plaintiff’s claims are dismissed only to the extent they seek damages for
policy benefits that have been paid following the appraisal process, as described herein.
IT IS SO ORDERED.
SIGNED this 12th day of August, 2019.
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AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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