On February 2, 2024, the Texas Supreme Court answered a certified question from the Fifth Circuit Court of Appeals in Mario Rodriguez v. Safeco Insurance Company of Indiana. In Rodriguez, the Texas Supreme Court held that the plain language of Section 542A.007(a) of the Texas Insurance Code makes clear that payment of an appraisal award, plus applicable statutory interest, extinguishes an insured's right to recover attorney's fees in litigation. The Court reasoned that because the insured received payment of the appraisal award—which covers his claim under the insurance policy—the insured would have no remaining claim under the insurance policy for damage to or loss of covered property.
In Texas, Chapter 542A of the Texas Insurance Code applies to claims caused wholly or partly by forces of nature (such as windstorm or hail). It provides a mechanism by which the insured's attorney's fees in litigation can be reduced or entirely eliminated in certain situations. In this regard, Section 542A.007, provides that a court may not award the insured's attorney's fees if the amount of the "judgment to the claimant for the claimant's claim under the insurance policy" is less than 20% of the amount the insured claimed to be owed under the policy in the mandatory pre-suit notice.
In Rodriguez, the Insured, Mario Rodriguez, incurred damage to his home following a tornado. Mr. Rodriguez' insurer, Safeco Insurance Company of Indiana, issued payment in the amount of $27,449.88. Rodriguez disputed Safeco's payment and issued a pre-suit notice for an additional $29,500.00 under the policy. Mr. Rodriguez subsequently sued Safeco. After a failed mediation, Safeco invoked the policy's appraisal provision. The appraisal panel returned an award of $36,514.52. Safeco timely paid the full amount of the appraisal award plus an additional amount of $9,458.40, which it claimed would cover any interest owed on the appraisal award.
Safeco argued that its payment of the appraisal award plus interest foreclosed Mr. Rodriguez' claim for attorney's fees under Section 542A.007. Safeco reasoned that its pre-trial payment of the appraisal award and interest meant that it fully discharged its obligations under the policy. As a result, there could never be a "judgment to the claimant . . . under the insurance policy." In such a case, the proportion of the judgment compared to the damages claimed in the pre-suit demand would theoretically fall below the 20% threshold identified in Section 542A.007(c), meaning the Mr. Rodriguez could not recover any attorney's fees.
The Texas Supreme Court agreed with Safeco's position. The Court noted that:
When the statutorily required calculation is applied to Rodriguez’s case, a problem arises at the first step of the formula. Because the insurer has already paid all amounts owed under the insurance policy plus any possible statutory interest, there is not and never will be an “amount to be awarded in the judgment to the claimant for the claimant’s claim under the insurance policy."
Thus, the Court held that the policyholder's ability to recover attorney's fees under Chapter 542A is extinguished upon the Insurer's timely payment of an appraisal award plus any possible statutory interest owed. The Court acknowledge that an insured may receive a judgment for damage related to an insured's extra-contractual claims. However, the Court concluded that it makes no difference that insurers who pay appraisal awards under their policies may remain subject to the possibility of a judgment for claims other than a claim under the insurance policy for damage to or loss of covered property. This is because, in such a case, there would can be no judgment for the claim "under the insurance policy." As a result, no attorney’s fees are available under section 542A.007(a)(3)’s formula.
Since the enactment of Chapter 542A, both Texas state and federal courts grappled with policyholder claims to recover attorney's under the Prompt Payment of Claims Act in the context of appraisal. The decision in Rodriguez v. Safeco Ins. Co. of Indiana, is important because the Court took time to reconcile a split in an authority on the issue, and clarified the statutory framework of Section 542A.007 based on the statute's plain language for claims involving property damage resulting from natural occurrences.