Houston, Texas (March 23, 2021) - The Texas Supreme Court recently published its long-awaited decision in the Hinojos v. State Farm Lloyds. In it, the court affirmed its holding in Barbara Technologies, finding that payment of an appraisal award does not absolve an insurer of statutory liability when the insurer accepts a claim but pays only part of the amount it owes within the statutory deadline, and a policy holder can proceed with an action under the Texas Prompt Payment of Claims Act.
In 2013, Louis Hinojos made a claim for storm damage to his home. State Farm's initial inspection resulted in an estimate below the deductible, but Hinojos disagreed and requested a second inspection. At the second inspection, the adjuster identified additional damage resulting in a payment to Hinojos of $1,995.11. Hinojos then sued State Farm – and State Farm invoked appraisal approximately 15 months after suit was filed. The appraisal resulted in State Farm tendering an additional payment of $22,974.75. State Farm moved for summary judgment, arguing that timely payment of an appraisal award precluded prompt payment (or Chapter 542) damages. The trial court granted summary judgment and Hinojos appealed (notably Barbara Technologies had not yet been decided). The Court of Appeals affirmed State Farm's victory on the basis that "State Farm made a reasonable payment on Hinojos's claim within the sixty-day statutory limit...." Hinojos petitioned the Texas Supreme Court for review.
In front of the high court, State Farm again relied on the argument that its prior payment was reasonable – a position the court found "unavailing." The court focused on Chapter 542's definition of "claim", which referred to an amount that "must be paid by the insurer", and noted that nothing in Chapter 542 absolved an insurer of prompt payment liability based on partial payments because the amount that "must be paid" referred to the amount ultimately determined to be owed. The court opined that to find partial payments to exempt insurers from prompt payment liability would encourage insurers to pay a nominal amount toward a valid claim to avoid prompt payment liability.
Justice Blacklock dissented, joined by Justice Guzman. The dissent notes that Barbara Technologies' holding repeatedly states it is applicable to claims that have initially been rejected or denied. Justice Blacklock suggests the holding does not apply to situations like Hinojos in which an insurer makes an initial timely payment but there is a disagreement as to the amount. He suggests the majority decision places the insurer "in no man's land" because "it has no way of knowing whether it has paid the claim or delayed paying the claim until the insured accepts a settlement or an amount owed is fixed through appraisal or litigation."
In a separate dissent by Justice Guzman (who joined the majority in Barbara Tech), she argued further that the Hinojos majority did not comport with the statute as written. Justice Guzman wrote that while she understood the majority's concern that an insurer could easily avoid prompt payment liability by low balling the insured, the court was without authority to expand or contract statutory text, and the legislature has enacted other remedies to address such bad faith conduct.
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