By: Reagan Ewing
In Rodriguez v. Safeco Insurance Company of Indiana, No. 23-0534, 2024 WL 388142 (Tex., Feb. 2, 2024), the Texas Supreme Court answered the certified question: “In an action under Chapter 542A of the Texas Prompt Payment of Claims Act, does an insurer's payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney's fees?” The Texas Supreme Court answered: yes.
The Texas Legislature enacted Chapter 542A of the Texas Insurance Code to combat the growing number of first-party lawsuits in Texas arising from acts of nature. As with many sections of the Texas Insurance Code, Chapter 542 and Chapter 542A are closely related and overlap. The Prompt Payment of Claims Act, as it is commonly named, is found in Chapter 542, subchapter B.
In this case, a tornado damaged Rodriguez’s home on May 25, 2019. Rodriguez filed a claim with his insurance carrier, Safeco, who paid Rodriguez $27,449.88. Through counsel, Rodriguez sent a Chapter 542A demand letter alleging Safeco owed an additional $29,500.
Rodriguez filed suit on June 18, 2020, against Safeco for breach of contract and violations of the Texas Insurance Code. After the parties failed to reach an agreement at mediation, Rodriguez invoked appraisal. Appraisal is a common dispute resolution provision found in most commercial and residential Texas policies. Safeco, after subtracting prior payments and other amounts, paid Rodriguez $32,447.73 as full payment of the appraisal amount due under the policy. The parties did not dispute that the appraisal amount payment was timely and in full.
In analyzing the certified question, the Texas Supreme Court determined it need not, and should not, seek the answer from any source other than the statute’s plain language. The statutory language at issue is the math formula found in section 542A.007(a)(3). Section 542A.007 states:
(a) Except as otherwise provided by this section, the amount of attorney’s fees that may be awarded to a claimant in an action to which this chapter applies is the lesser of:
(1) the amount of reasonable and necessary attorney’s fees supported at trial by sufficient evidence and determined by the trier of fact to have been incurred by the claimant in bringing the action;
(2) the amount of attorney’s fees that may be awarded to the claimant under other applicable law; or
(3) the amount calculated by:
(A) dividing the amount to be awarded in the judgment to the claimant for the claimant’s claim under the insurance policy for damage to or loss of covered property by the amount alleged to be owed on the claim for that damage or loss in a notice given under this chapter; and
(B) multiplying the amount calculated under Paragraph (A) by the total amount of reasonable and necessary attorney’s fees supported at trial by sufficient evidence and determined by the trier of fact to have been incurred by the claimant in bringing the action.
The Court recognized that a problem occurs in the first step of the formula in section (3)(A). When the insurance carrier pays all amounts owed under the policy and any possible statutory interest, then there will never be an amount to be awarded in the judgment. Therefore, the amount calculated under section 542A.007(a)(3)(A) will be zero. The Court also concluded this reasoning is reinforced by section 542A.007(c), which precludes the award of any fees for an amount calculated by section 542A.007(a)(3)(A) to be less than 0.2.
Referring back to its decision in Ortiz v. State Farm, the Court confirmed the payment of the appraisal amount and any possible statutory interest forecloses liability on a judgment for Rodriguez’s claim under the insurance policy. In Ortiz, the court held that, after payment of an appraisal amount, which is the agreed procedure for determining the amount of the loss, the insurance carrier met its obligations under the policy.
In Rodriguez, Safeco paid the appraisal amount and paid any possible statutory interest, thereby fulfilling its obligations under the policy. As a result, Rodriguez could not recover a judgment amount for his claim under the insurance policy because Safeco did not owe anything more under the insurance policy. Therefore, because Rodriguez could not recover a judgment for his claim under the policy, no attorney’s fees could be awarded under section 542A.007(a)(3)’s formula.
The Court did address Rodriguez and supporting amici’s argument regarding the legislative intent and the alleged potential abuse and unfair practices by insurance companies. However, the Court concluded that “[r]ather than speculate … we should instead stick with the bedrock principle that the Legislature intends the courts to follow its instructions as written.” The Court further stated: “[f]ew legislative instructions are as inescapable as a math formula.”