Amount of Loss Set by Appraisal Award

Payment of Appraisal Award Defeats Claim of Bad Faith
Post 5163

Hurricane Damage to Dwelling Established by Appraisal Award

In Homeowners Of America Insurance Company v. Emilio Menchaca, No. 01-23-00633-CV, Court of Appeals of Texas, First District (July 31, 2025) after a hurricane Homeowners of America Insurance Company ("HAIC") estimated that the cost of covered repair to Menchaca's house was $3,688.54, which was less than his deductible, and therefore no payment would be made.

FACTS

After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath ("EUO").

On August 23, 2018, Menchaca's counsel sent a demand notice letter to HAIC stating that Menchaca had sustained $48,757.98 in economic damages based on an estimate prepared by Henry Sienema, Vice President of Case Strategies Group. The letter demanded that HAIC pay $48,757.98 in actual damages, $2,400 in attorney's fees, and $2,000 in expenses, totaling $53,157.98, to resolve the matter without litigation.

HAIC Invoked the Appraisal Process

HAIC's appraiser and the agreed umpire signed an appraisal award setting the amount of loss for Menchaca's claim. On June 4, 2021, without admitting liability, HAIC issued a check to Menchaca in the amount of $7,085.86- the actual cash value of $13,145.86 assigned by the appraisers minus the $6,060 deductible under Menchaca's policy.

Trial began and the jury returned a verdict for Menchaca. The trial court rendered final judgment on the jury's verdict on May 31, 2023, ordering that Menchaca recover from HAIC $300,000 in mental anguish damages, $250,000 for his reasonable and necessary attorney's fees, and $93,000 in pre- judgment interest. This appeal followed.

KEY POINTS OF CASE
Initial Claim and Appraisal:

Menchaca's initial claim was denied as the estimated repair cost was less than his deductible . Menchaca then demanded $48,757.98 in damages, leading HAIC to invoke the appraisal process .

Legal Proceedings:

HAIC filed for declaratory judgment, questioning the qualifications of Menchaca's appraiser and requesting an Examination Under Oath (EUO) from Menchaca . Menchaca counterclaimed, alleging violations of the Texas Insurance Code, fraud, breach of contract, and bad faith .

Jury Verdict:

The jury found in favor of Menchaca, awarding him $300,000 in mental anguish damages, $250,000 in attorney's fees, and $93,000 in pre-judgment interest .

Appeal:

HAIC appealed, arguing that it had complied with its obligations under the policy by paying the appraisal award and that Menchaca's mental anguish damages were not recoverable as an "independent injury". The Court of Appeals agreed with HAIC, reversing the trial court's judgment and ruling that Menchaca take nothing on his counterclaims.

DISCUSSION

The only actual damages Menchaca sought were lost policy benefits which HAIC paid when it paid the appraisal award. The only “actual damages” Menchach sought are the policy benefits wrongfully withheld, and those benefits have already been paid pursuant to the policy. The trial court erred in rendering judgment in favor of Menchaca on his contractual and extracontractual claims and awarding him $300,000 in mental anguish damages.

HAIC discharged its liability under the policy by paying the appraisal amount in full, along with statutory interest, and complied with its obligations under the policy. Because HAIC has paid the full appraisal award and any possible statutory interest, Menchaca cannot recover attorney's fees and the trial court erred in awarding him such. The Court of Appeals also sustained HAIC's claims that trial court's May 31, 2023 final judgment was erroneous and rendered judgment that Menchaca take nothing on his counterclaims against HAIC.

ZALMA OPINION

It is axiomatic that an appraisal award sets the amount of loss in accordance with the terms and conditions of the contract of insurance. The jury was either improperly instructed or ignored the law when it was established that the insurer paid the full amount of the appraisal award in full with interest. An insurer that pays everything it owes under the terms of the policy cannot be held for tort and bad faith damages.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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