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Dispute Over Extent of Damages is not Bad Faith
Post 5168

Award Signed by Two of Three Appraisers Binding on Insured and Insurer

Kelly Mallady filed a lawsuit against Homeowners of America Insurance Company due to damages sustained from a nearby explosion in January 2020 that the insurer rejected in part.

In Kelly Mallady v. Homeowners Of America Insurance Company, No. 14-24-00147-CV, Court of Appeals of Texas, Fourteenth District (August 7, 2025) resolution was obtained of the disputes.

CASE BACKGROUND:
Mallady's homeowners insurance policy was effective from September 15, 2019, to September 15, 2020 .
The initial claim was acknowledged, and an independent adjuster estimated the property damage to be $13,014.79, covering only the dwelling and fence.
Mallady invoked appraisal, demanding $247,860.40 for property and contents damages, plus $10,000 in attorney's fees .
APPRAISAL AWARDS:
The first appraisal award (April award) set the loss for the dwelling at $24,000 replacement cost value and $21,900 actual cash value .
The April award did not address contents damages and was later voided.
A subsequent appraisal award (June award) assessed damages at $215,616.65 and $145,778.70 actual cash value, covering the dwelling, fence, and contents .
LEGAL PROCEEDINGS:
Homeowners of America filed a motion to set aside the June award and confirm the April award, arguing the April award was binding once signed by two parties .
The trial court set aside the June award and confirmed the April award .
Mallady filed suit alleging breach of contract, bad faith, deceptive trade practices, and other claims .
The trial court granted summary judgment in favor of Homeowners of America, which Mallady appealed .
COURT'S DECISION:
The appellate court affirmed in part and reversed and remanded in part.
The court concluded that the trial court erred in granting summary judgment on Mallady's breach of contract claim.
The court sustained several of Mallady's issues challenging the trial court's grant of summary judgment.
ANALYSIS
Breach of Contract Claim:

The court concluded that the trial court erred in granting summary judgment on Mallady's breach of contract claim. The April award did not set the amount of loss for contents, and the evidence showed that content damages were to be addressed in a separate award after inspection of the property. Therefore, the trial court's decision to grant summary judgment was incorrect as there was a genuine issue of material fact regarding the contents damages.

Appraisal Awards:

The award, which assessed damages only for the dwelling, was signed by two of the three parties, making it binding. However, the June award, which included damages for the dwelling, fence, and contents, was issued later and signed by McLeod and Choate. The trial court set aside the June award and confirmed the April award, but the appellate court found that the trial court erred in this decision.

Appraisal clauses estop a party from contesting the issue of damages in a lawsuit based on an insurance contract. If a party seeks to avoid an appraisal award, the burden of proof is theirs to raise an issue of material fact as to why the resolution they contractually agreed to should be set aside. If the appraisal award is not set aside, this contractual process settles the issue of damages, and settlement of the full amount owed estops the insured from bringing a breach of contract claim against the insurer.

Examination Under Oath:

The trial court's order requiring Choate to submit to an examination under oath was vacated. The court concluded that the policy did not require Choate to submit to an examination under oath as he was not considered Mallady's representative. However, since Choate as a independent appraiser is not a representative of the insured he may not be compelled to testify at EUO.

Independent Injury Rule:

Mallady's claims for mental anguish and attorney's fees were not considered independent injuries that could support her extra-contractual claims. The court found that the mental anguish damages stemmed from the denial of policy benefits and were not truly independent injuries.

ZALMA OPINION

Once an appraisal award becomes final - signed by two of the three appraisers - the amount of loss is established. When there is a second appraisal making findings of loss and damage more than $200,000 greater than the first, and final award, the original award must be honored. However, since the first award failed to consider contents damages, it was incomplete and another appraisal of contents was required. The breach of contract can be tried but the bad faith claim was eliminated.

You can find a permanent public version of the document here: https://public.fastcase.com/jaEE2PXzRXmZ99jOLMt1IuUELJK35ulC0JH4o2YTkiYe9ytM%2bHEzVcf4Tgc1Kro9RcFaidgUpgfDK0dIpLN22Q%3d%3d

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