The answer to the second question is, “Yes, appraisal can be waived.” The answer to the first question is much more difficult to answer. In 2010, I wrote Waiver of Right to an Appraisal in Texas: Additional Arguments, and raised the following questions
I have previously written about how an insurance company can waive its right to appraisal by taking too long to invoke it, but are there other ways an insurance company can waive its right to an appraisal? For example, does an insurance company waive its right to appraisal when it recognizes some but not all of the damages claimed by the insured? What if the insurer anticipatorily breaches the insurance contract?
A pending case in Texas is raising the same issues. In its response in opposition to the insurer’s motion to compel appraisal, the policyholder, Waco Hippodrome, Inc., contends that the Central Mutual Insurance Company waived its right to compel appraisal due to substantial delays and inconsistent actions taken throughout the litigation process. Central’s actions, such as agreeing to multiple scheduling orders, engaging in extensive litigation discovery, and failing to request an appraisal in a timely manner, have prejudiced the policyholder and rendered appraisal inappropriate at this stage. Further, unresolved factual issues and allegations of bad faith handling of the insurance claim necessitate resolution by a jury rather than through an appraisal process.
To me, it sounds as if the insurer has figured out it may lose the case in litigation and is now seeking a “get out of free card” to escape full contract and extracontractual liability. I highlighted this insurer tactic in Texas Gives Insurers A “Get Out of Jail” Free Card When Appraisal Is Demanded.
A summary of the policyholder’s factual arguments for waiver include the following:
Policyholder Files Lawsuits Against Central
- October 5, 2021: Plaintiff filed a lawsuit in Texas state court, later removed to federal court.
- November 19, 2021: Parties entered a Joint Stipulation of Dismissal without Prejudice for further inspections.
- April 1, 2022: Plaintiff filed a second lawsuit in federal court.
- July 20, 2022: Central filed its Original Answer with twenty affirmative defenses and a general challenge to coverage, without demanding an appraisal.
Discovery and Preparation for Trial
From August 2022 to July 2024, extensive discovery and trial preparations occurred. Multiple depositions, expert designations, and document productions were conducted. Central never demanded an appraisal during this period.
Central’s Late Appraisal Request
- April 11, 2024: Central requested an appraisal and abatement for the first time, subject to reservation of rights.
- June 26, 2024: Central filed a Motion to Compel Appraisal and Motion to Abate Litigation.
- June 28, 2024: Central sought to amend its Answer to allege the policy was void.
- July 5, 2024: Central noticed additional depositions.
The policyholder then argued that substantial litigation activity can result in a waiver of the right to appraisal. Further, Central’s delay of over three years from the initial claim and extensive litigation efforts (e.g., numerous depositions, expert reports) indicate waiver.
I previously noted that the Texas Supreme Court Now Requires Showing of Prejudice for Waiver of Appraisal Provisions. In its argument, the policyholder noted that it incurred significant costs for expert reports and depositions, which would not have been necessary had Central timely requested an appraisal. It further argued that Central’s delay and inconsistent positions have prejudiced the plaintiff’s ability to resolve the dispute efficiently.
In this case, the policyholder notes that the coverage disputes go far beyond just causation. Central’s pleadings and depositions reveal numerous factual disputes regarding coverage. The policyholder argues that those must be resolved by a jury before any appraisal. Examples include disputes over the period of restoration and coverage of specific damages (e.g., roof tiles, Sony projectors, theater furniture).
I am curious whether the insurer will agree that the period of restoration is a coverage issue. I discussed this issue previously in Blockbuster New York Appraisal Decision Impacts Causation and Period of Restoration Determinations, and in Shaun Marker’s post, Certain Coverage Disputes Under New York Law May Not Prevent An Appraisal Demand.
The policyholder finally argued that appraisal and abatement of the litigation were inappropriate because of judicial economy. They reasoned that conducting an appraisal without resolving key factual disputes would be ineffective and a waste of time and money. They argued that courts generally do not abate litigation for appraisal when coverage questions, which result in no coverage at all, remain unresolved. Further, the policyholder asserted extra-contractual (bad faith) claims that cannot be addressed through appraisal. Resolving these claims requires a trial to determine the underlying factual issues.
The bottom line for parties wishing to seek appraisal and avoid waiver of that right is to raise the possibility of appraisal being the best avenue for claim resolution as early as possible. Waiting years after loss or the initiation of litigation invites this dispute. I will report back on this active case outcome later.
If you are interested in appraisal issues such as this, please do not miss the upcoming IAUA event in Park City on July 24-25, as noted in yesterday’s post, The IAUA Is Coming to Badgerland—A Can’t-Miss Opportunity for Appraisers and Umpires.
Thought For The Day
Better three hours too soon than a minute too late.
—William Shakespeare
