FIRST PARTY PROPERTY AND PREMISES LIABILITY UPDATE By: Marc Fanning/Rebecca Raper
I. First Party Property Cases A. Appraisal
Richardson v. Allstate Texas Lloyds, 2007 Tex. App. LEXIS 5384 (Tex. App. – Dallas July 11, 2007, pet. granted). Appraisal award that was not made in substantial compliance with the terms of the insurance policy must be set aside. In a dispute over the amount of damages in a case involving a sewer overflow into a home, the insurer invoked the policy’s appraisal clause. In the ensuing appraisal process, neither of the appointed appraisers or the umpire prepared an itemized list of the cash value of the damages items in the homes. Moreover, several months into the process the appraiser appointed by the insurer and the umpire together agreed on a loss amount of approximately $40,000 without consulting the appraiser appointed by the insured, who had valued the loss at approximately $141,000. The insured initiated suit to set aside the award. The trial court granted summary judgment for the insurer and dismissed the insured’s suit with prejudice. On appeal, the appellate court determined that because of the irregularities in the appraisal process – the lack of itemization and the lack of substantial involvement by the insured’s appraiser – the appraisal award was not made in substantial compliance with the insurance policy and should be set aside In re Acadia Insurance Company, 2007 Tex. App. 5355 (Tex. App. – Amarillo July 9, 2007, no pet.). Court of Appeals could not, in a mandamus proceeding, overturn a trial court’s decision that an insurer had waived its right to invoke appraisal clause in insurance policy. In an underlying dispute regarding a hail loss to a commercial building, the insurer moved to invoke the policy’s appraisal clause. The insured filed a motion to preclude appraisal, arguing that the insurer waived any rights to appraisal when it previously denied the claim. The trial court sided with the insured and refused the insurer’s motion to invoke the appraisal clause. The insured then filed a mandamus proceeding at the Amarillo Court of Appeals asking that court to order the trial court to
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allow appraisal. The court of appeals refused to disturb the trial court’s ruling, holding that a coverage disclaimer waived the right to invoke an appraisal clause. Johnson v. State Farm Lloyds, 204 S.W.3d 897 (Tex. App. – Dallas 2006, pet. granted). A homeowner can compel arbitration even where the extent of damages is in question. In a case involving hail damage to a home, the insurer refused to submit to the appraisal process because it argued that “the parties’ disagreement about the extent of the hail damage was a coverage issue that could not be decided by appraisal.” The insurer took the position that only the ridgeline of the roof was damaged while the insured asserted that the entire roof was damaged. The insurer contended that appraisal was only appropriate after the parties’ agreed on causation, coverage and liability issues. The insurer, on the other hand, argued that the appraisal process was intended to determine the “amount of loss” including the extent of damages. The Dallas Court of Appeals agreed with the insured and held that the term “amount of loss” in an appraisal clause includes the extent of loss and that a party can compel an appraisal when there is a dispute about the extent of covered damages. B. Extra-contractual Claims
Amine v. Liberty Lloyds of Texas Insurance Company, 2007 Tex. App. LEXIS 6280 (Tex. App. – Houston [1st Dist.] August 9, 2007, no pet.). When an insurer timely pays an appraisal award, it is not obligated to also pay penalties under the Prompt Payment of Claims statute. In a water damage/mold claim, an insurer invoked the appraisal process after the insured paid an amount that was less than the insured believed was necessary. Because the appraisal award was higher than the amount the carrier previously paid on the claim, the insurer promptly paid the difference. The insured then sued, seeking an award of damages under the Texas Prompt Payment of Claims statute, arguing that the insurer was remiss in not paying the larger amount when it initially evaluated the claim. On appeal the court determined that (1) the insurer’s decision to pay the amount of the appraisal award does not constitute a finding of liability as required by the statute and (2) a delay in payment due to participation in an appraisal procedure does not implicate the statute. State Farm Life Ins. Co. v. Martinez, 216 S.W.3d 799 (Tex. 2007). Statutory penalties and pre-judgment interest could not be assessed after interpleader because interpleader sufficed in place of payment. In a dispute about the applicability of statutory late payment penalties in an insurance case, the Texas Supreme Court held that while assessing statutory penalties before interpleader is consistent with both the statutory and common-law rules, assessing
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them there after is not. Therefore, when insurers receive notice of adverse bona fide claims and a reasonable doubt exists in law or fact as to whom the proceeds belong, interpleader is proper. The carrier will not be liable for any statutory penalties that would otherwise accrue after a proper interpleader. Lamar Homes Inc. v. Mid-Continent Casualty Co., 239 S.W.3d 236 (Tex. 2007). The penalties available under the state’s Prompt Payment of Claims statute can be applied where an insurer wrongfully refuses to defend its insured – defense costs constitute a “first party” claim. A homebuilder sought coverage for claims asserted against it by homebuyers for alleged construction defects. Among other things, the builder claimed that the carrier had a duty to defend and its failure to do so was a violation of the Prompt Payment of Claims statute. The Texas Supreme Court agreed, holding that where an insurer wrongfully refuses to defend its insured, the penalties available under the Prompt Payment of Claims statute apply to those defense costs because defense costs constitute a first party claim under that statute. II. Premises Liability Cases
Trammell Crow Central Texas, Ltd. v. Gutierrez, 51 Tex. Sup. J. 1355 (Tex. August 29, 2008). When risk of crime is not foreseeable, property owner has no duty to protect invitees against the criminal acts of third parties. The widow of a man killed in the parking lot of a mall sued the property owner, alleging that it was liable for not protecting her husband from the assailants. The plaintiff argued that her husband was killed in an attempted robbery. There was evidence that 227 crimes had been committed at the mall in the preceding two years, including 203 property crimes, thirteen simple assaults, one weapon charge, and fourteen “other crimes.” The jury and intermediate appellate court agreed that (1) the property owner owed a duty to protect its patrons and (2) that the evidence in the case showed a breach of that duty. A $5 million verdict was entered. The Texas Supreme Court reversed the verdict, finding that (1) “although the repeated occurrences of theft, vandalism, and simple assaults at the Quarry Market signal that future property crimes are possible, they do not suggest the likelihood of murder” and (2) the ten violent crimes that were recorded in the two years prior to the murder were not sufficiently frequent or similar to make the murder in question foreseeable. Because the murder was a criminal act that was not foreseeable, the property owner had no duty to prevent the attack. Notably, four justices in Gutierrez joined a concurring opinion in which they opined that they “would conclude not that the attack was unforeseeable, but that the risk
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of its occurrence was not unreasonable, and that the consequences of requiring premises owners to prevent this type of crime would require a measure of deterrence that is neither feasible nor desirable.” Therefore, they agree with the result, but not with the foreseeability analysis. General Electric Co. v. Moritz, 257 S.W.3d 211 (Tex. 2008). A landowner has no duty to warn an independent contractor’s employees of obvious hazards and a jury cannot determine what legal duties a landowner owes to persons who enter onto property. In a suit involving bodily injury suffered by an employee of an independent contractor, the claimant argued that his knowledge of the hazard that led to his injury should not preclude the possibility of recovery, but rather should just be a factor that should be considered by the jury in assessing relative fault. The Texas Supreme Court disagreed, holding that the duty a landowner owes to persons who enter onto premises is a question of law to be determined by the court. Because the law in Texas has long been that a landowner has no duty to warn an independent contractor’s employees of obvious hazards, the defendant landowner had no duty here to tell “to want [the claimant] that the ramp he used daily had not handrails.” The Texas Supreme Court rendered a take-nothing judgment against the claimant. Notably, Moritz drew a strong dissent in which three justices state that they would reach a different conclusion because the independent contractor here was not in control of the premises. The dissent opined that different rules should govern claims where the owner is in control of the premises than where the independent contractor is in control. University of Texas-Pan American v. Aguilar, 251 S.W.3d 511 (Tex. 2008). Evidence that a premises owner knew that exposed electrical cords in office walkways posed a safety risk was not evidence that the premises owner likewise was aware that a water hose lying across an outdoor sidewalk was an unreasonably dangerous condition. A student at a university sued the university after tripping over a water hose that had been laid across a sidewalk. Because there had been no incidents of injuries related to water hoses and there were no regulations in the university’s safety manuals regarding water hoses, the student had no direct evidence that the university had any knowledge of an unreasonably dangerous condition as to the water hose. Accordingly, the student attempted to prove knowledge of risk by showing that the safety rules regarding electrical cords in indoor walkways were analogous enough. The Texas Supreme Court rejected this contention, holding that the safety rules regarding electrical cords were irrelevant and, in the absence of evidence that the university knew of the risk associated with the water hose, that the claimant could not recover under a premises liability theory.
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