William Marchbanks v. Liberty Insurance Corporation ( 2018 )

Affirmed and Opinion filed August 23, 2018.
In The
Fourteenth Court of Appeals
NO. 14-17-00004-CV
WILLIAM MARCHBANKS, Appellant
V.
LIBERTY INSURANCE CORPORATION, Appellee
On Appeal from the 506th Judicial District Court
Waller County, Texas
Trial Court Cause No. 14-11-22843-A
OPINION
In this appeal an insured challenges the trial court’s summary judgment
dismissing the insured’s claims under the Prompt Payment of Claims Act. We
must determine whether the trial court erred in granting summary judgment on the
ground that the insurer’s full and timely payment based on an appraisal award
precluded the insured from recovering on these claims as a matter of law. Under
binding precedent from this court, we conclude that the trial court did not err and
we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Appellant/plaintiff William Marchbanks reported a hail-damage claim to
appellee/defendant Liberty Insurance Corporation, the insurer under his
homeowner’s insurance policy (the “Policy”). Liberty acknowledged
Marchbanks’s claim the same day. The following day, Liberty sent an adjuster to
inspect Marchbanks’s property and to evaluate the claim. The adjuster determined
that the roof damage was not storm-related damage. Liberty sent Marchbanks a
denial letter explaining that no storm-related damage was found.
Marchbanks took no further action for fifteen months. Then, he notified
Liberty that he had found pieces of his roof coming off and that he believed his
house had sustained hail damage. Marchbanks requested that Liberty reinspect the
house. According to Marchbanks, his reinspection request prompted Liberty to
request information that it had not requested at the time of the first inspection.
Seven weeks later, a Liberty adjuster conducted a reinspection. The adjuster
estimated the total amount of covered damage at $387.79, an amount well below
the deductible under the Policy. After three more months, Liberty sent
Marchbanks a letter stating this determination and indicating that Liberty would
not be paying any amount on the claim.
The Insured’s Lawsuit
Marchbanks filed this suit against Liberty, asserting a breach-of-contract
claim, common-law bad faith claims, alleged violations of the Texas Deceptive
Trade Practices Act (“DTPA”), and claims under the Prompt Payment of Claims
Act (“Prompt Payment Act Claims”).
Appraisal Process
About five months after Marchbanks filed suit, Liberty invoked the appraisal
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provision under the policy. The appraisers for Liberty and Marchbanks issued an
appraisal award. Liberty explained the amount that it owed under the Policy based
on the appraisal award and sent a check for this amount to Marchbanks.
The Insurer’s First Summary-Judgment Motion
After this payment, Liberty filed a traditional motion for summary judgment
on all of Marchbanks’s claims. Liberty argued that its payment of the appraisal
award discharged its obligations under the Policy, thereby entitling Liberty to
summary judgment on both the breach-of-contract and extra-contractual claims.
The trial court granted summary judgment only on the breach-of-contract claim.
The trial court severed the breach-of-contract claim into a separate case, creating a
final judgment on that claim.
The Insurer’s Second Summary-Judgment Motion
Liberty filed its second motion for summary judgment, seeking judgment on
all of Marchbanks’s remaining claims. Liberty sought summary judgment on the
Prompt Payment Act Claims on the ground that Liberty’s full and timely payment
based on the appraisal award precluded Marchbanks from recovering on his
Prompt Payment Act Claims as a matter of law.
In his response, Marchbanks contended that Liberty violated two sections of
the Prompt Payment of Claims Act before Liberty invoked appraisal; specifically,
Marchbanks asserted that that Liberty violated section 542.055(a)(3), by failing to
request items, statements, and forms that it reasonably believed were required, and
section 542.056(a), by failing to accept or reject Marchbanks’s claim within 15
business days of receiving all items, statements, and forms required (hereinafter
collectively, the “Alleged Violations”). Marchbanks also disputed that Liberty’s
payment of the appraisal award precluded Marchbanks from recovering on his
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Prompt Payment Act Claims. Marchbanks argued the timing of the Alleged
Violations (allegedly occurring before Liberty invoked the appraisal procedure)
was relevant to distinguishing today’s case from the cases Liberty cited in its
motion.1
The trial court granted the second summary-judgment motion in its entirety,
and rendered a final summary judgment dismissing Marchbanks’s extra-
contractual claims.
II. ISSUE AND ANALYSIS
On appeal from the trial court’s summary judgment, Marchbanks asserts a
single issue and challenges only the dismissal of his Prompt Payment Act Claims.
Under this issue, Marchbanks contends that Liberty committed the Alleged
Violations before invoking the appraisal process and that neither the appraisal
award nor Liberty’s payment based on the appraisal award extinguishes Liberty’s
liability for the pre-appraisal violations. For purposes of this opinion, we presume,
without deciding, that Liberty committed the Alleged Violations, and we consider
whether the trial court erred in granting summary judgment on the ground that
Liberty’s full and timely payment based on the appraisal award precluded
Marchbanks from recovering on his Prompt Payment Act Claims as a matter of
law.
1
In its motion for summary judgment, Liberty cited In re Slavonic Mut. Fire Ins. Ass’n, 308
S.W.3d 556 (Tex. App.—Houston [14th Dist.] 2010, orig. proceeding), abrogated on other
grounds by In re Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 405–07 (Tex. 2011);
Amine v. Liberty Lloyds of Tex. Ins. Co., No. 01-06-00396-CV, 2007 WL 2264477 (Tex. App.—
Houston [1st Dist.] Aug. 9, 2007, no pet.) (mem. op.); and Breshears v. State Farm Lloyds, 155
S.W.3d 340 (Tex. App.—Corpus Christi 2004, pet. denied).
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A. Did the trial court err in granting summary judgment on the Prompt
Payment Act Claims because of the insurer’s full and timely payment
based on the appraisal award?
In a traditional motion for summary judgment, if the movant’s motion and
summary-judgment evidence facially establish its right to judgment as a matter of
law, the burden shifts to the nonmovant to raise a genuine, material fact issue
sufficient to defeat summary judgment. M.D. Anderson Hosp. & Tumor Inst. v.
Willrich, 28 S.W.3d 22, 23 (Tex. 2000). In our de novo review of a trial court’s
summary judgment, we consider all the evidence in the light most favorable to the
nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors
could, and disregarding contrary evidence unless reasonable jurors could not. Mack
Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006). The evidence raises a
genuine issue of fact if reasonable and fair-minded jurors could differ in their
conclusions in light of all of the summary-judgment evidence. Goodyear Tire &
Rubber Co. v. Mayes, 236 S.W.3d 754, 755 (Tex. 2007).
In its summary-judgment motion Liberty aimed only one ground of attack at
Marchbanks’s Prompt Payment Act Claims. By reference to an opinion from each
of the two Houston-based courts of appeals, Liberty asserted that Liberty’s full and
timely payment based on the appraisal award precluded Marchbanks from
recovering on his Prompt Payment Act Claims as a matter of law. See In re
Slavonic Mut. Fire Ins. Ass'n, 308 S.W.3d 556, 563–64 (Tex. App.—Houston
[14th Dist.] 2010, orig. proceeding), abrogated on other grounds by In re
Universal Underwriters of Tex. Ins. Co., 345 S.W.3d 404, 405–07 (Tex. 2011);
Amine v. Liberty Lloyds of Tex. Ins. Co., No. 01-06-00396-CV, 2007 WL 2264477,
at *4 (Tex. App.—Houston [1st Dist.] Aug. 9, 2007, no pet.) (mem. op.).
The Insurance Code sets forth the essential components of a Prompt
Payment Act Claim in the text of section 542.060(a), which states:
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If an insurer that is liable for a claim under an insurance
policy is not in compliance with this subchapter [the
Prompt Payment of Claims Act], the insurer is liable to
pay the holder of the policy or the beneficiary making the
claim under the policy, in addition to the amount of the
claim, interest on the amount of the claim at the rate of
18 percent a year as damages, together with reasonable
attorney’s fees.
Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 2, 2003 Tex. Gen. Laws 3611,
3681 (codified at Tex. Ins. Code § 542.060).2 As this court twice has held, full and
timely payment of the amount owed under the policy based on an appraisal award
precludes as a matter of law a recovery on a claim under the prompt-payment
statute. See Zhu v. First Comm’n Ins. Co., 543 S.W.3d 428, 436–37 (Tex. App.—
Houston [14th Dist.] 2018, pet. filed); Nat’l Sec. Fire & Cas. Co. v. Hurst, 523
S.W.3d 840, 847 (Tex. App.—Houston [14th Dist.] 2017, pet. filed). The
summary-judgment evidence shows that, twenty-eight days after the appraisers
issued their award, Liberty sent Marchbanks payment for the amount Liberty owed
based on the appraisal award. Marchbanks does not argue that Liberty should have
paid more under the Policy based on the appraisal award, nor does he argue that
Liberty did not timely pay him the full amount Liberty owed under the Policy
based on the appraisal award. We conclude that Liberty timely tendered the full
amount Liberty owed Marchbanks under the Policy based on the appraisal award.
See Hurst, 523 S.W.3d at 847 (holding payment thirty days after the date of the
appraisal award was timely). Under this court’s binding precedent in Hurst and
Zhu and under the applicable standard of review, the summary-judgment evidence
2
In 2017, the Legislature amended this statute effective September 1, 2017. See Act of May 17,
2017, 85th Leg., R.S., ch. 151, § 2, 2017 Tex. Sess. Law Serv. 293, 293 (codified at Tex. Ins.
Code § 542.060). We quote the prior version of the statute, which is the version that applies in
today’s case. However, our analysis in this case would not be affected if the current version of
the statute applied.
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proved as a matter of law Liberty’s entitlement to summary judgment on the
Prompt Payment Act Claims because of Liberty’s full and timely payment based
on the appraisal award. See Zhu, 543 S.W.3d at 436–37; Hurst, 523 S.W.3d at
847.
B. What is the rationale for the rule that an insurer’s full and timely
payment of the amount owed to an insured based on an appraisal award
precludes as a matter of law the insured’s recovery on a claim under the
prompt-payment statute?
In an obiter dictum in In re Slavonic Mut. Fire Ins. Ass'n, this court first
articulated the principle that an insurer’s full and timely payment of the amount
owed under the policy to an insured based on an appraisal award precludes as a
matter of law the insured’s recovery on a claim under the prompt-payment statute.
See In re Slavonic Mut. Fire Ins. Ass'n, 308 S.W.3d at 563–64. Since the parties
filed their brief in today’s case, this court twice has based holdings on this
principle. See Zhu, 543 S.W.3d at 436–37; Hurst, 523 S.W.3d at 847. In none of
these cases has this court explained the rationale behind this rule of law. We do so
now to address the issues Marchbanks has raised in this case.
Under section 542.060(a)’s unambiguous language, to establish a right to
recover the eighteen-percent interest and reasonable attorney’s fees under the
prompt-payment statute, the claimant must show that (1) a claim was made under
an insurance policy, (2) the insurer is liable for the claim, and (3) the insurer failed
to follow one or more sections of the prompt-payment statute with respect to the
claim. United Nat. Ins. Co. v. AMJ Investments, LLC, 447 S.W.3d 1, 13 (Tex.
App.—Houston [14th Dist.] 2014, pet. dism’d).
This court has concluded the second element—that the insurer is liable for a
claim under the insurance policy—is not satisfied as a matter of law if the insured
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does not recover any judgment based on the insurer’s liability under the insurance
policy.3 See Triyar Companies, LLC v. Fireman's Fund Ins. Co., 515 S.W.3d 517,
529 (Tex. App.—Houston [14th Dist.] 2017, pet. denied). An insurer’s full and
timely payment of the amount owed under the policy to an insured based on an
appraisal award precludes as a matter of law the insured’s recovery of a judgment
against the insurer based on its liability under the insurance policy. See Zhu, 543
S.W.3d at 434–36; Hurst, 523 S.W.3d at 845–47; Amine v. Liberty Lloyds of Tex.
Ins. Co., No. 01-06-00396-CV, 2007 WL 2264477, at *5 (Tex. App.—Houston
[1st Dist.] Aug. 9, 2007, no pet.) (mem. op.). Because the insured’s failure to
recover any judgment based on the insurer’s liability under the insurance policy
precludes the insured from recovering under the prompt-payment statute, this full
and timely payment by the insurer also precludes the insured as a matter of law
from recovering on a claim under the prompt-payment statute. See Triyar
Companies, LLC, 515 S.W.3d at 529; Zhu, 543 S.W.3d at 434–36; Hurst, 523
S.W.3d at 845–47; Amine, 2007 WL 2264477, at *5.
Some have argued that an insurer’s voluntary payment of the amount owed
based on an appraisal award constitutes sufficient proof of the second element of a
prompt-payment claim, that the insurer is liable for a claim under the insurance
policy. See Amine, 2007 WL 2264477, at *4. But, an appraisal award does not
resolve whether the insurer is liable under the insurance policy. See Security Nat.
Ins. Co. v. Waloon Inv., Inc., 384 S.W.3d 901, 905 (Tex. App.—Houston [14th
Dist.] 2012, no pet.); Amine, 2007 WL 2264477, at *5. Thus, an insurer’s
voluntary payment of the full amount owed based on an appraisal award does not
mean that the insurer was liable under the insurance policy; this payment means
3
As to the first and third elements, Marchbanks made a claim under the Policy, and we presume
for the sake of argument that Liberty committed the Alleged Violations.
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only that the insurance company chose not to seek to set aside the appraisal award
and not to assert any defenses to its liability to pay the amount owed under the
policy based on the appraisal award. See Zhu, 543 S.W.3d at 433; Waloon Inv.,
Inc., 384 S.W.3d at 905; Amine, 2007 WL 2264477, at *5. If an insurer pays this
full amount, the trial court will not thereafter be asked to determine whether the
insurer is liable under the policy, and the insured will not recover a judgment for
any amount under the policy to which an eighteen-percent interest rate might be
applied. See Tex. Ins. Code. § 542.060(a); Zhu, 543 S.W.3d at 434–36; Hurst, 523
S.W.3d at 845–47; Triyar Companies, LLC, 515 S.W.3d at 529; Amine, 2007 WL
2264477, at *5.
The trial court dismissed Marchbanks’s claim on the Policy as a matter of
law based on Liberty’s full and timely payment of the amount owed based on the
appraisal award. The trial court severed that ruling into another case to create a
final judgment, and Marchbanks does not assert in this appeal that he is entitled to
recover judgment against Liberty based on any liability under the Policy. In this
scenario, Marchbanks may not recover on his Prompt Payment Act Claims. See
Tex. Ins. Code. § 542.060(a); Zhu, 543 S.W.3d at 434–36; Hurst, 523 S.W.3d at
845–47; Triyar Companies, LLC, 515 S.W.3d at 529; Amine, 2007 WL 2264477,
at *5.
C. Has the insured shown that the trial court erred in granting summary
judgment on his Prompt Payment Act Claims?
In its summary-judgment motion Liberty cited the Thirteenth Court of
Appeals’s opinion in Breshears. See Breshears v. State Farm Lloyds, 155 S.W.3d
340 (Tex. App.—Corpus Christi 2004, pet. denied). Marchbanks asserts that
Breshears does not support the ground on which the trial court granted summary
judgment. See id. Presuming, without deciding, that this argument is correct, the
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cases cited above from the Fourteenth Court of Appeals and the First Court of
Appeals do support this ground.
Marchbanks also relies upon the reasoning of the federal district court in
Graber v. State Farm Lloyds. See No. 3:13-CV-2671-B, 2015 WL 3755030, at
*8–10 (N.D. Tex. June 15, 2015), disapproved of by, Mainali Corp. v. Covington
Specialty Ins. Co., 872 F.3d 255, 259 (5th Cir. 2017). This reasoning conflicts
with precedent binding on this court.4 See Triyar Companies, LLC, 515 S.W.3d at
529; Zhu, 543 S.W.3d at 434–36; Hurst, 523 S.W.3d at 845–47. We must follow
our own precedent rather than the Graber opinion. In addition, the United States
Court of Appeals for the Fifth Circuit has disapproved of the part of the Graber
opinion upon which Marchbanks relies because the Graber court “did not
recognize an Erie court’s duty to follow state courts’ interpretation of state law
rather than the interpretation the federal court thinks makes the most sense.”5 See
Mainali Corp. v. Covington Specialty Ins. Co., 872 F.3d 255, 259 (5th Cir. 2017).
Marchbanks relies upon the opinion in Cox Operating, but the insured in that
case recovered a judgment on its breach-of-contract claim without any appraisal
process. See Cox Operating, L.L.C. v. St. Paul Surplus Lines Ins. Co., 795 F.3d
496, 498–500 (5th Cir. 2015). Thus, Cox Operating is not on point. See id.
Marchbanks asserts that the ground on which the trial court granted
summary judgment “runs afoul of the very purpose of the [Prompt Payment of
Claims] Act.” Marchbanks suggests that the Legislature’s purpose in enacting this
statute was to subject all insurers who violate a provision of the statute to the
eighteen-percent interest penalty, even if the insured does not recover judgment for
4
This court issued these precedents after the parties filed their appellate briefs in this case.
5
The United States Court of Appeals for the Fifth Circuit issued its opinion in Mainali Corp.
after the parties filed their appellate briefs in this case.
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any amount owed by the insurer under the policy.
The Legislature did not expressly state its purpose in enacting the Prompt
Payment of Claims Act. See Tex. Ins. Code Ann § 542.051, et seq. (West 2013);
BankDirect Capital Finance LLC v. Plasma Fab, LLC, 519 S.W.3d 76, 86 (Tex.
2017) (stating that “our 181 legislators—who may have had 181 different motives,
reasons, and understandings—nowhere codified an agreed purpose”). As
adjudicators we must read the prompt-payment statute as written by the
Legislature, in a manner faithful to what the law actually says, despite any
imperfections in the statute. See BankDirect Capital Finance LLC, 519 S.W.3d at
86. When decoding statutory language, courts must adhere to the
Legislature’s prescribed means (legislative handiwork), not its presumed intent
(judicial guesswork): “We must rely on the words of the statute, rather than rewrite
those words to achieve an unstated purpose.” Id. at 86–87 (quoting Jaster v. Comet
II Constr., Inc., 438 S.W.3d 556, 571 (Tex. 2014) (plurality op.)) (internal
quotations omitted). This court has concluded that under the Legislature’s
unambiguous language, (1) the insurer’s full and timely payment of the amount
owed under the policy based on an appraisal award precludes the insured as a
matter of law from recovering a judgment against the insurer based on its liability
under the insurance policy, and (2) such a payment also precludes the insured as a
matter of law from recovering on a claim under the prompt-payment statute. See
Triyar Companies, LLC, 515 S.W.3d at 529; Zhu, 543 S.W.3d at 434–36; Hurst,
523 S.W.3d at 845–47.
Marchbanks also contends that Liberty’s construction of the statute conflicts
with the “Texas Supreme Court’s decision to hold insurers who partially pay
claims liable for penalty interest on the unpaid portions of those claims until they
are fully paid,” presumably regardless of whether the insured recovers a judgment
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against the insurer based on its liability under the insurance policy. Marchbanks
indicates that Republic Underwriters Ins. Co. v. Mex–Tex, Inc. is such a decision
by the Supreme Court of Texas. See 150 S.W.3d 423, 426 (Tex. 2004). The Mex–
Tex court did not articulate this proposition; in that case, the insured recovered a
judgment against the insurer based on the insurer’s liability under the insurance
policy and the high court held that the insured could recover under the prompt-
payment statute. See id. at 425-428. The Mex–Tex case is not on point. See id.
Marchbanks asserts that Liberty’s construction of the statute “undermines
the public policy interest in holding an insurer liable for statutory interest when it
underpays a claim and later invokes appraisal.” This court is not a legislative
body. In re Evans, 130 S.W.3d 472, 486 (Tex. App.—Houston [14th Dist.] 2004
[mand. denied], orig proceeding). Our role is not to second-guess the public-policy
choices that inform statutes or to weigh the effectiveness of their results.
See McIntyre v. Ramirez, 109 S.W.3d 741, 748 (Tex. 2003); In re Evans, 130
S.W.3d at 486. Instead, we review the statutory language, search for the legislative
intent expressed in this language, and strive to give full effect to all of the statutory
terms. See In re Evans, 130 S.W.3d at 486. We must find the legislative intent in
the statutory language and not elsewhere. See id.
Marchbanks has not shown that the trial court erred in granting summary
judgment as to his Prompt Payment Act Claims.
D. Does the Menchaca case apply to the analysis in today’s appeal?
Roughly a week after Marchbanks filed his appellate brief in today’s case,
the Supreme Court of Texas issued its first opinion in USAA Texas Lloyds Co. v.
Menchaca. See No. 14-0721, 2017 WL 1311752 (Tex. Apr. 7, 2017), reh'g
granted (Dec. 15, 2017), opinion withdrawn and superseded, 545 S.W.3d 479
(Tex. 2018). Therefore, Marchbanks could not and did not argue in his appellate
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brief that under the Menchaca case, the trial court erred in granting summary
judgment. See id. The opinion of the Menchaca court on rehearing articulates five
rules regarding insurance claims, but none of these rules govern the analysis in
today’s appeal. See USAA Texas Lloyds Co. v. Menchaca, 545 S.W.3d 479, 489–
501 (Tex. 2018). The Menchaca case did not involve a prompt-payment claim or
an appraisal award. See id. The Menchaca court did not interpret any language in
the prompt-payment statute. See id. Even presuming that an insured may recover
benefits under the insurance policy as actual damages under the insured’s Prompt
Payment Act claims, Menchaca does not address whether an insured may recover
eighteen-percent interest under the prompt-payment statute in the absence of any
recovery of benefits under the insurance policy. See id. Though the Menchaca
court outlined important principles of insurance law, these principles do not apply
in the analysis of Marchbanks’s appeal. See id.
III. CONCLUSION
Even presuming that Liberty committed the Alleged Violations of the
Prompt Payment of Claims Act, the trial court did not err in granting summary
judgment on Marchbanks’s Prompt Payment Act Claims due to Liberty’s full and
timely payment of the amount owed under the Policy based on an appraisal award.
Our recent decisions in Zhu and Hurst require that we affirm the trial court’s
summary judgment. This outcome aligns with precedent from this court holding
that an insurer’s full and timely payment of the amount owed under the policy
based on an appraisal award precludes the insured as a matter of law from
recovering a judgment against the insurer based on its liability under the insurance
policy, and that the insured’s failure to recover any judgment based on the
insurer’s liability under the insurance policy precludes the insured from recovering
under the prompt-payment statute. Thus, we overrule Marchbanks’s sole appellate
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issue and affirm the trial court’s judgment.
/s/ Kem Thompson Frost
Chief Justice
Panel consists of Chief Justice Frost and Justices Boyce and Jewell.
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