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Breach Of An Appraisal Clause

Casenote: Farmers Group Ins., Inc. v. Poteet, Fort Worth, 2014

This is an appeal from a jury verdict in January 2011 ultimately arising from a claim in November 2002 for the discharge of black smoke and soot from an HVAC system. As discussed below, this was the second appeal for this case. The Fort Worth Court of Appeals upheld the jury’s award of attorney’s fees and costs of litigation as consequential damages for Farmers’ breach of the appraisal provision. Because of a failure to segregate, the Court remanded the case on the issue of attorney’s fees recoverable for such breach. On November 7, 2014, the Texas Supreme Court denied Poteet’s Petition for Review.


In November 2002, Poteet notified Farmers of a loss arising from sudden and accidental smoke damage. Farmers investigated the loss, determined that the smoke and soot damage was caused by a sudden and accidental discharge from cracked heat exchangers in the home’s heating system and ultimately paid to remediate the damage, repair the property and for temporarily relocating Poteet. Thereafter, Poteet gave Farmers notice that she believed there was still soot in the home, and it was causing respiratory problems. Poteet hired a certified indoor air quality expert, Robert Miller, who opined that the home was unsafe because of the soot.

Farmers took Poteet’s examination under oath and then invoked appraisal on February 26, 2003. Poteet named Miller as her appraiser, and Farmers named its appraiser. For reasons not specified, Farmers’ appraiser never spoke to Miller. Because of the lack of communication from Farmers’ appraiser, counsel for Farmers and counsel for Poteet proposed and eventually agreed upon an umpire. However, this umpire refused to serve.

On May 9, 2003, Farmers filed suit in Taylor County to have an umpire appointed pursuant to the appraisal provision in the policy. Poteet answered the lawsuit, but neither requested the court to appoint an umpire. In January 2005, the case was dismissed for want of prosecution.

In May 2004 prior to the dismissal of the Taylor County suit, Poteet filed suit in Denton County alleging breach of contract, negligent misrepresentation and bad faith. After discovery and shortly before trial, Farmers filed traditional and no evidence motions for summary judgment arguing that Poteet had no evidence of causation of the additional damages she was claiming. Specifically, Farmers argued that pursuant to the doctrine of concurrent causation, Poteet had a duty to segregate between covered and non-covered damages and had failed to do so. Poteet’s expert, Miller, failed to determine which damages were caused by the covered loss, the sudden and accidental smoke damage, and which damages were caused by non-covered losses.1

First AppealPoteet v. Kaiser, 2007 Tex. App. LEXIS 9749 (Tex. App. Fort Worth Dec. 13, 2007)

After the trial court granted Farmers’ summary judgments, Poteet appealed. Importantly, one of Poteet’s arguments was that Farmers had breached the policy by failing to complete the appraisal process. The Fort Worth Court of Appeals held that while Poteet failed to raise a fact issue as to causation of the soot damage, she had raised a fact issue as to a breach of the contract by Farmers for failing to complete the appraisal.2 The Court held that a breach of the appraisal provision could result in damages of costs and fees associated with the appraisal case and remanded the case for trial on that issue.

The case was tried in January 2011, and the dispute was as to the scope of damages, if any, which resulted from Farmers’ breach of the appraisal provision. Poteet argued that because the trial court retained plenary power after the court of appeals remanded, it could set aside its prior summary judgment order in favor of Farmers and retry the case for recovery of additional covered damages through the theory that appraisal would have awarded what Poteet and her expert Miller claimed. Poteet also argued that but for Farmers breach of the appraisal provision, appraisal would have resulted in full compensation and importantly, Farmers would have been bound and subsequent litigation, including the summary judgment orders, would have been avoided. Farmers insisted that the court of appeals’ decision precluded awarding damages that might have been awarded in appraisal had it occurred and that Poteet could not recover damages not otherwise covered under the policy.

The trial court deemed the appraisal process “independent of the judicial process” citing the language in the appraisal provision “binding” the parties to an appraisal award. Id. at *12-14. Thus, the trial court allowed Poteet to argue what appraisal would have awarded despite the summary judgment rulings and the court of appeals’ decision. Farmers was granted a continuing objection throughout the trial. Poteet used Miller’s appraisal and because Farmers did not have an appraisal, Poteet argued Miller’s opinions were uncontroverted. Poteet’s counsel in closing argued that no matter whether the damages were covered by the policy, they were all caused by Farmers’ breach of the appraisal provision as they would have been awarded in appraisal.

The jury found in favor of Poteet awarding $11,300.00 for personal property that was at issue during the appraisal process and, for a “natural, probable and foreseeable consequence of Farmers’ failure to comply with the appraisal provision,” $20,000.00 for the loss of fair market value of the residence, $6,500.00 for the reasonable and necessary attorney’s fees incurred by Poteet, and $1,500.00 for litigation expenses. In answering the attorney’s fee question, the jury determined the reasonable fee to be $165,000.00. The trial court rendered judgment on all of the damages and attorney’s fees awarded by the jury.

Second AppealFarmers Group Ins., Inc. v. Poteet, 434 S.W.3d 316 (Tex. App. – Fort Worth 2014, pet. denied)

Farmers appealed the judgment on three issues: 1) the trial court’s failure to limit trial issues to just the breach of appraisal provision; 2) the trial court’s rendering judgment for Poteet; and 3) the trial court’s failure to grant a judgment notwithstanding the verdict as to all damages except the damages and attorney’s fees arising from the breach of the appraisal provision. Farmers did not contest this part of the jury’s award.

The Court determined that the jury’s findings for $11,300.00 and $20,000.00 were necessarily based on unsegregated losses as it had previously held and thus Poteet could not recover those amounts.3 In this regard, the Court stated that it could not conceive of how an insurer’s failure to complete the appraisal process could produce property damage, and Poteet’s attempts to use the breach of the appraisal provision to recover damages that were not otherwise covered by the policy was a backdoor to get recovery. Id. at 325.

The Court affirmed the portion of the judgment awarding Poteet $6,500.00 for reasonable and necessary attorney’s fees incurred and $1,500.00 for reasonable and necessary litigation expenses associated with Farmers’ failure to comply with the appraisal provision. Citing a decision by the Houston Court of Appeals [14th Dist.] for support, the Court held that the attorney’s fees and costs of litigation awarded by the jury are recoverable as consequential damages for Farmers’ failure to comply with the appraisal provision. Id. at 326-328 citing its previous decision and Standard Fire Insurance Co. v. Fraiman, 588 S.W.2d 681 (Tex. Civ. App. – Houston [14th Dist.] 1979, writ ref’d n.r.e.). The Poteet court agreed with the Fraiman court that the appraisal provision is procedural in nature. Thus, these damages were “caused by” such breach, and attorney’s fees were likewise recoverable.

Finally, the Court remanded the case for determination of Poteet’s attorney’s fees. Citing Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299 (Tex. 2006) and Smith v. Patrick W. Y. Tam Trust, 296 S.W.3d 545 (Tex. 2009), the Court held that Poteet had failed to segregate her attorney’s fees related solely to the alleged breach of the appraisal provision.

Of note in this second appeal is comment from the Court that, arguably, expenses necessarily incurred in maintaining a house and loss of rental value could constitute recoverable consequential damages from a refusal or delay by the insurer to comply with the appraisal provision. Id. at 334.

In summary, Fraiman and Poteet are authority for the premise that attorney’s fees and costs of litigation, among other damages, are recoverable for an insurer’s breach of the appraisal provision.

This article was originally published here.

  1. Farmers had argued candles and the fireplace also contributed to smoke and soot damage in the home.
  2. “The evidence demonstrates that Farmers Group’s failure to participate in its own suit resulted in a dismissal of the case for want of prosecution. As a result, an umpire was never appointed and an amount of loss was never set by the appraisers.” Id. at *21.
  3. The Court determined that this was the “law of the case.”

This article was originally published on Insurance Law Section State Bar of Texas.