• Appraisal Umpire Exceeded Authority as To One Category of Damages, but Error Did Not Invalidate Entire Award
  • October 3, 2013
  • Law Firm: Martin Disiere Jefferson Wisdom L.L.P. - Houston Office
  • The Fifth Circuit last Tuesday ruled that an umpire should not have unilaterally removed a set of repairs from a final appraisal award, but concluded that the remainder of the reward was enforceable, and the insurer was not in breach of the policy because it paid the appraisal award plus the agreed amount for the repairs that the umpire improperly excluded. In TMM Investments, Ltd. V. Ohio Casualty Insurance Co., No. 12-40635, 2013 WL 5222625 (5th Cir. Sept. 17, 2013), the insured, a shopping center, had refused the insurer’s payment of an appraisal award resulting from a hailstorm claim. After the insurer’s appraiser and the umpire agreed on an amount of loss, the umpire while drafting the final award struck an agreed amount for damage to the insured’s heating, ventilation, and air conditioning system. The insurer tendered the amount of the award plus the amount of the HVAC system that the umpire removed. The insured took issue with the appraisal process and the ultimate award, rejected the tender, and filed a declaratory judgment action in state court.

    The insurer removed to federal court and the Federal District Court for the Eastern District of Texas ruled that the appraisal award should be set aside finding the umpire’s removal of the HVAC portion award was improper and also finding the umpire and the insurer’s appraiser should not have considered causation and coverage issues. The Fifth Circuit agreed the HVAC portion of the award was improperly deleted, but nevertheless reversed, finding that the error did not taint the remainder of the award. An umpire is not empowered to unilaterally modify an award where there is no disagreement - here, the amount for the HVAC was not in dispute between the appraisers selected by the parties. There was, however, no issue raised by any party concerning the propriety of the remainder of the award. The Fifth Circuit therefore held that the appraisal provision of the contract should be enforced as to the portions of the appraisal award unrelated to the HVAC system.

    The Fifth Circuit further held the District Court erred in concluding that causation was outside the purview of the appraisal panel. Relying on the Texas Supreme Court’s opinion in State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), the Fifth Circuit stated that “[a]t the very least ... appraisal panels are within their rights when they consider whether damage was caused by a particular event or was instead the result of non-covered pre-existing perils like wear and tear.” Thus, the appraisers properly considered causation of the alleged damages. Because the appraisal award was valid, the insurer’s tender of the appraisal amount plus the HVAC amount fulfilled the terms of the contract and the district court’s judgment to the contrary was reversed.