When Should the Texas Windstorm Insurance Association Pay an Appraisal Award?

By Robert Loree and Cassandra Pruski

When should the Texas Windstorm Insurance Association pay an appraisal award? This seemingly simple question does not have an easy answer. For most insurance companies doing business in Texas, Chapter 542 of the Texas Insurance Code and established recent case law govern when claims must be paid (regardless of the use of the appraisal process).1 The Texas statutory framework unique to the Texas Windstorm Insurance Association (“TWIA”), however, mandates use of the appraisal process, but exempts the TWIA from the Chapter 542 guidelines.2 This exemption presents a problematic lack of statutory guidance concerning the payment of appraisal awards by the TWIA. Before addressing the question of when the TWIA should make a payment, though, it is necessary to present some background and context about the TWIA and the claims process that results in an appraisal award.

Although the TWIA statute sets out the deadline for setting aside an appraisal award, neither the statute nor the TWIA policy provides a deadline for the completion of the appraisal process or payment of an appraisal award. Both are silent on the timing of payment, if neither party is going to attempt to set aside the award. This is a glaring hole in the statute.

What is the TWIA?

The TWIA is Texas’s windstorm and hail insurer of last resort for coastal counties and parts of Harris County.3 It was established by the Texas Legislature in 1971, after Hurricane Celia, to insure that people in high-risk areas could still procure hail and windstorm insurance.4 The TWIA is funded by a combination of policy premiums, the Catastrophe Reserve Trust Fund (CRTF), public securities, company assessments, and reinsurance.5

As part of the windstorm and hail coverage TWIA provides, its policies cover damages caused by wind-driven rain.6 They also cover loss of use of the insured property and consequential damages.7 TWIA policies do not cover flooding, which includes any damage from tidal or storm surges. Flood coverage is typically provided by a separate policy governed by the National Flood Insurance Program.

The TWIA had a troubled history after Hurricane Ike struck the Galveston and Houston area in 2008 (which is not detailed here), and that led the Texas Department of Insurance to order administrative oversight from February 2011 to April 8, 2016.8 As a result of this need for oversight, in July 2011 the Texas Legislature passed House Bill 3, which required increased transparency within the organization and overhauled the policy forms that TWIA issues. Most importantly, it removed TWIA claims from the purview of Chapters 541 and 542 of the Texas Insurance Code and the Texas Deceptive Trade Practices Act and created a new statutory process, unique to TWIA, for handling and resolving claims.9

What is the TWIA claim process?

The TWIA claims process is outlined in Tex. Ins. Code §§ 2210.571-.581.10 Under these sections, an insured has one year from the date of loss to file a claim.11 Within thirty days after the insured files a claim, the TWIA may request any information necessary to determine whether to accept or reject the claim.12

Generally, within sixty days of receiving the claim (or sixty days from the date it receives the information requested), the TWIA must provide the insured written notice of its claim decision.13 That notice must explain that the TWIA is accepting or rejecting the claim in full or in part; the reasons for its decision; and the amount it will pay, if any.14 If the TWIA accepts any portion of the insured’s claim, it must pay the accepted amount of the claim within ten days of providing the notice.15

If the insured disagrees with the amount the TWIA has paid on an accepted loss, the insured’s only recourse is to demand appraisal within sixty days after receiving the claim decision.16 If the insured does not timely demand appraisal, the insured is statutorily barred from suing the TWIA or otherwise contesting the accepted portion of the claim and any amount the TWIA has paid.17 If the insured disagrees with the TWIA’s decision on a denied loss (whether in full or in part), the insured may pursue litigation after providing notice to the TWIA.18

For the accepted claims, the appraisal process must be conducted in accordance with the terms of the TWIA’s policy, and the costs of appraisal are shared equally by the TWIA and the insured.19 Under the policy, the insured and the TWIA each select an individual appraiser to determine the amount of the loss.20 The appraisers then jointly select an umpire. If the appraisers cannot agree on the amount of the loss, it is then submitted to the umpire. An agreement by any two of these individuals determines the amount of the loss. The agreement is memorialized in a signed appraisal award.

While Tex. Ins. Code ch. 2210 for TWIA claims is detailed and specific on many issues, it is silent on the timing for the completion of the appraisal process and the deadline to pay a binding appraisal award. These omissions have led to delays and left many TWIA insureds waiting on policy benefits.

Bridge damage during Hurricane Harvey in Kemah, Texas.

Photo by Eric Overton, iStock.

An appraisal award issued as a result of the TWIA appraisal process is binding on the insured and the TWIA as to the amount of loss the TWIA will pay on all accepted portions of the claim.21 The amount of the award is not reviewable or appealable. An insured who disagrees with the appraisal award can only seek court intervention to set aside the appraisal award and begin a new appraisal process.22

Courts will only set aside the award in certain statutorily provided circumstances. First, Tex. Ins. Code § 2210.574(g) provides that an appraisal award in a TWIA claim can be set aside for fraud, corruption, partiality, or misconduct.23 It can also be set aside if the appraisers or umpire exceed their powers, refuse to consider evidence material to the claim, or conduct the appraisal in a manner prejudicial to the rights of the insured or the TWIA.24 An insured or the TWIA must bring suit to vacate an appraisal award within two years of that award.25 The TWIA also cannot bring an action against the insured for declaratory or other relief before the expiration of 180 days from the date of the appraisal award.26

So when should the TWIA pay an appraisal award?

Although the TWIA statute sets out the deadline for setting aside an appraisal award, neither the statute nor the TWIA policy provides a deadline for the completion of the appraisal process or payment of an appraisal award. Both are silent on the timing of payment, if neither party is going to attempt to set aside the award. This is a glaring hole in the statute.27 Either the Texas Legislature or the Texas Department of Insurance should rectify this omission and mandate specified time periods to complete the appraisal process, render an appraisal award, and pay the award.28

These statutory omissions have resulted in appraisals being delayed many months before the appraisal award is rendered, and then many more months before the award is paid. Often, the TWIA will not pay an appraisal award, claiming that it is beyond the scope of the TWIA’s original repair estimate and includes items that are not covered. This is done even though the appraisal is solely on the accepted/ covered portions of the claim and determines that scope of repairs.

Hurricane Ike damage.

Photo by Jodi Jacobson, iStock.

In practice, instead of moving to set an appraisal award aside for any of the applicable statutory grounds, the TWIA often just delays payment since there is no statutory deadline for the payment of an appraisal award. Without such a deadline, the TWIA can try to renegotiate the amount of the appraisal award to its liking before paying a reduced amount. Such delays often leave the TWIA’s insureds in a difficult position because they need the funds to make the necessary repairs.

In such circumstances, however, the insured is not without a remedy. While the TWIA statutory framework exempts the TWIA from certain laws, the TWIA statute only controls to the extent of any conflict between the TWIA statute and any other law.29 Here, because of the statutory framework and the TWIA’s policy’s silence on the matter, there is no conflict with the Texas common law on contracts.30 As a result, the insured is entitled to apply the well-settled contractual doctrine that when no time of performance is stated, the law will imply a reasonable time.31 While the reasonableness of any specific time period has not yet been litigated, the authors would suggest that ten days after the award is entered would be per se reasonable in light of the statute’s use of ten days for all other TWIA payments.32 Concurrent with that date, the Texas Legislature should also impose upon TWIA the requirement of notifying the insured of the reasons for denying the payment of an appraisal award and require TWIA to promptly move to set an appraisal award aside, if it intends to do so. Such deadlines should prevent delays and allow a TWIA insured to more promptly pursue its legal remedies, if necessary.

Conclusion

While Tex. Ins. Code ch. 2210 for TWIA claims is detailed and specific on many issues, it is silent on the timing for the completion of the appraisal process and the deadline to pay a binding appraisal award. These omissions have led to delays and left many TWIA insureds waiting on policy benefits. Simple amendments to Tex. Ins. Code §§ 2210.574(d) and (f) providing deadlines would easily resolve this problem. A bright-line rule would also facilitate the prompt payment of an appraisal award so that a TWIA insured could obtain the policy benefits necessary to repair its storm-damaged property, which is the goal of the whole appraisal process.

Robert Loree is the managing partner of Loree & Lipscomb, which specialized in representing policyholders across the country in insurance-related matters.

Cassandra Pruski is an associate at Loree & Lipscomb.