Much of the questioning from the Texas Supreme Court during oral arguments in a prompt payment dispute Wednesday morning focused on how to interpret a statute that would allow neither insurance companies nor policyholders to game the system when it comes to recovering attorney fees.
“I’m very concerned about what their construction can lead to,” Justice Jeff Boyd said to counsel for the policyholder. “But I’m also concerned about what your construction can lead to.”
Justices Boyd, Evan Young, Brett Busby and Jimmy Blacklock each questioned how the court could draw a line that wouldn’t incentivize policyholders to pursue litigation for the purpose of collecting attorney fees and wouldn’t incentivize insurers to delay payment so they can avoid paying attorney fees.
The state’s high court in July accepted a certified question from the U.S. Court of Appeals for the Fifth Circuit in Rodriguez v. Safeco Insurance Company that asks the court to interpret a state insurance law as it relates to recovery of attorney fees. The case originated in the Northern District of Texas and pits Mario Rodriguez against Safeco Insurance Company of Indiana.
The Fifth Circuit is seeking guidance on how a 2017 amendment to the state’s insurance code impacts a plaintiff’s ability to recover damages, including attorney fees, under the Texas Prompt Payment of Claims Act.
The question is:
- In an action under Chapter 542A of the Texas Prompt Payment of Claims Act, does an insurer’s payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney’s fees?
After a dispute arose over the cost to repair tornado damage caused to Rodriguez’ home, Rodriguez filed a lawsuit. Safeco then moved for summary judgment, arguing that because it ended up paying the appraisal award and interest, Rodriguez wasn’t permitted to seek attorney fees.
Safeco argued that because the statute says attorney fees are to be determined based on the “amount to be awarded in the judgment” and, because it paid up before any final judgment was entered, there is no opportunity for Rodriguez to recover attorney fees.
Rodriguez argued state lawmakers had not intended to eliminate the possibility for policyholders to recover attorney fees in cases like his where the appraisal process is invoked.
U.S. District Judge Sam R. Cummings granted the insurer summary judgment in October 2022, and this appeal followed the next month.
Only one intermediate appellate court, the Fifth Court of Appeals in Dallas, has ruled on the effect of the 2017 amendment, and federal courts have split on the issue.
In the only Texas case addressing the amendment, Rosales v. Allstate, Dallas County District Judge Bridgett Whitmore found that the insurer’s payment of the appraisal award eliminated Rosales’ ability to collect attorney fees.
In May, the Fifth Court of Appeals issued a 2-1 ruling affirming Judge Whitmore. Justice Emily Miskel wrote the majority opinion, and Justice Ken Molberg dissented without authoring an opinion.
Melissa Wray of Daly & Black, who represents Rodriguez in this case, is also representing Rosales in the case against Allstate. She filed a petition for review with the Texas Supreme Court on Rosales’ behalf last month that remains pending.
Wray told the justices Wednesday that interpreting the statute in a way that precludes her client from being made whole, which includes recovering attorney fees, would be an “absurd result.”
The appraisal panel determined the damage to Rodriguez’s home was about $36,500, dwarfing the roughly $1,300 covered damage estimate from Safeco. By the time Safeco paid the appraisal amount, three years after the tornado, Rodriguez had incurred nearly $30,000 in attorney fees.
“If Safeco feels like Mr. Rodriguez or some other insured is litigating for the sake of generating more attorney fees — if they think that’s happening — that will be reflected in the jury’s verdict because we have to prove up reasonable and necessary attorney fees,” she said.
Mark D. Tillman of Tillman Batchelor, who represents Safeco, fielded several questions from the justices about when would be too late in the litigation process for an insurer to decide to pay the appraisal amount and avoid liability for attorney fees.
Justice Boyd offered a hypothetical to illustrate what he said would be an “absurd result” based on Safeco’s interpretation of the statute: A $50 million building is destroyed, a claim is made, litigation ensues over the coverage dispute.
“You have five years of litigation, finally get to a jury trial and the jury finds for the insured,” he said. “You file a JNOV and the judge denies it, and the judge says ‘I’m going to award final judgment,’ and your client at that moment can write a check and avoid attorney fees.”
Tillman said he disagreed an insurer could pay the appraisal amount at that point in the process and avoid paying attorney fees.
“I think once trial has closed, I don’t think they can make that payment,” Tillman said.
Justice Busby asked Tillman to explain why, under the insurance company’s interpretation of the statute, there isn’t an incentive to wait until the day before final judgment to pay the appraisal to avoid paying attorney fees.
“I don’t think that could happen, but I can’t articulate why,” Tillman said. “I certainly have never seen it happen. You can’t take an extreme example — which is likely to never occur and certainly we haven’t seen it occur — and use it to overturn what is a plain-meaning statute that certainly is following the intent of the legislature.”
Rodriguez is also represented by James Willis of Daly & Black.
Safeco is also represented by Michael Diksa of Tillman Batchelor.
The case number is 23-0534.