In answering a certified question from the Fifth Circuit, the Texas Supreme Court on Friday determined that a 2017 amendment to the state’s insurance code bars a plaintiff from recovering attorney fees if the insurer pays a full appraisal award plus interest.
The Fifth Circuit was seeking guidance on how the amendment impacts a plaintiff’s ability to recover damages, including attorney fees, under the Texas Prompt Payment of Claims Act.
The question was:
- 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?
The Texas Supreme Court unanimously answered yes.
Justice Jimmy Blacklock, writing for the court, said the answer to the question here comes down to following the Legislature’s instructions, and that “few legislative instructions are as inescapable as a math formula.”
“Rather than speculate about whether the Legislature intended recovery of attorney’s fees to be likely, unlikely, or impossible, we should instead stick with the bedrock principle that the Legislature intends the courts to follow its instructions as written. In this instance, the Legislature has required the use of a mathematical formula that yields zero attorney’s fees in cases like Rodriguez’s,” he wrote. “Whatever else judges or litigants may believe the Legislature intended when it enacted Chapter 542A, we know with certainty that the Legislature instructed courts to use the mathematical formula described in section 542A.007(a)(3) when determining the amount of attorney’s fees available to plaintiffs like Rodriguez. Whether we think the Legislature envisioned or anticipated the practical consequences of its attorney’s-fees formula is beside the point.”
If the Legislature doesn’t like “the consequences of the instructions it has given the courts, it obviously has every right to change them.”
During oral arguments in October, much of the Texas Supreme Court’s questioning focused on how to interpret the statute that would allow neither insurance companies nor policyholders to game the system when it comes to recovering attorney fees.
The justices 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.
After a dispute arose over the cost to repair tornado damage caused to Mario 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.
The appraisal panel determined the damage to Rodriguez’ 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.
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.
Rosales’ petition for review remained pending at the Texas Supreme Court Friday.
In this case, Rodriguez had argued that interpreting the statute in a way that precludes policyholders from being made whole, which includes recovery of attorney fees, would be an “absurd result.”
Justice Blacklock addressed that argument at the conclusion of the court’s 13-page opinion.
“The unavailability of attorney’s fees in cases like this one — or in any case — comes nowhere close to an unthinkable or unfathomable result. The default rule is the American Rule, under which parties pay their own attorney’s fees,” he wrote. “To the extent attorney’s fees are available at all in cases like this one, they are only available because the Legislature has created an exception to the American Rule. The Legislature’s later decision to restrict — or to eliminate entirely — an exception of its own creation and thereby to move back toward the default American Rule raises no absurdity concerns.”
Rodriguez is represented by Melissa Wray and James Willis of Daly & Black.
Safeco is represented by Mark D. Tillman and Michael Diksa of Tillman Batchelor.
The case number is 23-0534.