Preview
FILED
5/20/2021 8:35 PM
FELICIA PITRE
DISTRICT CLERK
DALLAS CO., TEXAS
Margaret Thomas DEPUTY
CAUSE NO. DC-19-19170
TERRY SMITH, IN THE DISTRICT COURT OF
Plaintiff,
v.
DALLAS COUNTY, TEXAS
ACCEPTANCE INDEMNITY
INSURANCE COMPANY,
Defendant.
192NP JUDICIAL DISTRICT
PLAINTIFF’S RESPONSE IN OPPOSITION TO DEFENDANT’S MOTION TO
COMPEL APPRAISAL AND MOTION TO ABATE LITIGATION PENDING
APPRAISAL
COMES NOW Plaintiff Terry Smith and files this Response in Opposition to Defendant
Acceptance Indemnity Insurance Company’s (“Acceptance” or “Defendant”) Motion to Compel
Appraisal and Motion to Abate the Litigation, and will respectfully show the Court the following:
SUMMARY OF THE ARGUMENT
Appraisal is not always mandatory and can be waived by a party untimely seeking to
enforce it. Waiver of appraisal can be done expressly, or impliedly through conduct. A party
seeking to avoid appraisal must show waiver, as well as prejudice by having to participate in the
process. One key factor to determining waiver is the delay from the point of impasse to invocation
of the procedure. Impasse for waiver purposes, is reached when the parties cease negotiating the
“amount of the loss.” Here, impasse was reached on September 5, 2019, when Defendant, in
response to Plaintiff's 542A notice letter and offer to mediate the dispute prior to suit, stood by its
initial coverage determination that “there was no hail damage to the roof” and chose not to mediate
or negotiate further. Defendant then engaged in litigation in earnest for nearly two years before
ultimately invoking appraisal. This invocation was done for no other purpose than continued
gamesmanship and is only to delay resolution of the claim. The unexplained delay of nearly two
years is unreasonable, and clearly demonstrates waiver. This waiver is bolstered by Defendant’s
active participation in litigation, including engaging in discovery, and depositions.
Moreover, Defendant represents to the Court that appraisal would serve to conserve judicial
resources and encourage the efficient resolution of this claim. In fact, the opposite is true. One of
the central disputes in this case is the cause of the damages to Plaintiff's roof. Plaintiff and its
experts contend that the damages are from hail. Defendant and its experts contend that “there was
no hail damage to the roof.” This dispute cannot be resolved by appraisal, which would only set
the “amount of the loss” but would be silent on the issue of causation or coverage, which would
have to be litigated anyway. Had Defendant opted to invoke appraisal at the outset of this dispute,
then perhaps their arguments would have more merit, but they chose to wait for almost two years.
Defendant’s position is that “there was no hail damage to the roof.” This is the dispute, and that
dispute cannot be resolved by appraisal.
It is for that same reason that abatement is inappropriate, as there are numerous issues that
appraisal cannot address. Specifically, Plaintiff brought suit on breach of contract (which has a
liability and damages question), and numerous violations of the Texas Insurance Code. Appraisal
would seek only to pause those issues, not resolve them. Appraisal would potentially answer only
the damages question with regards to Plaintiff’s claim of breach, but would leave the remaining
issues (liability, and statutory violations) unresolved. Meaning that as soon as appraisal ended, the
parties would be back in essentially the same position. Should the court agree that appraisal is
warranted, the parties should be permitted to continue to engage in their discovery so that the
remainder of Plaintiff's claims (which are not subject to appraisal) will move forward
expeditiously.
FACTUAL BACKGROUND
On April 26, 2017, Plaintiff Terry Smith’s property was damaged in a severe
wind/hailstorm. At the time of the storm, the property was insured with Defendant Acceptance.
Acceptance was put on notice of this claim on December 14, 2018.' Independent Adjuster Bruce
Arambula was assigned to adjust the loss on Acceptance’s behalf.” Mr. Arambula, a fully qualified
and licensed adjuster, inspected the property four days later on December 18, 2018, and issued his
report to Acceptance on December 21, 2018.° Specifically, Mr. Arambula’s investigation
“revealed that the damages were caused by apparent hail damages to the roof and associated soft
metals on the roof top, due to a wind and hail storm on 4/25/17."4 Mr. Arambula’s report went on
to state that “we marked 4 test squares on the 122,400-sf roof. We found 8+ impact marks in all
four test squares.”> Mr. Arambula confirmed that the impact marks were indeed caused by hail
occurring during the policy period, stating that “We are familiar with the area and have first hand
(sic) knowledge of hail being in this area.”° Based upon all that, Mr. Arambula’s report concluded
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that “We have recommended the replacement of the modified bitumen and 3-tab shingles.
Plaintiff's roof is a flat roof comprised of modified bitumen, with a perimeter edge of 3-tab
shingles.
Acceptance received this report, and on January 16, 2019 Adjuster Timi Ayotunde
acknowledged Mr. Arambula’s findings, stating in Acceptance’s claim notes: “According to the
' See Exhibit 1.
? See Exhibit 2.
3 See Exhibit 3.
4 Td. at p. 1 (emphasis added).
$Id. at p. 2.
° Td.
‘Id.
IA Bruce Arambula, there is confirmed hail damage to the modified hail damage to the modified
(sic) bitumen roofing and the soft metals which include the parapet wall caps and the air condenser
fins.”® However, despite Acceptance’s own chosen Independent Adjuster “confirming” hail
damage and recommending replacement of the roofs, Acceptance retained the services of
engineering firm Haag Engineering. Haag Engineering is one of several engineering firms
frequently relied upon by insurance companies in bolstering denials. Haag engineer Robert
Fleishman inspected on January 21, 2019 and issued his report on February 6, 2019. Not
surprisingly, Mr. Fleishman contradicted Mr. Arambula entirely, stating in his report that “Our
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close examination of the modified bitumen membrane confirmed that it was not damaged by hail.
Mr. Fleishman concluded his report with the succinct statement: “There was no hail damage to the
roof.”!° Mr. Fleishman did determine that there was hail damage to the air condenser units, and
found wind damage (not hail) to the 3-tab shingles that form the perimeter of the roof.!!
Based upon this report, on February 12, 2019 Acceptance denied coverage for the damages
claimed (and confirmed by Mr. Arambula to be present) on the modified bitumen portion of the
roof, and issued a payment for $17,488.76, which included payment only for the wind damaged
shingled perimeter portion of the roof, and payment for the hail damaged AC units.'? Importantly,
at no point did Acceptance issue payment for any of the damages claimed to the modified bitumen
roofs. No payment was issued because, as Mr. Fleishman stated, “there was no hail damage to the
roof”3
8 See Exhibit 4 (excerpt of Defendant’s claim notes).
° See Exhibit 5 at p. 6.
10 Td. at p. 8.
"id.
} See Exhibit 6.
13 Exhibit 5 at p. 8.
After receiving Acceptance’s coverage determination, Mr. Smith retained the services of a
professional Public Insurance Adjuster, Suncoast Claims, who submitted their Notice and Letter
of Representation the very same day on February 12, 2019.'* Acceptance’s claim determination
remained unchanged. In fact, on April 9, 2019 adjuster Timi Ayotunde re-iterated Acceptance’s
position that while hail impacted the AC units and wind damaged the small, shingled roof areas,
there was no hail damage to the main modified bitumen roofs.'> Specifically, Adjuster Ayotunde
stated “we identified what the hail damages were and paid for them.”'® At the insistence of the
Public Adjuster, a third inspection of the roof was held on April 22, 2019.'” In attendance was Mr.
Fleishman of Haag Engineering, and Mr. Trent Gagnon of Suncoast Claims.'® Following that
inspection, Haag’s, and therefore Acceptance’s, position remained unchanged: “there was no hail
damage to the roof.”'? This was confirmed by Adjuster Ayotunde on May 9, 2019, who stated
flatly to the Public Adjuster “nothing has changed with regards to the facts of this loss. 20
Shortly thereafter, Mr. Smith engaged undersigned counsel, who placed Acceptance on
notice of the representation on June 10, 2019.2! Then, on August 6, 2019, Mr. Smith, through
counsel, provided Acceptance with his TEx. INS. CODE 542A.003 Notice. This notice outlined
specifically the facts of the claim and stated that the proper amount of the loss was not the $17,488
paid by Acceptance but was actually $286,308.79.” The notice letter further stated that should
Acceptance wish to further negotiate regarding the amount of the loss, a mediation within the next
14 See Exhibit 7.
15 See Exhibit 8.
16 Td.
17 See Exhibit 9 at p. 2.
18 Td. at p. 3.
"Td. at p.
20 See Exhibit 10.
21 See Exhibit 11.
2 Se Exhibit 12 at pp. 3-4.
90 days would be agreeable. Immediately after the mediation suggestion, the letter contained the
following language:
Texas law provides that a party seeking to invoke appraisal must do so within a
reasonable time after the parties reach an impasse. In this communication, I have
endeavored to provide a detailed assessment of the Smiths’ claim, so that you can
decide whether we are at an impasse. Should AIIC wish to have a productive
discussion towards settlement, I would not contend that good faith settlement
discussions result in waiver of any contractual right to appraisal. However, in the
event AAIC chooses not to respond to this notice letter, I will conclude that the
parties have reached an impasse and will file a lawsuit to enforce the Smiths’ rights
under the Policy and Texas law. / ask that you exercise any appraisal rights under
the policy immediately, and avoid the abusive practice of delaying the invocation
of appraisal until after a mediation, following negative developments in discovery,
or to avoid a trial setting. This type of gamesmanship is improper and drives up
costs for all parties. Accordingly, if AIIC seeks to invoke the appraisal process, it
should do so not later than sixty (60) days after receipt of this notice letter.>
Almost two years later, exactly what undersigned counsel warned about in August 2019 is
occurring.
A month later, on September 5, 2019, Counsel for Acceptance responded to this notice
letter. That letter largely ignored the initial findings of its independent adjuster, regurgitated the
findings of Haag Engineering, and reiterated Acceptance’s position that “there was no hail damage
to the roof.”* Crucially, that response letter mentioned neither the proposed mediation
recommended in Plaintiff's 542A notice letter, nor the possibility of invoking the appraisal
process. Instead, Acceptance stood firm on its position that there were no covered damages to
Plaintiff's roof. The offer to mediate within the 60-day notice period was rejected. There was no
indication that further negotiations regarding the amount of the loss were agreeable. The message
sent by Acceptance was clear: our position is unchanged, “there was no hail damage to the roof.”
23 Td. at p. 5. (emphasis added)
24 See Exhibit 12 at p. 2.
Based on Acceptance’s response that its position remained unchanged and refusal to
mediate the disputed claim, Plaintiff filed suit on December 29, 2019. Following that suit, for the
first time, Defendant proposed mediation. Plaintiff agreed, and that mediation took place on June
29, 2020.75 The matter did not settle. At no point from the August response letter through the
mediation almost a year later, was the possibility of appraisal ever mentioned.
After the failed mediation, it was clear to both parties that given the vast divergence in
views, discovery and depositions were required. Defendant agreed, as they inspected the property
again on August 31, 2020 with new experts (presumably hired for litigation purposes), and served
Plaintiff with discovery requests on January 7, 2021, which Plaintiff answered on February 8,
2021. Plaintiff served Defendant with its first set of discovery on October 19, 2020, which
Defendant answered on November 18, 2020. The parties engaged in scheduling and conducting
depositions, including the deposition of Mr. Fleishmann of Haag Engineering on January 7, 2021.
Plaintiff designated experts on September 18, 2020, and filed its first amended petition on October
30, 2020. An issue arose during the deposition of Mr. Fleishman (related to an assertion of
privilege), which required the deposition be suspended. On April 8, 2021, after Plaintiff was forced
to file a Motion to Compel, Defendant withdrew its claims of privilege, and agreed to produce Mr.
Fleishman a second time.
Essentially, from June 29, 2020 for almost an entire year, the parties engaged in discovery
in earnest, preparing the matter for eventual trial. Then suddenly, after actively engaging in
discovery, 11 months after the failed mediation, 16 months after suit filed, 20 months after
receiving Plaintiffs statutory notice letter, for the very first time Defendant attempted to invoke
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the appraisal provision of the policy on April 13, 2021.
25 See Exhibit 14.
26 See Exhibit 15.
ARGUMENTS & AUTHORITIES
Appraisal of the amount of loss is intended to take place before suit is filed. Jn re Allstate
Vehicle & Prop. Ins. Co., 549 S.W.3d 881, 887 (Tex. App. — Dallas 2018). The Texas Supreme
Court (and other courts) has held that it is a condition precedent to suit. State Farm Lloyds v.
Johnson, 290 S.W.3d 886, 894 n.42 (Tex. 2008). However, courts have universally acknowledged
that a party may waive a condition precedent required prior to filing suit, including the right to an
appraisal of the amount of the loss. In re Allstate, 549 S.W.3d at 887; citing Sun Expl. & Prod. Co.
v. Benton, 728 S.W.2d 35, 37 (Tex. 1987)(“‘a condition precedent may be waived ... and the waiver
of a condition precedent may be inferred by a party’s conduct.”); see also G.T. Leach Builders,
LLC v. Sapphire V.P., LP, 548 S.W.3d 502, 511 (Tex. 2015)(“Waiver can occur either expressly,
through a clear repudiation of the right, or impliedly, through conduct.”). Implied waiver “i
largely a matter of intent, and for ... [waiver] to be found through a party’s actions, intent must be
clearly demonstrated by the surrounding facts and circumstances. Jernigan v. Langley, 111 8.W.3d
153, 156 (Tex. 2003).
In order to constitute waiver,
The acts relied upon must be such as are reasonably calculated to induce the insured
to believe that compliance by him with the terms and requirements of the policy is
not desired, or would be of no effect if performed. The acts relied upon must amount
to a denial of liability, or a refusal to pay the loss.
Inre Allstate, 549 8.W.3d at 888, citingIn re Universal Underwriters of Tex. Ins. Co., 345 8.W.3d
404, 407 (Tex. 2011). Essentially, “a waiver of rights under an appraisal provision by conduct
occurs only when the party engages in intentional conduct inconsistent with claiming that right.
Id.
A party’s unreasonable delay in invoking an appraisal clause is one key aspect, or factor,
of a waiver-by-conduct analysis. See In re Universal, 345 S.W.3d at 408 (“unreasonable delay is
a factor in finding waiver.”). Whether the party’s delay in invoking an appraisal clause is
reasonable or unreasonable depends on the time between the “point of impasse” in the parties’
negotiations concerning the amount of loss and the time the appraisal clause is invoked. /d. “Point
of Impasse” is a mutual understanding that neither party will negotiate further on the amount of
the loss. /d.
The party challenging the validity or enforceability of an appraisal clause based on waiver
bears the burden of establishing (1) waiver by conduct of the party seeking appraisal; and (2)
prejudice to itself (party claiming waiver of the appraisal clause). In re Allstate, 549 S.W.3d at
889. Here, Defendant waited nearly two years from point of impasse to invoke appraisal, which is
clear waiver. Moreover, Plaintiff is prejudiced by the fact that the cost of materials has increased
substantially during that time, which while arguably recoverable as a consequential damage for
Defendant’s breach, may not be recoverable through appraisal, clearly prejudicing Plaintiff from
the delay. Had Defendant invoked this procedure years before, the gap between the recoverable
costs and current costs would be much smaller. Moreover, there is a substantial bad faith
component to this claim. However, while it is well-settled that Plaintiffs claims for violation of
the Prompt Payment of Claims Act survives payment of an appraisal award, it is less settled
regarding Defendant’s violation of the Unfair Claims Settlement Practices Act. Thus, Plaintiff is
further prejudiced by the fact that it risks losing its ability to prosecute a key aspect of its claims
against Defendant, as it has already had to expend substantial time and money pursuing that claim
for the last almost two years.
1 Acceptance Has Waived Appraisal by its Conduct in this Litigation.
a. Impasse was reached on September 5, 2019.
Whether appraisal has been waived is a very fact-intensive inquiry. The consideration is at
what point was “impasse” reached between the parties, and at what point did negotiations
surrounding “the amount of the loss” cease. Here, despite Defendant’s contentions, negotiations
surrounding the “amount of the loss” ceased at the very latest on September 5, 2019, when
Defendant responded to Plaintiff's statutory 542A notice letter, refusing Plaintiff's proposal to
mediate prior to suit, and stated that its position was wholly unchanged (“there was no hail damage
to the roof’). At the time of Plaintiff's notice, minimal attorney’s fees had been incurred, and at
that point, the only amounts which Defendant would have been legally obligated to pay were those
amounts stated in the 542A notice, i.e. the amount of the loss.
Then, as Plaintiff expressly made clear in its notice letter, when suit was filed the amounts
sought by Plaintiff were well beyond simply “the amount of the loss.” The parties were no longer
negotiating a disputed insurance claim, they were discussing the settlement of a lawsuit. Once
Plaintiff filed suit, Plaintiff was seeking not only the “amount of the loss” but penalty interest
available under the Texas Civil Practices and Remedies Code, penalty interest available under the
Texas Insurance Code Prompt Payment of Claims Act, increased attorney’s fees, compensatory
damages, consequential damages, and exemplary damages recoverable for Defendant’s violation
of the Unfair Claims Settlement Practices Act. Defendant was on notice that it had 60 days to
negotiate the amount of the loss prior to suit being filed. They chose not to do so. Thus, any
negotiations post-suit were not negotiations about “the amount of the loss” at all but the amounts
owed in settlement and resolution of a multi-faceted lawsuit, which are not the same thing.
Defendant is not saved, and the point of impasse is not reset, because the parties engaged
in fruitless settlement negotiations after suit was filed. Engaging in settlement negotiations post-
suit does not equate to negotiations involving the “amount of the loss” for purposes of determining
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impasse for an appraisal. Jn re Allstate Vehicle and Prop. Ins. Co., 549 S.W.3d 881 (Tex. App. —
Fort Worth 2018) is particularly instructive in this regard. There, in affirming the trial court’s
finding of waiver of the appraisal provision by Allstate, the Court of Appeals cited approvingly
the ruling on the record made by the trial court:
All right. Well, you can’t look at it in a vacuum. And I don’t think the time in and
of itself — and, in fact, I really think it’s almost silly the way they claim when an
impasse is met because as somebody who’s practiced law for 30 years, I know that
Friday before Monday trials cases that have been at an impasse for years suddenly
get resolved because people know that there’s a jury waiting on Monday. In fact,
we have them settle Monday morning. ... if we knew we wanted to have a third-
party appraisal done, we should have done it then rather than saying we needed this
to prepare for trial. Jn re Allstate, 549 S.W.3d at 886-87
This logic makes sense, where, as here, parties continued to negotiate the possible settlement of a
lawsuit while preparing the matter for trial. If it were the case that mere settlement discussions of
any kind were enough to prolong the reaching of impasse, then all a Defendant insurer need do to
avoid waiver is continue to offer negligible sums to an insured under the guise of “negotiation,”
effectively rendering waiver impossible. The Fort Worth Court of Appeals rejected such a practice,
and reiterated this very logic, holding that:
A lawsuit settlement offer like the one Allstate made to Jackson here — an offer to
pay $24,000 (TWENTY-FOUR THOUSAND AND NO/DOLLARS in new money
in exchange for a complete release of all claims [breach of contract, DTPA
violations, Texas Insurance Code Violations, breach of duty of good faith and fair
dealing, fraud and negligent misrepresentation, property damage, and attorney’s
fees] against Defendant Allstate and a dismissal with prejudice of the above-
referenced suit — is not a negotiation concerning the “amount of loss.” Allstate
cannot make a settlement offer to pay money in exchange for the dismissal with
prejudice of all of Jackson’s claims against it and then argue that its settlement offer
in fact constituted “good faith negotiations concerning the amount of loss suffered
by the insured.” ... a rejected settlement offer does not create a new “point of
impasse concerning the amount of loss” that will make an untimely demand for an
appraisal timely... In re Allstate, 549 S.W.3d at 890 (emphasis original).
Here, the window to negotiate the amount of the loss was created by statute when the Texas
Legislature enacted TEX. INS. CODE §§ 542A.001-007 in 2017. The purpose behind these notice
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requirements was to provide an insurer with adequate notice of a dispute and to encourage
resolution of that dispute without having to resort to litigation. Defendant could have engaged in
further negotiation of the amount of the loss, it chose not to. Therefore, impasse was reached on
September 5, 2019 when Acceptance stated flatly that its position remained unchanged.
A delay from September 5, 2019, to April 13, 2021 (one year and seven months) is not a
reasonable amount of time to invoke appraisal. Invoking appraisal at this late-phase of the litigation
can be for no other purpose than the very delay and gamesmanship Plaintiff warned about in its
August 6, 2019 notice letter.
b. Defendant’s Litigation Conduct Further Demonstrates Waiver
Defendant actively engaged in the litigation of this claim from the outset, including serving
and responding to discovery requests, arranging for inspections by litigation experts, and the
conducting of depositions. Again, in determining whether a party as waived appraisal by its
litigation conduct, Jn re Allstate is instructive. In that case, Defendant Allstate conducted numerous
inspections of the insured’s property (here Defendant has conducted no less than 5 inspections of
Plaintiff's property), actively engaged in discovery and depositions (Defendant has served and
responded to discovery requests, participated in depositions, and confirmed more depositions to
take place in the coming weeks), and made offers to the insured to resolve the case (the parties
engaged in settlement discussions that yielded no resolution). Jn re Allstate 549 S.W.3d 884-885.
Each of the things the Court relied upon to find waiver by Allstate has occurred here. Where a
party engages in litigation, including depositions, inspections, and additional discovery, that party
has evidenced an implied waiver of the appraisal provision. /d. At 891.
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ii. Appraisal at this juncture will Greatly Prejudice Plaintiff
Forcing Plaintiff to participate in the appraisal process at this late-stage of the litigation
will harm Plaintiff in the following ways:
The exponential increase in material prices during the nearly two years Defendant
waited to invoke appraisal
The substantial bad-faith component of the claim that Defendant will seek to avoid
through appraisal
Plaintiff's policy contains an endorsement defining Actual Cash Value to be “the amount
it would cost to repair or replace Covered Property, at the time of loss or damage, with material of
like kind and quality, subject to a deduction for deterioration, depreciation and obsolescence.”’
Arguably, under this provision, the “amount of the loss” would potentially be limited to what the
repairs would have cost Plaintiff in April 2017, the time of the loss.?*
To quantify the increase in cost from 2018 (when the claim was filed) to today, Plaintiff
asked its retained expert Forensic Building Sciences to run its estimate for roof replacement,
utilizing pricing from various points over the pendency of this litigation.”° Essentially, the result
is an increase of over $30,000 from 2018 to 2021, with the replacement cost at $466,913.92 in
December 2018,°° which increased to $497,184.39 in April 2021.5’ Any increase from 2017 to
2018 would be Plaintiff's responsibility, as the claim was not reported until 2018, however the
subsequent increase would be solely the result of Defendant’s breach, and in a lawsuit is a
tecoverable consequential damage. The same could not be said for appraisal, as the “amount of the
loss” would arguably be limited to the cost as of April 2017. Thus, Plaintiff's prejudice comes in
27 See Defendant’s Motion to Compel Exhibit A-1 at p. 70 out of 142.
?8 There is an argument that Defendant has further waived this provision as well, however that is not at issue in the
current motion.
See Exhibit 16.
3° Td. at p. 12.
317d. at p. 26.
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losing its right to recover this increase as a consequential damage of Defendant’s breach, as it
would not be recoverable post-appraisal. Had Defendant invoked appraisal in 2018, or even in
2019, the material price increase would not have been as substantial as it is in 2021. Plaintiff's
prejudice is clear.
Next, this lawsuit involves much more than a mere breach of contract. In addition to breach
of contract, Plaintiff has brought suit for knowing and intentional violations of the Texas Insurance
Code’s Unfair Claims Settlement Practices Act (TEX. INS. CODE § 541.060), as well as for
violations of the Texas Insurance Code’s Prompt Payment of Claims Act (TEX. INS. CODE §
542.060), and common law bad faith. However, while it has been definitively held by the Texas
Supreme Court that an insured’s claims for violations of TEX. INS. CODE § 542.060 remain post-
appraisal, it is less certain whether an insured’s claims for violations of TEX. INS. CODE § 541.060
survive. See Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019),
Hinojos v. State Farm Lloyds, 619 S.W.3d 651 (Tex. 2021) (Affirming Barbara Technologies’
holding that payment of an appraisal award does not relieve Insurer of PPCA liability); but see
Garcia v. Lloyds, 514 S.W.3d 257, 278-79 (Tex. App. — San Antonio 2012)(dismissing insured’s
statutory bad faith claims post-appraisal)(rev’d on other grounds).
Plaintiff maintains that the holdings of Barbara Technologies and Hinojos clearly evidence
an intent that appraisal should not be permitted to serve as a cleansing device to alleviate a carrier’s
prior bad acts (colloquially referred to as “baptism by appraisal”). However, Plaintiff also
recognizes that it is not settled law yet, and based upon the flawed reasoning in Garcia and others
like it, Defendant could argue that payment of a favorable appraisal award forecloses Plaintiffs
statutory bad faith claims as a matter of law. Thus, even while Plaintiff has legitimate claims for
bad faith and violations of the Unfair Claims Settlement Practices Act, should the Court force
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Plaintiff to proceed through appraisal, and a favorable award be reached, Defendant will
undoubtedly move to dismiss Plaintiff's otherwise valid bad faith claims solely on the basis of
payment of an appraisal award. Without appraisal, Plaintiff's statutory and common law bad faith
claims may proceed on their merits, with a jury ultimately deciding their veracity. Thus, prejudice
is found in Plaintiff having an otherwise valid claim risk dismissal without a jury’s determination.
The prejudice is made more so based on the fact that Plaintiff has already expended substantial
time and expense in prosecuting a claim that nearly two years later Defendant seeks to avoid
through gamesmanship.
iii. Abatement is inappropriate, and Defendant actively engaging in discovery post-
invocation of appraisal clearly evidences a waiver of any alleged right to abate.
Even if the Court determines that Acceptance did not waive its right to appraisal, abatement
of the matter is inappropriate, and will only result in further delay post-appraisal. First of all,
abatement of the litigation during the pendency of appraisal is not automatic. Jn re Allstate County
Mut. Ins. Co., 85 S.W.3d 193, 196 (Tex. 2002)(“proceedings need not be abated while the appraisal
goes forward.”). Secondly, regarding the damages to the roof, there are two disputes, only one of
which is potentially resolved by appraisal. The first dispute is whether the roof was damaged by
hail, or some other excluded peril such as wear and tear, rust, deterioration, or installation defect,
or even damaged at all. Defendant made its position on the issue clear when it reiterated its view
that “there was no hail damage to the roof.” Plaintiff maintains that the roof is damaged due to
hail, Defendant maintains that it was not. That is the first dispute.
The second dispute is what it would cost to replace the roof, whether damaged by hail or
not. Appraisal is a tool to determine the amount ofa loss, i.e. the cost of replacing Plaintiffs roof,
should it be determined that Defendant is liable for those damages. State Farm Lloyds v. Johnson,
290 S.W.3d 886, 890-91 (Tex. 2008). While appraisal can be a tool for assessing amount, appraisal
15
cannot be a tool for assessing /iability for that amount. /d. Therefore, while appraisal might help
to answer the second question, regarding amount, appraisal is no help to the first and more central
questions of cause, coverage, and liability. This is further evidenced by the fact that even after
appraisal, Defendant still retains the right to deny the claim.** So Defendant is incorrect in its
assertion that appraisal would potentially resolve all disputes in this case, as that sentiment ignores
the position taken by Defendant throughout the claim and the litigation: “there was no hail damage
to the roof.” That issue will still have to be litigated after any appraisal award is reached.
Moreover, Defendant’s own conduct immediately after invoking appraisal clearly
evidences a waiver of any right to seek abatement. Defendant invoked appraisal on April 13,
2021.33 That invocation made no mention whatsoever of seeking to abate the litigation. Then, one
week later, before Plaintiff was even required to respond to the request for appraisal, Defendant
confirmed the deposition of its corporate representative, in spite of its demand for appraisal. In its
correspondence confirming this deposition, Defendant made no mention of any desire to abate the
litigation. So even if Plaintiff had agreed to the appraisal, this deposition would still have been
confirmed. Then, a few days later on April 29, 2021 Defendant confirmed the deposition of Bruce
Arambula, and on May 12, 2021 (the day afier filing its motion to compel and abate) confirmed
the second deposition of Robert Fleishman. Three depositions all confirmed by Defendant, one
confirmed after purportedly seeking abatement. If Defendant had earnestly intended to seek
abatement, the time to do so was immediately upon invoking appraisal, not over a month later after
confirming three depositions. Any right Defendant had to seek abatement was waived at the very
least on April 21, 2021 when Defendant confirmed the deposition of its own corporate
representative.
*2 See Exhibit 15; See also Exhibit A-1 to Defendant’s Motion to Compel Appraisal at p. 82 out of 142.
* See Exhibit 15.
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CONCLUSION
The right to seek appraisal was waived by Defendant when they waited nearly two years
before attempting to invoke that right. Impasse was reached when Defendant responded to
Plaintiff's notice letter with its position that “there is no hail damage to the roof.” Appraisal can
be appropriate in some cases, when it is timely invoked and when the dispute surrounds the
disagreed-upon costs for agreed-upon damages. It is not appropriate when the central dispute is
whether the property sustained damages or not. The law on the issue is clear: Defendant cannot
string the litigation along, participating actively for almost two years, and then seek an eleventh-
hour avoidance by appraisal. Yet that is precisely what Defendant is attempting to do here.
Defendant had the right to invoke appraisal in 2019. In 2021, that right has been waived.
WHEREFORE, Plaintiff respectfully requests this Court enter an order Denying in all
things Defendant’s Motion to Compel Appraisal and Abate.
Respectfully submitted,
GREEN KLEIN & WooD
By: /s/ Hunter M. Klein
HUNTER M. KLEIN
State Bar No.: 24082117
ROBERT D. GREEN
State Bar No.: 08368025
DELARAM FALSAFI
State Bar No.: 24113083
440 Louisiana Street, Suite 1900
Houston, Texas 77002
Telephone: (713) 654-9222
Facsimile: (713) 654-2155
klein@greentriallaw.com
green@grenntriallaw.com
falsafi@greentriallaw.com
ATTORNEYS FOR PLAINTIFF
17
CERTIFICATE OF SERVICE
Thereby certify that a true and correct copy of the foregoing document has been forwarded
by first class U.S. mail, hand delivery, fax, commercial delivery service, or electronic service on
this the 20" day of May 2021 to the following counsels of record:
Jennifer L. Gibbs
jgibbs@zelle.com
Bennett A. Moss
bmoss@zelle.com
Zelle LLP
901 Main Street, Suite 4000
Dallas, TX 75202
Facsimile: 214-760-8994
/s/ Hunter M. Klein
Hunter M. Klein
18
12/13/2018 4:23:21 PM (GMT-06:00)
Page: 1
INSURANCE
GROUP, FIRST NOTICE OF LOSS
Property Business
[AGENCY [Phone # & Ext 972-702-0500 ‘Company [NAIC Code: MISCELLANEOUS INFO(Site & Location code)
WESTERN SECURITY SURPLUS INS, ACCEPTANCE INDEMNITY INS CO
14001 N DALLAS PRKWY STE 470
DALLAS, Tx 40
[Agent Number :0000814 Policy Number |MoULE: EFFEC CTIVE DATE EXPIRAT ATION DATE
ep00112774 5/3/20 5i i201
INSURED CONTACT PREFERRED CONTACT #
NAME AND ADDRESS NAME AND ADDRESS [BEST TIME TO CONTACT:
TERRY SMITH TERRY SMITH
7221 MONTGOMERY RD 7221 MONTGOMERY RD
MIDLOTHIAN, TX 76065 MIDLOTHIAN.TX 76065
E-Mail Address Fax Number: E-Mail Address
Residence Phone S7Z3300072 [Business Phone Mobile Phone: Residence Phonei0773900272 _ [Business Phone Mobile Phone:
LOSS DETAILS [oounTwParish Ie DALLAS STATE 1X ZIPCODE 75236
LOCATION OF ACCIDENT = 4909 COCKRELL HILL RD DATE OF LOSS 4/26/2078 TIME OF LOSS
AUTHORITY CONTACTED REPORT# pa0aze18
[DESCRIPTION OF LOSS ROOF AND EXTERIOR DAMAGE DUE TO WIND AND HAll INDEPENDENT ADJUSTER NAME
INS WANTS CONTRACTOR TO BE PRESENT WITH INSPECTION
OF PROPERTY
Claimant 1
NAME AND ADDRESS [Residence Phone: 9723390272 [ssn Por: Medicare ?: No
TERRY SMITH [Business Phone: [Emait [Gender:
17221 MONTGOMERY RD Mobile Phone: Fax: Injuries 2: No.
MIDLOTHIAN TX 76065
Describe Damage ESTIMATE [Damage Location
REPORTING
DATE RECEIVED. 12/13/2018 [TIME RECEIVED. 16:20:00 PHONE NUMBER [9723390272
REPORTED TO (CAMILAB REPORTED BY PAT SMITH [AGENT PHONE
RELATION TO INSURED: INS.
INSURED REMARKS: LAIM CALLED IN
Gabriela RivasFriday, December 14, 2018 12:30:30 PM
001
IAT_000134
12/17/2018 7:45:36 AM (GMT-06:00)
FROM:
TO: timiayotunde@iatinsurance.com
CC: eclaims@iatinsurance.com
SENT; Friday, December 14, 2018 5:58:08 PM Eastern Standard Time
SUBJECT: Claim #112774390753 for Insured: Smith, Terry
I==
NKLER Winkler Treger & Associates
REGER
& ASSOCIATE
2600 McCormick Dr. Ste. 110
INDEPENDENT INSURANCE ADJUSTERS,
Clearwater, FL 33759
Phone: 727-442-4900
J
Fax: 727-442-4933
Tax ID #: 20-4873037
IAT Insurance Group ATTENTION: TIMI AYOTUNDE
702 Oberlin Rd
Raleigh, NC 27605
ACKNOWLEDGEMENT OF ASSIGNMENT
CLAIM INFORMATION
INSURED: Smith, Terry ADJUSTER: UNASSIGNED
INSURED POLICY #: CP00112774 LOSS DATE: 4/26/2018
OUR FILE #: TX0003015, LOSS TYPE: Hail
CLAIM #: 112774390753
This assignment was received from your office on December 14, 2018.
This will confirm receipt of the above referenced assignment. We will make contact with the insured and set up an appointment to
inspect the damages. After our inspection we will update you on claim status and make reserve recommendations. Thank you for this
assignment and please let us know if you need anything further at this time.
Sincerely,
UNASSIGNED
002
IAT_000136
1/14/2019 3:59:35 PM (GMT-06:00
INKLER
REGER
& ASSOCIATES
INDEPENDENT INSURANCE ADJU! RS
Commercial Final Report
12/21/2018
Attention: Timi Ayotunde
RE:
Insured: Terry Smith
Location of Loss: 4909 South Cockrell Hill Road, Dallas, TX, 75211
Policy No: C€P00112774
Date of Loss: 4/26/2018
Client Claim No.: 112774390753
Our Claim #: TX0003015
Coverage:
The insured’s policy form is a Commercial Property Policy under policy number CP00112774. This policy
was in effect from 5/3/2017 to 5/3/2018. The coverages are as follows:
Structure: Li S: Reserves:
Prem 1 Bldg 1: $1,000,000.00 a
insured/Mortgagee/Lienholder: The loss report identifies the named insured as Terry Smith. The
insured identified the mortgage as being held by None.
Representation: The insured has advised that they have not retained an attorney or public adjuster.
Risk:
The insured risk is a one-story office building. The risk is a frame structure with a brick veneer siding
exterior. The roof is a low slope design with a modified bitumen covering over wood decking, perlite
and ISO board. There is 12,520 sf of improved area, divided into multiple suites. The risk was
constructed in 1985 and appears to be in good condition.
Prior Loss Information: The assignment and loss notice received has no mention of prior claims.
Cause and Origin:
Our inspection revealed that the damages were caused by: apparent hail damages to the roof and
associated soft metals on the roof top, due to a wind and hail storm on 4/25/17. We also found that a
hail storm went through the area on 6/6/18. The insured is unsure of the actual loss date and only
discovered the damages, when a contractor, who was working on a roof down the street from this
location, asked if he could check the roof for damages. The insured is unsure of the age of the roof and
has only owned the property fro 2 years and has not made any repairs since buying the property. Based
on age and condition, we estimate the roof to be 10 years old. The insured has not made temporary
repairs.
2600 McCormick Dr., Ste. 110 Clearwater, FL.33759
‘Telephone (727) 442-4900 Fax (727) 442-4933
003
IAT_000143
1/14/2019 3:59:35 PM (GMT-06:00)
Investigation and Adjustment:
This loss was assigned to Winkler Treger & Associates on 12/14/2018. | spoke with Mr. terry Smith, on
12/15/2018. We discussed the scope of damage, scheduled an inspection and explained the claims
process in detail.
At the time of our inspection on 12/18/2018, we met with Mr. Smith and Adam Cavrell of Reclaim
Construction (972-364-7973).
My inspection revealed the following damages: We found dents to the parapet wall cap on all sides. We
foun
Preview
FILED 5/20/2021 8:35 PM FELICIA PITRE DISTRICT CLERK DALLAS CO., TEXAS Margaret Thomas DEPUTY CAUSE NO. DC-19-19170 TERRY SMITH, IN THE DISTRICT COURT OF Plaintiff, v. DALLAS COUNTY, TEXAS ACCEPTANCE INDEMNITY INSURANCE COMPANY, Defendant. 192NP JUDICIAL DISTRICT PLAINTIFF’S RESPONSE IN OPPOSITION TO DEFENDANT’S MOTION TO COMPEL APPRAISAL AND MOTION TO ABATE LITIGATION PENDING APPRAISAL COMES NOW Plaintiff Terry Smith and files this Response in Opposition to Defendant Acceptance Indemnity Insurance Company’s (“Acceptance” or “Defendant”) Motion to Compel Appraisal and Motion to Abate the Litigation, and will respectfully show the Court the following: SUMMARY OF THE ARGUMENT Appraisal is not always mandatory and can be waived by a party untimely seeking to enforce it. Waiver of appraisal can be done expressly, or impliedly through conduct. A party seeking to avoid appraisal must show waiver, as well as prejudice by having to participate in the process. One key factor to determining waiver is the delay from the point of impasse to invocation of the procedure. Impasse for waiver purposes, is reached when the parties cease negotiating the “amount of the loss.” Here, impasse was reached on September 5, 2019, when Defendant, in response to Plaintiff's 542A notice letter and offer to mediate the dispute prior to suit, stood by its initial coverage determination that “there was no hail damage to the roof” and chose not to mediate or negotiate further. Defendant then engaged in litigation in earnest for nearly two years before ultimately invoking appraisal. This invocation was done for no other purpose than continued gamesmanship and is only to delay resolution of the claim. The unexplained delay of nearly two years is unreasonable, and clearly demonstrates waiver. This waiver is bolstered by Defendant’s active participation in litigation, including engaging in discovery, and depositions. Moreover, Defendant represents to the Court that appraisal would serve to conserve judicial resources and encourage the efficient resolution of this claim. In fact, the opposite is true. One of the central disputes in this case is the cause of the damages to Plaintiff's roof. Plaintiff and its experts contend that the damages are from hail. Defendant and its experts contend that “there was no hail damage to the roof.” This dispute cannot be resolved by appraisal, which would only set the “amount of the loss” but would be silent on the issue of causation or coverage, which would have to be litigated anyway. Had Defendant opted to invoke appraisal at the outset of this dispute, then perhaps their arguments would have more merit, but they chose to wait for almost two years. Defendant’s position is that “there was no hail damage to the roof.” This is the dispute, and that dispute cannot be resolved by appraisal. It is for that same reason that abatement is inappropriate, as there are numerous issues that appraisal cannot address. Specifically, Plaintiff brought suit on breach of contract (which has a liability and damages question), and numerous violations of the Texas Insurance Code. Appraisal would seek only to pause those issues, not resolve them. Appraisal would potentially answer only the damages question with regards to Plaintiff’s claim of breach, but would leave the remaining issues (liability, and statutory violations) unresolved. Meaning that as soon as appraisal ended, the parties would be back in essentially the same position. Should the court agree that appraisal is warranted, the parties should be permitted to continue to engage in their discovery so that the remainder of Plaintiff's claims (which are not subject to appraisal) will move forward expeditiously. FACTUAL BACKGROUND On April 26, 2017, Plaintiff Terry Smith’s property was damaged in a severe wind/hailstorm. At the time of the storm, the property was insured with Defendant Acceptance. Acceptance was put on notice of this claim on December 14, 2018.' Independent Adjuster Bruce Arambula was assigned to adjust the loss on Acceptance’s behalf.” Mr. Arambula, a fully qualified and licensed adjuster, inspected the property four days later on December 18, 2018, and issued his report to Acceptance on December 21, 2018.° Specifically, Mr. Arambula’s investigation “revealed that the damages were caused by apparent hail damages to the roof and associated soft metals on the roof top, due to a wind and hail storm on 4/25/17."4 Mr. Arambula’s report went on to state that “we marked 4 test squares on the 122,400-sf roof. We found 8+ impact marks in all four test squares.”> Mr. Arambula confirmed that the impact marks were indeed caused by hail occurring during the policy period, stating that “We are familiar with the area and have first hand (sic) knowledge of hail being in this area.”° Based upon all that, Mr. Arambula’s report concluded 7 that “We have recommended the replacement of the modified bitumen and 3-tab shingles. Plaintiff's roof is a flat roof comprised of modified bitumen, with a perimeter edge of 3-tab shingles. Acceptance received this report, and on January 16, 2019 Adjuster Timi Ayotunde acknowledged Mr. Arambula’s findings, stating in Acceptance’s claim notes: “According to the ' See Exhibit 1. ? See Exhibit 2. 3 See Exhibit 3. 4 Td. at p. 1 (emphasis added). $Id. at p. 2. ° Td. ‘Id. IA Bruce Arambula, there is confirmed hail damage to the modified hail damage to the modified (sic) bitumen roofing and the soft metals which include the parapet wall caps and the air condenser fins.”® However, despite Acceptance’s own chosen Independent Adjuster “confirming” hail damage and recommending replacement of the roofs, Acceptance retained the services of engineering firm Haag Engineering. Haag Engineering is one of several engineering firms frequently relied upon by insurance companies in bolstering denials. Haag engineer Robert Fleishman inspected on January 21, 2019 and issued his report on February 6, 2019. Not surprisingly, Mr. Fleishman contradicted Mr. Arambula entirely, stating in his report that “Our 99 close examination of the modified bitumen membrane confirmed that it was not damaged by hail. Mr. Fleishman concluded his report with the succinct statement: “There was no hail damage to the roof.”!° Mr. Fleishman did determine that there was hail damage to the air condenser units, and found wind damage (not hail) to the 3-tab shingles that form the perimeter of the roof.!! Based upon this report, on February 12, 2019 Acceptance denied coverage for the damages claimed (and confirmed by Mr. Arambula to be present) on the modified bitumen portion of the roof, and issued a payment for $17,488.76, which included payment only for the wind damaged shingled perimeter portion of the roof, and payment for the hail damaged AC units.'? Importantly, at no point did Acceptance issue payment for any of the damages claimed to the modified bitumen roofs. No payment was issued because, as Mr. Fleishman stated, “there was no hail damage to the roof”3 8 See Exhibit 4 (excerpt of Defendant’s claim notes). ° See Exhibit 5 at p. 6. 10 Td. at p. 8. "id. } See Exhibit 6. 13 Exhibit 5 at p. 8. After receiving Acceptance’s coverage determination, Mr. Smith retained the services of a professional Public Insurance Adjuster, Suncoast Claims, who submitted their Notice and Letter of Representation the very same day on February 12, 2019.'* Acceptance’s claim determination remained unchanged. In fact, on April 9, 2019 adjuster Timi Ayotunde re-iterated Acceptance’s position that while hail impacted the AC units and wind damaged the small, shingled roof areas, there was no hail damage to the main modified bitumen roofs.'> Specifically, Adjuster Ayotunde stated “we identified what the hail damages were and paid for them.”'® At the insistence of the Public Adjuster, a third inspection of the roof was held on April 22, 2019.'” In attendance was Mr. Fleishman of Haag Engineering, and Mr. Trent Gagnon of Suncoast Claims.'® Following that inspection, Haag’s, and therefore Acceptance’s, position remained unchanged: “there was no hail damage to the roof.”'? This was confirmed by Adjuster Ayotunde on May 9, 2019, who stated flatly to the Public Adjuster “nothing has changed with regards to the facts of this loss. 20 Shortly thereafter, Mr. Smith engaged undersigned counsel, who placed Acceptance on notice of the representation on June 10, 2019.2! Then, on August 6, 2019, Mr. Smith, through counsel, provided Acceptance with his TEx. INS. CODE 542A.003 Notice. This notice outlined specifically the facts of the claim and stated that the proper amount of the loss was not the $17,488 paid by Acceptance but was actually $286,308.79.” The notice letter further stated that should Acceptance wish to further negotiate regarding the amount of the loss, a mediation within the next 14 See Exhibit 7. 15 See Exhibit 8. 16 Td. 17 See Exhibit 9 at p. 2. 18 Td. at p. 3. "Td. at p. 20 See Exhibit 10. 21 See Exhibit 11. 2 Se Exhibit 12 at pp. 3-4. 90 days would be agreeable. Immediately after the mediation suggestion, the letter contained the following language: Texas law provides that a party seeking to invoke appraisal must do so within a reasonable time after the parties reach an impasse. In this communication, I have endeavored to provide a detailed assessment of the Smiths’ claim, so that you can decide whether we are at an impasse. Should AIIC wish to have a productive discussion towards settlement, I would not contend that good faith settlement discussions result in waiver of any contractual right to appraisal. However, in the event AAIC chooses not to respond to this notice letter, I will conclude that the parties have reached an impasse and will file a lawsuit to enforce the Smiths’ rights under the Policy and Texas law. / ask that you exercise any appraisal rights under the policy immediately, and avoid the abusive practice of delaying the invocation of appraisal until after a mediation, following negative developments in discovery, or to avoid a trial setting. This type of gamesmanship is improper and drives up costs for all parties. Accordingly, if AIIC seeks to invoke the appraisal process, it should do so not later than sixty (60) days after receipt of this notice letter.> Almost two years later, exactly what undersigned counsel warned about in August 2019 is occurring. A month later, on September 5, 2019, Counsel for Acceptance responded to this notice letter. That letter largely ignored the initial findings of its independent adjuster, regurgitated the findings of Haag Engineering, and reiterated Acceptance’s position that “there was no hail damage to the roof.”* Crucially, that response letter mentioned neither the proposed mediation recommended in Plaintiff's 542A notice letter, nor the possibility of invoking the appraisal process. Instead, Acceptance stood firm on its position that there were no covered damages to Plaintiff's roof. The offer to mediate within the 60-day notice period was rejected. There was no indication that further negotiations regarding the amount of the loss were agreeable. The message sent by Acceptance was clear: our position is unchanged, “there was no hail damage to the roof.” 23 Td. at p. 5. (emphasis added) 24 See Exhibit 12 at p. 2. Based on Acceptance’s response that its position remained unchanged and refusal to mediate the disputed claim, Plaintiff filed suit on December 29, 2019. Following that suit, for the first time, Defendant proposed mediation. Plaintiff agreed, and that mediation took place on June 29, 2020.75 The matter did not settle. At no point from the August response letter through the mediation almost a year later, was the possibility of appraisal ever mentioned. After the failed mediation, it was clear to both parties that given the vast divergence in views, discovery and depositions were required. Defendant agreed, as they inspected the property again on August 31, 2020 with new experts (presumably hired for litigation purposes), and served Plaintiff with discovery requests on January 7, 2021, which Plaintiff answered on February 8, 2021. Plaintiff served Defendant with its first set of discovery on October 19, 2020, which Defendant answered on November 18, 2020. The parties engaged in scheduling and conducting depositions, including the deposition of Mr. Fleishmann of Haag Engineering on January 7, 2021. Plaintiff designated experts on September 18, 2020, and filed its first amended petition on October 30, 2020. An issue arose during the deposition of Mr. Fleishman (related to an assertion of privilege), which required the deposition be suspended. On April 8, 2021, after Plaintiff was forced to file a Motion to Compel, Defendant withdrew its claims of privilege, and agreed to produce Mr. Fleishman a second time. Essentially, from June 29, 2020 for almost an entire year, the parties engaged in discovery in earnest, preparing the matter for eventual trial. Then suddenly, after actively engaging in discovery, 11 months after the failed mediation, 16 months after suit filed, 20 months after receiving Plaintiffs statutory notice letter, for the very first time Defendant attempted to invoke 26 the appraisal provision of the policy on April 13, 2021. 25 See Exhibit 14. 26 See Exhibit 15. ARGUMENTS & AUTHORITIES Appraisal of the amount of loss is intended to take place before suit is filed. Jn re Allstate Vehicle & Prop. Ins. Co., 549 S.W.3d 881, 887 (Tex. App. — Dallas 2018). The Texas Supreme Court (and other courts) has held that it is a condition precedent to suit. State Farm Lloyds v. Johnson, 290 S.W.3d 886, 894 n.42 (Tex. 2008). However, courts have universally acknowledged that a party may waive a condition precedent required prior to filing suit, including the right to an appraisal of the amount of the loss. In re Allstate, 549 S.W.3d at 887; citing Sun Expl. & Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987)(“‘a condition precedent may be waived ... and the waiver of a condition precedent may be inferred by a party’s conduct.”); see also G.T. Leach Builders, LLC v. Sapphire V.P., LP, 548 S.W.3d 502, 511 (Tex. 2015)(“Waiver can occur either expressly, through a clear repudiation of the right, or impliedly, through conduct.”). Implied waiver “i largely a matter of intent, and for ... [waiver] to be found through a party’s actions, intent must be clearly demonstrated by the surrounding facts and circumstances. Jernigan v. Langley, 111 8.W.3d 153, 156 (Tex. 2003). In order to constitute waiver, The acts relied upon must be such as are reasonably calculated to induce the insured to believe that compliance by him with the terms and requirements of the policy is not desired, or would be of no effect if performed. The acts relied upon must amount to a denial of liability, or a refusal to pay the loss. Inre Allstate, 549 8.W.3d at 888, citingIn re Universal Underwriters of Tex. Ins. Co., 345 8.W.3d 404, 407 (Tex. 2011). Essentially, “a waiver of rights under an appraisal provision by conduct occurs only when the party engages in intentional conduct inconsistent with claiming that right. Id. A party’s unreasonable delay in invoking an appraisal clause is one key aspect, or factor, of a waiver-by-conduct analysis. See In re Universal, 345 S.W.3d at 408 (“unreasonable delay is a factor in finding waiver.”). Whether the party’s delay in invoking an appraisal clause is reasonable or unreasonable depends on the time between the “point of impasse” in the parties’ negotiations concerning the amount of loss and the time the appraisal clause is invoked. /d. “Point of Impasse” is a mutual understanding that neither party will negotiate further on the amount of the loss. /d. The party challenging the validity or enforceability of an appraisal clause based on waiver bears the burden of establishing (1) waiver by conduct of the party seeking appraisal; and (2) prejudice to itself (party claiming waiver of the appraisal clause). In re Allstate, 549 S.W.3d at 889. Here, Defendant waited nearly two years from point of impasse to invoke appraisal, which is clear waiver. Moreover, Plaintiff is prejudiced by the fact that the cost of materials has increased substantially during that time, which while arguably recoverable as a consequential damage for Defendant’s breach, may not be recoverable through appraisal, clearly prejudicing Plaintiff from the delay. Had Defendant invoked this procedure years before, the gap between the recoverable costs and current costs would be much smaller. Moreover, there is a substantial bad faith component to this claim. However, while it is well-settled that Plaintiffs claims for violation of the Prompt Payment of Claims Act survives payment of an appraisal award, it is less settled regarding Defendant’s violation of the Unfair Claims Settlement Practices Act. Thus, Plaintiff is further prejudiced by the fact that it risks losing its ability to prosecute a key aspect of its claims against Defendant, as it has already had to expend substantial time and money pursuing that claim for the last almost two years. 1 Acceptance Has Waived Appraisal by its Conduct in this Litigation. a. Impasse was reached on September 5, 2019. Whether appraisal has been waived is a very fact-intensive inquiry. The consideration is at what point was “impasse” reached between the parties, and at what point did negotiations surrounding “the amount of the loss” cease. Here, despite Defendant’s contentions, negotiations surrounding the “amount of the loss” ceased at the very latest on September 5, 2019, when Defendant responded to Plaintiff's statutory 542A notice letter, refusing Plaintiff's proposal to mediate prior to suit, and stated that its position was wholly unchanged (“there was no hail damage to the roof’). At the time of Plaintiff's notice, minimal attorney’s fees had been incurred, and at that point, the only amounts which Defendant would have been legally obligated to pay were those amounts stated in the 542A notice, i.e. the amount of the loss. Then, as Plaintiff expressly made clear in its notice letter, when suit was filed the amounts sought by Plaintiff were well beyond simply “the amount of the loss.” The parties were no longer negotiating a disputed insurance claim, they were discussing the settlement of a lawsuit. Once Plaintiff filed suit, Plaintiff was seeking not only the “amount of the loss” but penalty interest available under the Texas Civil Practices and Remedies Code, penalty interest available under the Texas Insurance Code Prompt Payment of Claims Act, increased attorney’s fees, compensatory damages, consequential damages, and exemplary damages recoverable for Defendant’s violation of the Unfair Claims Settlement Practices Act. Defendant was on notice that it had 60 days to negotiate the amount of the loss prior to suit being filed. They chose not to do so. Thus, any negotiations post-suit were not negotiations about “the amount of the loss” at all but the amounts owed in settlement and resolution of a multi-faceted lawsuit, which are not the same thing. Defendant is not saved, and the point of impasse is not reset, because the parties engaged in fruitless settlement negotiations after suit was filed. Engaging in settlement negotiations post- suit does not equate to negotiations involving the “amount of the loss” for purposes of determining 10 impasse for an appraisal. Jn re Allstate Vehicle and Prop. Ins. Co., 549 S.W.3d 881 (Tex. App. — Fort Worth 2018) is particularly instructive in this regard. There, in affirming the trial court’s finding of waiver of the appraisal provision by Allstate, the Court of Appeals cited approvingly the ruling on the record made by the trial court: All right. Well, you can’t look at it in a vacuum. And I don’t think the time in and of itself — and, in fact, I really think it’s almost silly the way they claim when an impasse is met because as somebody who’s practiced law for 30 years, I know that Friday before Monday trials cases that have been at an impasse for years suddenly get resolved because people know that there’s a jury waiting on Monday. In fact, we have them settle Monday morning. ... if we knew we wanted to have a third- party appraisal done, we should have done it then rather than saying we needed this to prepare for trial. Jn re Allstate, 549 S.W.3d at 886-87 This logic makes sense, where, as here, parties continued to negotiate the possible settlement of a lawsuit while preparing the matter for trial. If it were the case that mere settlement discussions of any kind were enough to prolong the reaching of impasse, then all a Defendant insurer need do to avoid waiver is continue to offer negligible sums to an insured under the guise of “negotiation,” effectively rendering waiver impossible. The Fort Worth Court of Appeals rejected such a practice, and reiterated this very logic, holding that: A lawsuit settlement offer like the one Allstate made to Jackson here — an offer to pay $24,000 (TWENTY-FOUR THOUSAND AND NO/DOLLARS in new money in exchange for a complete release of all claims [breach of contract, DTPA violations, Texas Insurance Code Violations, breach of duty of good faith and fair dealing, fraud and negligent misrepresentation, property damage, and attorney’s fees] against Defendant Allstate and a dismissal with prejudice of the above- referenced suit — is not a negotiation concerning the “amount of loss.” Allstate cannot make a settlement offer to pay money in exchange for the dismissal with prejudice of all of Jackson’s claims against it and then argue that its settlement offer in fact constituted “good faith negotiations concerning the amount of loss suffered by the insured.” ... a rejected settlement offer does not create a new “point of impasse concerning the amount of loss” that will make an untimely demand for an appraisal timely... In re Allstate, 549 S.W.3d at 890 (emphasis original). Here, the window to negotiate the amount of the loss was created by statute when the Texas Legislature enacted TEX. INS. CODE §§ 542A.001-007 in 2017. The purpose behind these notice 11 requirements was to provide an insurer with adequate notice of a dispute and to encourage resolution of that dispute without having to resort to litigation. Defendant could have engaged in further negotiation of the amount of the loss, it chose not to. Therefore, impasse was reached on September 5, 2019 when Acceptance stated flatly that its position remained unchanged. A delay from September 5, 2019, to April 13, 2021 (one year and seven months) is not a reasonable amount of time to invoke appraisal. Invoking appraisal at this late-phase of the litigation can be for no other purpose than the very delay and gamesmanship Plaintiff warned about in its August 6, 2019 notice letter. b. Defendant’s Litigation Conduct Further Demonstrates Waiver Defendant actively engaged in the litigation of this claim from the outset, including serving and responding to discovery requests, arranging for inspections by litigation experts, and the conducting of depositions. Again, in determining whether a party as waived appraisal by its litigation conduct, Jn re Allstate is instructive. In that case, Defendant Allstate conducted numerous inspections of the insured’s property (here Defendant has conducted no less than 5 inspections of Plaintiff's property), actively engaged in discovery and depositions (Defendant has served and responded to discovery requests, participated in depositions, and confirmed more depositions to take place in the coming weeks), and made offers to the insured to resolve the case (the parties engaged in settlement discussions that yielded no resolution). Jn re Allstate 549 S.W.3d 884-885. Each of the things the Court relied upon to find waiver by Allstate has occurred here. Where a party engages in litigation, including depositions, inspections, and additional discovery, that party has evidenced an implied waiver of the appraisal provision. /d. At 891. 12 ii. Appraisal at this juncture will Greatly Prejudice Plaintiff Forcing Plaintiff to participate in the appraisal process at this late-stage of the litigation will harm Plaintiff in the following ways: The exponential increase in material prices during the nearly two years Defendant waited to invoke appraisal The substantial bad-faith component of the claim that Defendant will seek to avoid through appraisal Plaintiff's policy contains an endorsement defining Actual Cash Value to be “the amount it would cost to repair or replace Covered Property, at the time of loss or damage, with material of like kind and quality, subject to a deduction for deterioration, depreciation and obsolescence.”’ Arguably, under this provision, the “amount of the loss” would potentially be limited to what the repairs would have cost Plaintiff in April 2017, the time of the loss.?* To quantify the increase in cost from 2018 (when the claim was filed) to today, Plaintiff asked its retained expert Forensic Building Sciences to run its estimate for roof replacement, utilizing pricing from various points over the pendency of this litigation.”° Essentially, the result is an increase of over $30,000 from 2018 to 2021, with the replacement cost at $466,913.92 in December 2018,°° which increased to $497,184.39 in April 2021.5’ Any increase from 2017 to 2018 would be Plaintiff's responsibility, as the claim was not reported until 2018, however the subsequent increase would be solely the result of Defendant’s breach, and in a lawsuit is a tecoverable consequential damage. The same could not be said for appraisal, as the “amount of the loss” would arguably be limited to the cost as of April 2017. Thus, Plaintiff's prejudice comes in 27 See Defendant’s Motion to Compel Exhibit A-1 at p. 70 out of 142. ?8 There is an argument that Defendant has further waived this provision as well, however that is not at issue in the current motion. See Exhibit 16. 3° Td. at p. 12. 317d. at p. 26. 13 losing its right to recover this increase as a consequential damage of Defendant’s breach, as it would not be recoverable post-appraisal. Had Defendant invoked appraisal in 2018, or even in 2019, the material price increase would not have been as substantial as it is in 2021. Plaintiff's prejudice is clear. Next, this lawsuit involves much more than a mere breach of contract. In addition to breach of contract, Plaintiff has brought suit for knowing and intentional violations of the Texas Insurance Code’s Unfair Claims Settlement Practices Act (TEX. INS. CODE § 541.060), as well as for violations of the Texas Insurance Code’s Prompt Payment of Claims Act (TEX. INS. CODE § 542.060), and common law bad faith. However, while it has been definitively held by the Texas Supreme Court that an insured’s claims for violations of TEX. INS. CODE § 542.060 remain post- appraisal, it is less certain whether an insured’s claims for violations of TEX. INS. CODE § 541.060 survive. See Barbara Technologies Corp. v. State Farm Lloyds, 589 S.W.3d 806 (Tex. 2019), Hinojos v. State Farm Lloyds, 619 S.W.3d 651 (Tex. 2021) (Affirming Barbara Technologies’ holding that payment of an appraisal award does not relieve Insurer of PPCA liability); but see Garcia v. Lloyds, 514 S.W.3d 257, 278-79 (Tex. App. — San Antonio 2012)(dismissing insured’s statutory bad faith claims post-appraisal)(rev’d on other grounds). Plaintiff maintains that the holdings of Barbara Technologies and Hinojos clearly evidence an intent that appraisal should not be permitted to serve as a cleansing device to alleviate a carrier’s prior bad acts (colloquially referred to as “baptism by appraisal”). However, Plaintiff also recognizes that it is not settled law yet, and based upon the flawed reasoning in Garcia and others like it, Defendant could argue that payment of a favorable appraisal award forecloses Plaintiffs statutory bad faith claims as a matter of law. Thus, even while Plaintiff has legitimate claims for bad faith and violations of the Unfair Claims Settlement Practices Act, should the Court force 14 Plaintiff to proceed through appraisal, and a favorable award be reached, Defendant will undoubtedly move to dismiss Plaintiff's otherwise valid bad faith claims solely on the basis of payment of an appraisal award. Without appraisal, Plaintiff's statutory and common law bad faith claims may proceed on their merits, with a jury ultimately deciding their veracity. Thus, prejudice is found in Plaintiff having an otherwise valid claim risk dismissal without a jury’s determination. The prejudice is made more so based on the fact that Plaintiff has already expended substantial time and expense in prosecuting a claim that nearly two years later Defendant seeks to avoid through gamesmanship. iii. Abatement is inappropriate, and Defendant actively engaging in discovery post- invocation of appraisal clearly evidences a waiver of any alleged right to abate. Even if the Court determines that Acceptance did not waive its right to appraisal, abatement of the matter is inappropriate, and will only result in further delay post-appraisal. First of all, abatement of the litigation during the pendency of appraisal is not automatic. Jn re Allstate County Mut. Ins. Co., 85 S.W.3d 193, 196 (Tex. 2002)(“proceedings need not be abated while the appraisal goes forward.”). Secondly, regarding the damages to the roof, there are two disputes, only one of which is potentially resolved by appraisal. The first dispute is whether the roof was damaged by hail, or some other excluded peril such as wear and tear, rust, deterioration, or installation defect, or even damaged at all. Defendant made its position on the issue clear when it reiterated its view that “there was no hail damage to the roof.” Plaintiff maintains that the roof is damaged due to hail, Defendant maintains that it was not. That is the first dispute. The second dispute is what it would cost to replace the roof, whether damaged by hail or not. Appraisal is a tool to determine the amount ofa loss, i.e. the cost of replacing Plaintiffs roof, should it be determined that Defendant is liable for those damages. State Farm Lloyds v. Johnson, 290 S.W.3d 886, 890-91 (Tex. 2008). While appraisal can be a tool for assessing amount, appraisal 15 cannot be a tool for assessing /iability for that amount. /d. Therefore, while appraisal might help to answer the second question, regarding amount, appraisal is no help to the first and more central questions of cause, coverage, and liability. This is further evidenced by the fact that even after appraisal, Defendant still retains the right to deny the claim.** So Defendant is incorrect in its assertion that appraisal would potentially resolve all disputes in this case, as that sentiment ignores the position taken by Defendant throughout the claim and the litigation: “there was no hail damage to the roof.” That issue will still have to be litigated after any appraisal award is reached. Moreover, Defendant’s own conduct immediately after invoking appraisal clearly evidences a waiver of any right to seek abatement. Defendant invoked appraisal on April 13, 2021.33 That invocation made no mention whatsoever of seeking to abate the litigation. Then, one week later, before Plaintiff was even required to respond to the request for appraisal, Defendant confirmed the deposition of its corporate representative, in spite of its demand for appraisal. In its correspondence confirming this deposition, Defendant made no mention of any desire to abate the litigation. So even if Plaintiff had agreed to the appraisal, this deposition would still have been confirmed. Then, a few days later on April 29, 2021 Defendant confirmed the deposition of Bruce Arambula, and on May 12, 2021 (the day afier filing its motion to compel and abate) confirmed the second deposition of Robert Fleishman. Three depositions all confirmed by Defendant, one confirmed after purportedly seeking abatement. If Defendant had earnestly intended to seek abatement, the time to do so was immediately upon invoking appraisal, not over a month later after confirming three depositions. Any right Defendant had to seek abatement was waived at the very least on April 21, 2021 when Defendant confirmed the deposition of its own corporate representative. *2 See Exhibit 15; See also Exhibit A-1 to Defendant’s Motion to Compel Appraisal at p. 82 out of 142. * See Exhibit 15. 16 CONCLUSION The right to seek appraisal was waived by Defendant when they waited nearly two years before attempting to invoke that right. Impasse was reached when Defendant responded to Plaintiff's notice letter with its position that “there is no hail damage to the roof.” Appraisal can be appropriate in some cases, when it is timely invoked and when the dispute surrounds the disagreed-upon costs for agreed-upon damages. It is not appropriate when the central dispute is whether the property sustained damages or not. The law on the issue is clear: Defendant cannot string the litigation along, participating actively for almost two years, and then seek an eleventh- hour avoidance by appraisal. Yet that is precisely what Defendant is attempting to do here. Defendant had the right to invoke appraisal in 2019. In 2021, that right has been waived. WHEREFORE, Plaintiff respectfully requests this Court enter an order Denying in all things Defendant’s Motion to Compel Appraisal and Abate. Respectfully submitted, GREEN KLEIN & WooD By: /s/ Hunter M. Klein HUNTER M. KLEIN State Bar No.: 24082117 ROBERT D. GREEN State Bar No.: 08368025 DELARAM FALSAFI State Bar No.: 24113083 440 Louisiana Street, Suite 1900 Houston, Texas 77002 Telephone: (713) 654-9222 Facsimile: (713) 654-2155 klein@greentriallaw.com green@grenntriallaw.com falsafi@greentriallaw.com ATTORNEYS FOR PLAINTIFF 17 CERTIFICATE OF SERVICE Thereby certify that a true and correct copy of the foregoing document has been forwarded by first class U.S. mail, hand delivery, fax, commercial delivery service, or electronic service on this the 20" day of May 2021 to the following counsels of record: Jennifer L. Gibbs jgibbs@zelle.com Bennett A. Moss bmoss@zelle.com Zelle LLP 901 Main Street, Suite 4000 Dallas, TX 75202 Facsimile: 214-760-8994 /s/ Hunter M. Klein Hunter M. Klein 18 12/13/2018 4:23:21 PM (GMT-06:00) Page: 1 INSURANCE GROUP, FIRST NOTICE OF LOSS Property Business [AGENCY [Phone # & Ext 972-702-0500 ‘Company [NAIC Code: MISCELLANEOUS INFO(Site & Location code) WESTERN SECURITY SURPLUS INS, ACCEPTANCE INDEMNITY INS CO 14001 N DALLAS PRKWY STE 470 DALLAS, Tx 40 [Agent Number :0000814 Policy Number |MoULE: EFFEC CTIVE DATE EXPIRAT ATION DATE ep00112774 5/3/20 5i i201 INSURED CONTACT PREFERRED CONTACT # NAME AND ADDRESS NAME AND ADDRESS [BEST TIME TO CONTACT: TERRY SMITH TERRY SMITH 7221 MONTGOMERY RD 7221 MONTGOMERY RD MIDLOTHIAN, TX 76065 MIDLOTHIAN.TX 76065 E-Mail Address Fax Number: E-Mail Address Residence Phone S7Z3300072 [Business Phone Mobile Phone: Residence Phonei0773900272 _ [Business Phone Mobile Phone: LOSS DETAILS [oounTwParish Ie DALLAS STATE 1X ZIPCODE 75236 LOCATION OF ACCIDENT = 4909 COCKRELL HILL RD DATE OF LOSS 4/26/2078 TIME OF LOSS AUTHORITY CONTACTED REPORT# pa0aze18 [DESCRIPTION OF LOSS ROOF AND EXTERIOR DAMAGE DUE TO WIND AND HAll INDEPENDENT ADJUSTER NAME INS WANTS CONTRACTOR TO BE PRESENT WITH INSPECTION OF PROPERTY Claimant 1 NAME AND ADDRESS [Residence Phone: 9723390272 [ssn Por: Medicare ?: No TERRY SMITH [Business Phone: [Emait [Gender: 17221 MONTGOMERY RD Mobile Phone: Fax: Injuries 2: No. MIDLOTHIAN TX 76065 Describe Damage ESTIMATE [Damage Location REPORTING DATE RECEIVED. 12/13/2018 [TIME RECEIVED. 16:20:00 PHONE NUMBER [9723390272 REPORTED TO (CAMILAB REPORTED BY PAT SMITH [AGENT PHONE RELATION TO INSURED: INS. INSURED REMARKS: LAIM CALLED IN Gabriela RivasFriday, December 14, 2018 12:30:30 PM 001 IAT_000134 12/17/2018 7:45:36 AM (GMT-06:00) FROM: TO: timiayotunde@iatinsurance.com CC: eclaims@iatinsurance.com SENT; Friday, December 14, 2018 5:58:08 PM Eastern Standard Time SUBJECT: Claim #112774390753 for Insured: Smith, Terry I== NKLER Winkler Treger & Associates REGER & ASSOCIATE 2600 McCormick Dr. Ste. 110 INDEPENDENT INSURANCE ADJUSTERS, Clearwater, FL 33759 Phone: 727-442-4900 J Fax: 727-442-4933 Tax ID #: 20-4873037 IAT Insurance Group ATTENTION: TIMI AYOTUNDE 702 Oberlin Rd Raleigh, NC 27605 ACKNOWLEDGEMENT OF ASSIGNMENT CLAIM INFORMATION INSURED: Smith, Terry ADJUSTER: UNASSIGNED INSURED POLICY #: CP00112774 LOSS DATE: 4/26/2018 OUR FILE #: TX0003015, LOSS TYPE: Hail CLAIM #: 112774390753 This assignment was received from your office on December 14, 2018. This will confirm receipt of the above referenced assignment. We will make contact with the insured and set up an appointment to inspect the damages. After our inspection we will update you on claim status and make reserve recommendations. Thank you for this assignment and please let us know if you need anything further at this time. Sincerely, UNASSIGNED 002 IAT_000136 1/14/2019 3:59:35 PM (GMT-06:00 INKLER REGER & ASSOCIATES INDEPENDENT INSURANCE ADJU! RS Commercial Final Report 12/21/2018 Attention: Timi Ayotunde RE: Insured: Terry Smith Location of Loss: 4909 South Cockrell Hill Road, Dallas, TX, 75211 Policy No: C€P00112774 Date of Loss: 4/26/2018 Client Claim No.: 112774390753 Our Claim #: TX0003015 Coverage: The insured’s policy form is a Commercial Property Policy under policy number CP00112774. This policy was in effect from 5/3/2017 to 5/3/2018. The coverages are as follows: Structure: Li S: Reserves: Prem 1 Bldg 1: $1,000,000.00 a insured/Mortgagee/Lienholder: The loss report identifies the named insured as Terry Smith. The insured identified the mortgage as being held by None. Representation: The insured has advised that they have not retained an attorney or public adjuster. Risk: The insured risk is a one-story office building. The risk is a frame structure with a brick veneer siding exterior. The roof is a low slope design with a modified bitumen covering over wood decking, perlite and ISO board. There is 12,520 sf of improved area, divided into multiple suites. The risk was constructed in 1985 and appears to be in good condition. Prior Loss Information: The assignment and loss notice received has no mention of prior claims. Cause and Origin: Our inspection revealed that the damages were caused by: apparent hail damages to the roof and associated soft metals on the roof top, due to a wind and hail storm on 4/25/17. We also found that a hail storm went through the area on 6/6/18. The insured is unsure of the actual loss date and only discovered the damages, when a contractor, who was working on a roof down the street from this location, asked if he could check the roof for damages. The insured is unsure of the age of the roof and has only owned the property fro 2 years and has not made any repairs since buying the property. Based on age and condition, we estimate the roof to be 10 years old. The insured has not made temporary repairs. 2600 McCormick Dr., Ste. 110 Clearwater, FL.33759 ‘Telephone (727) 442-4900 Fax (727) 442-4933 003 IAT_000143 1/14/2019 3:59:35 PM (GMT-06:00) Investigation and Adjustment: This loss was assigned to Winkler Treger & Associates on 12/14/2018. | spoke with Mr. terry Smith, on 12/15/2018. We discussed the scope of damage, scheduled an inspection and explained the claims process in detail. At the time of our inspection on 12/18/2018, we met with Mr. Smith and Adam Cavrell of Reclaim Construction (972-364-7973). My inspection revealed the following damages: We found dents to the parapet wall cap on all sides. We foun