October 6, 2023
A recent Law.com story by Adolfo Pesquera, “Does New Insurance Law Cut Out Attorney Fees? High Court to Decide”, reports that the Texas Supreme Court justices responding to a federal appellate certified question appeared perplexed about the lack of guidance on how or if attorneys could get paid on property-damage insurance claims. The justices heard oral argument on Rodriguez v. Safeco Ins. Co. of Indiana, a case that came to them from the U.S. Court of Appeals for the Fifth Circuit. A federal trial court granted the insurer summary judgment and the homeowner appealed.
The appeal argued that when Safeco invoked the policy appraisal provision after litigation began, and paid damages and interest, a Texas insurance law created by the legislature in 2017 did not intend to eliminate attorney fees. In examining the 2017 Texas Prompt Payment and Claims Act, the Fifth Circuit decided it could not interpret the law and asked the Supreme Court to weigh in on the issue.
Melissa W. Wray of Daly & Black, arguing for the homeowner, said the intent of the law is to promote prompt payment of insurance claims by imposing liability for statutory interest, attorney fees and prejudgment interest on insurers who do not pay claims in accord with the act’s deadline.
“Safeco asks the court to adopt an interpretation of the statute that would, in the context of attorneys fees, ignore the claim payment deadlines that the legislature has put in place and effectively redefine prompt payment of a claim to mean payment of a claim at any time up until the moment before the trial judge enters the final judgment,” Wray said.
Throughout the hearing, the justices grappled with a phrase in the law—”the amount to be awarded in the judgment”—and Justice Brett Busby began by referring to caselaw, Ortiz v. State Farm Lloyds (Texas 2019), where the supreme court said there is no claim for breach of contract when the insurer pays the appraisal award. “So, wouldn’t the ‘amount to be awarded’ in the judgment for your claim under the insurance policy be zero?” Busby asked.
Wray drew a distinction, moving away from a breach of contract claim, to argue damages was not necessarily relevant to an “amount to be awarded,” because the only defined term in the statute was a “claim.” “Safeco wants to interpret that as the amount of unpaid policy benefits for which the insurer remains liable at the time of judgment. Those words aren’t used in the statute,” Wray said.
When Safeco’s representative, Mark D. Tillman of Tillman Batchelor, rose to speak, the justices repeatedly tried to pin him down on when the language of the statute allegedly read attorney fees out of the act. “There has to be the possibility that a plaintiff can obtain a judgment,” Tillman argued. “The legislature clearly tied the ability to award attorney’s fees to, in the future, obtain a judgment. That simply cannot happen here.” Justices Busby, Jeff Boyd and Evan Young took turns arguing that point.
Boyd said Tillman was embracing the absurd argument that, speaking hypothetically, a $50 million building could be destroyed and insurance company disagrees with the amount damages claimed. “You have five years of litigation, finally get to a jury trial, the jury finds for the insured, and you file your JNOV and the judge denies it and the judge says ‘send me an order. I’m going to sign a final judgment awarding all this money,’ and your client at that moment can write a check and avoid all attorney’s fees,” Boyd said.
Busby jumped in, “You’re getting back to my question then. Where is the moment … when you’re looking at what is ‘to be awarded?’ To Boyd’s point, it’s not the day before the judgment is signed. So in the life of the case, when is it?”
Tillman said that in this particular case, the appraisal amount was paid immediately. “I understand, but we have to write the rule not just for your case,” Busby said. Justice Young asked, “What will inform the answer to that question if it’s not in the text of the statute?” Tillman finally said he did not know. Then we go right back to Justice Boyd’s hypothetical. I’m with him. I don’t understand where the line is if that’s the only thing the statue says and the only thing we’re guided by,” Young said.
Tillman argued Boyd’s hypothetical scenario was an extreme case and one he had never encountered in the real world. He told the court not to “throw the baby out with the bathwater” using an extreme example to overturn a statute intended to curb abuses by trial attorneys that led to its passage in the first place. “Then why not just embrace it and say, ‘Yeah, that’s an extreme hypothetical, not going to happen, but the statute says it and if it’s a problem there’s no judicially discernable way to draw that line, leave it to the legislature to fix that,” Young suggested.