In, Barbara Techs. Corp. v. State Farm Lloyds, the Texas Supreme Court declared that the property insurance claim process is inherently adversarial and the adversarial process begins as soon as a claim is filed and ends only when the resolution of the claim is finally determined and accepted by the parties.

        Typically, the parameters of the claim are governed by the insurance policy. An insurance policy is a contract that establishes the respective rights and duties to which an insurer and its insured have mutually agreed. An insurance policy, however, is a unique type of contract because an insurer generally has exclusive control over the evaluation, processing, and denial of claims, and it can easily use that control to take advantage of its insured. Because of this inherent "unequal bargaining power," the Texas Supreme Court has declared that the "special relationship" between an insurer and insured justifies the imposition of a common-law duty on insurers to deal fairly and in good-faith with their insureds. Thus, an insurer can’t deny or delay payment of a claim absent a reasonable basis to do so.

        A claimant must carefully examine the policy to determine what is covered or excluded. However, the typical property insurance policy covers sudden and accidental direct physical loss to the insured premises, other structures, and contents. Named peril policies typically cover fire, lightning, wind, hail, theft, and water damage from a plumbing system or appliance, i.e., burst pipes from the Texas freeze in February of 2021. Under a named peril policy, the loss will not be covered unless it is a specifically identified peril, versus an all-risk policy that covers almost everything unless it is specifically excluded. Most policies exclude coverage for flooding, mold, wear and tear, deterioration, mechanical breakdown or viruses, such as COVID-19.

        The most common issue in first-party property claims is the scope and amount of a covered loss. This will manifest itself in several ways. First, a partial denial of a claim by the insurer, i.e., wear and tear or deterioration. Second, a dispute over the dollar amount of the claim where scope is not disputed. Finally, a dispute over the scope, but not the value of labor and materials for repairs. For example, whether all the wood floors throughout the home must be replaced in order to match undamaged areas.

        The insuring agreement in a basic property insurance policy states that payment for a covered loss will be on an actual cash value basis. This means replacement cost less deduction for depreciation. The replacement cost is limited to the cost of repair or replacement with similar materials on the same site and used for the same purpose. The payment shall not exceed the amount actually spent to repair or replace the damaged or destroyed property. Replacement cost valuation does not apply until the damaged or destroyed property is actually repaired or replaced. Beware of deadlines to make a replacement cost claim, typically a year from the date of loss.

        One method of resolving property insurance disputes is appraisal. Appraisal is an extra-judicial process to determine the amount of loss. Texas courts have held that appraisal awards made pursuant to the provisions of an insurance policy are binding and enforceable in the absence of fraud, accident or mistake. State Farm Lloyds v. Johnson, 290 S.W.3d 886, 888 (Tex.2009). Typically, the parties select their respective independent appraisers and if they’re unable to agree an umpire breaks the tie. An appraisal award signed by any two of the three-person panel is binding as to the amount of the loss.

        If the parties are unable to resolve the claim litigation usually ensues. The Texas Insurance Code creates a private action for damages caused by a person alleged to have engaged in an unfair or deceptive act or practice in the business of insurance or specifically enumerated in § 17.46(b), Business & Commerce Code, as an unlawful deceptive trade practice.

        Section 541.060 of the Texas Insurance Code prohibits a person from engaging in various unfair claim settlement practices. Further, Section 542 of the Texas Insurance Code established a series of procedural deadlines designed to facilitate the timely processing and payment of claims by insurers. Section 542.058 requires the insurer to pay the claim within 60 days of receiving all items, statements, and forms reasonably requested or else pay a penalty and reasonable attorney’s fees.

        First-party property litigation in Texas continues to evolve through legislation, new case law, policy amendments, and endorsements. This article has attempted to cover the broad principles and common themes in first-party property claims practice.