Texas Supreme Court Answers Certified Question in Favor of Insurer on Preclusion of Attorney’s Fees Under Texas Insurance Code Chapter 542A

March 5, 2024

When an insurer pays the full amount of an appraisal award plus statutory interest, the insured is precluded from recovering attorney’s fees under Chapter 542A of the Texas Insurance Code, according to a recent decision from the Texas Supreme Court.

Chapter 542A governs first-party claims that arise from “damage to or loss of covered property caused, wholly or partly, by forces of nature[.]” Section 542A.007 governs the recovery of attorney’s fees for actions brought under Chapter 542A and states that attorney’s fees awarded to the claimant are calculated as the lesser of:

1. the amount of reasonable and necessary attorney’s fees supported by sufficient evidence,
2. the amount of attorney’s fees that may be awarded to the claimant under other applicable law, or
3. the amount calculated by (a) dividing the amount to be awarded in the judgment to the claimant under the insurance policy by the amount alleged to be owed on the claim, then (b) multiplying the amount calculated in part (a) by the amount of reasonable and necessary attorney’s fees supported by sufficient evidence.

At issue in Rodriguez v. Safeco Insurance Company of Indiana, 23-0534, 2024 WL 388142, at *1 (Tex. Feb. 2, 2024) was a May 2019 tornado that struck the insured’s home. Safeco Insurance Company of Indiana issued payment for the damages, but the insured sought more money. After removing the case to federal court and an unsuccessful mediation, Safeco invoked the policy’s appraisal provision. The appraisal panel valued the total damages at $36,514.52, an amount timely paid by the insurer. Safeco also voluntarily paid $9,458.40, which covered any potential interest on the appraisal award.

Safeco then moved for summary judgment, arguing that its full payment of the appraisal award plus all possible interest should end the litigation, including any attempts by the insured to recover attorney’s fees. The district court agreed and dismissed the case. On appeal, the U.S. Court of Appeals for the Fifth Circuit certified the following question to the Texas Supreme Court:

“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 answered the question in the affirmative. Because the insurer had already paid all amounts owed under the insurance policy plus any possible statutory interest, there was not, and never could be an “amount to be awarded in the judgment to the claimant for the claimant’s claim under the insurance policy.” 

In the absence of any unpaid award or outstanding interest, the calculation of attorney’s fees under § 542A.007(a)(3) will always equal zero. And because zero will always be the “lesser of” the three methods of calculating attorney’s fees under Ch. 542A, when an insurer pays the full appraisal award plus any possible statutory interest that could be owed to the insured, the insured’s claim for attorney’s fees under Ch. 542A is precluded.

For any further questions, please contact Jeffrey Allcorn.