Opinion
No. 04-18-00138-CV
07-05-2018
IN RE AMERICAN NATIONAL PROPERTY AND CASUALTY COMPANY
APPELLANT ATTORNEY: Michael Tate Barkley, Gregory Chandler, Bain and Barkley, 14090 Southwest Fwy., Ste 450, Sugarland, TX 77478-3679, Andrew Nelson, R. Russell Hollenbeck, Wright & Close & Barger, L.L.P., One Riverway, Ste. 2200, Houston, TX 77056. APPELLEE ATTORNEY: Jeffrey L. Raizner, Andrew Slania, Raizner Slania LLP, 2402 Dunlavy Street, Houston, TX 77006, Peter M. Kelly, Dana Brooke Levy, Kelly, Durham & Pittard, LLP, 1005 Heights Boulevard, Houston, TX 77008.
APPELLANT ATTORNEY: Michael Tate Barkley, Gregory Chandler, Bain and Barkley, 14090 Southwest Fwy., Ste 450, Sugarland, TX 77478-3679, Andrew Nelson, R. Russell Hollenbeck, Wright & Close & Barger, L.L.P., One Riverway, Ste. 2200, Houston, TX 77056.
APPELLEE ATTORNEY: Jeffrey L. Raizner, Andrew Slania, Raizner Slania LLP, 2402 Dunlavy Street, Houston, TX 77006, Peter M. Kelly, Dana Brooke Levy, Kelly, Durham & Pittard, LLP, 1005 Heights Boulevard, Houston, TX 77008.
Sitting: Karen Angelini, Justice, Marialyn Barnard, Justice, Luz Elena D. Chapa, Justice
Opinion by: Luz Elena D. Chapa, Justice Relator filed a petition for writ of mandamus complaining about the trial court’s denial of its motion to compel appraisal in the underlying dispute over the amount of loss sustained by a building insured by relator. Real party in interest, Inae Oh, is the insured. Because we conclude the trial court erred by denying the motion to compel appraisal and there is no adequate remedy by appeal, we conditionally grant the petition for writ of mandamus.
This is the second mandamus proceeding with these parties on this issue. In appellate cause number 04-17-00627-CV, a panel of this court requested a response, stayed the underlying proceedings, and ultimately denied the petition because relator failed to address all of Oh’s arguments. See In re Am. Nat'l Cty. Mut. Ins. , No. 04-17-00627-CV, 2017 WL 6502560 (Tex. App.—San Antonio Dec. 20, 2017, orig. proceeding) (per curiam) (mem. op.). After we denied the petition, relator filed a motion for reconsideration in the trial court that was denied. This mandamus proceeding ensued, which includes the same arguments raised in the first mandamus, as well as new arguments.
BACKGROUND
Relator issued an insurance policy on a commercial building owned by Oh. On April 29, 2016, Oh filed a claim for damages to the building arising from a hail storm. Oh alleged damage to the building’s roof, exterior, and interior. In May 2016, relator investigated the claim, and concluded the building sustained only minor damage. However, relator retained an engineering company to re-inspect the building. Following the re-inspection, relator’s local claims representative, William Dupnik, Jr., prepared an estimate totaling $421.77. Because the estimate was below the policy deductible of $18,380, relator did not issue payment to Oh. Relator sent a partial denial and under deductible letter to Oh dated July 19, 2016.
About a month later, Oh sued relator and Dupnik, alleging, among other claims, Texas Insurance Code violations, breach of contract, breach of duty of good faith and fair dealing, DTPA violations, and fraud. Relator filed its general denial and jury demand. In May 2017, the trial court ordered the parties to be ready for trial in November 2017. On July 31, 2017, the parties attempted, but failed, to mediate a settlement of the case.
Dupnik answered on September 12, 2016. He is not a party to this mandamus proceeding.
On August 7, 2017, relator gave Oh notice of its intent to invoke the insurance policy’s appraisal clause. Shortly thereafter, relator filed its motion to compel appraisal and to abate the case pending appraisal (hereinafter, "motion to compel"). Relator also served Oh with its third amended responses to Oh’s requests for disclosure. In one of its responses, relator asserted that its invocation of appraisal and abatement pending appraisal was not waived by the filing of its disclosure responses.
Oh filed her response to the motion to compel asserting relator waived its right to appraisal because (1) relator did not plead appraisal as an affirmative defense, (2) relator denied her claim, (3) relator instituted litigation against Oh inconsistent with its right to appraisal, and (4) relator availed itself of court proceedings by taking/defending multiple depositions, filing/responding to several motions, and requiring numerous industry experts to provide their opinions. Oh alternatively asserted the policy’s appraisal clause was unenforceable because it violated public policy. Finally, Oh alleged she was substantially prejudiced. On September 13, 2017, relator filed its first amended answer, pleading, among other affirmative defenses, its right to appraisal and abatement of the case pending appraisal.
The trial court heard the motion to compel, and later signed an order denying the motion, without stating its grounds. On September 28, 2017, relator filed its first petition for writ of mandamus and motion to stay the trial court proceedings. After this court denied the petition, relator asked the trial court to reconsider its ruling, which the trial court denied. Relator then filed this petition for writ of mandamus, to which Oh responded.
STANDARD OF REVIEW
To obtain mandamus relief, a relator generally must show both the trial court clearly abused its discretion and relator has no adequate remedy by appeal. In re Prudential Ins. Co. of Am. , 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding); Walker v. Packer , 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding). Trial courts have no discretion to ignore a valid appraisal clause. State Farm Lloyds v. Johnson , 290 S.W.3d 886, 888 (Tex. 2009). A trial court’s abuse of discretion in failing to enforce an appraisal clause cannot be remedied by appeal. In re Allstate Cty. Mut. Ins. Co. , 85 S.W.3d 193, 196 (Tex. 2002) (orig. proceeding).
THE APPRAISAL CLAUSE
The policy relator issued to Oh contains the following appraisal clause:
D. Appraisal
The Appraisal Property Loss Condition is replaced by the following:
APPRAISAL
If we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser and notify the other of the appraiser selected within 20 days of such demand. The two appraisers will select an umpire. If they cannot agree within 15 days upon such umpire, either may request that selection be made by a judge of a court having jurisdiction. Each appraiser will state separately the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding as to the amount of loss. Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.
If there is an appraisal:
a. You will retain your right to bring a legal action against us, subject to the provisions of the Legal Action Against Us Property Loss Condition; and
b. We will still retain our right to deny the claim.
In her response to relator’s petition, Oh raises several arguments as to why the appraisal clause should not be enforced, including that relator waived its right to seek an appraisal by denying her claim and by engaging in intentional conduct inconsistent with the enforcement of that right; and public policy does not support enforcement of the appraisal clause because its benefits—speed and avoidance of costly litigation—are no longer attainable.
THE POLICY'S NONWAIVER CLAUSE
As a preliminary matter, relator asserts this court need not reach any of Oh’s arguments because the insurance policy contains the following clause that addresses when the terms of the policy can be waived:
B. Changes
This policy contains all the agreements between you and us concerning the insurance afforded. The First Named Insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy’s terms can be amended or waived only by endorsement issued by us and made a part of this policy.
Relator asserts this clause is dispositive of all issues because it did not waive its right to an appraisal in writing.
"Non-waiver clauses are generally considered valid and enforceable." In re GuideOne Mut. Ins. Co. , No. 10-16-00404-CV, 2017 WL 1749793, at *2 (Tex. App.—Waco May 3, 2017, orig. proceeding) (mem. op.); In re GuideOne Nat'l Ins. Co. , No. 07-15-00281-CV, 2015 WL 5766496, at *3 (App.—Amarillo Sept. 29, 2015, orig. proceeding) (mem. op.). Here, nothing in the mandamus record indicates relator issued an endorsement waiving the appraisal clause.
However, the Texas Supreme Court recently considered "the force and effect of a nonwaiver provision in light of Texas’s public policy that ‘strongly favors freedom of contract.’ " Shields Ltd. P’ship v. Bradberry , 526 S.W.3d 471, 481 (Tex. 2017) (citations omitted). In Shields Ltd. , the Court considered a lease that required Bradberry to pay rent on time, in full, and without demand. Rent paid more than ten days late was a default under the lease. Regarding the enforcement of the lease terms, Shields (the landlord) and Bradberry agreed that:
All waivers must be in writing and signed by the waiving party. Landlord’s failure to enforce any provisions of this Lease or its acceptance of late installments of Rent shall not be a waiver and shall not estop Landlord from enforcing that provision or any other provision of this Lease in the future.
The record in Shields Ltd. contained no evidence the parties agreed in writing to waive any lease obligation, and no party claimed otherwise. Instead, "the issue [was] simply whether Shields could, by its conduct, manifest clear intent to waive the nonwaiver provision. Otherwise, the nonwaiver provision is facially dispositive." Id.
The Court acknowledged that, "[g]iven Texas’s strong public policy favoring freedom of contract, there can be no doubt that, as a general proposition, nonwaiver provisions are binding and enforceable. This acknowledgment accords with our treatment of nonwaiver agreements in the insurance context." Id. 481-82 (footnote omitted). But, the Court noted "the question is not whether the nonwaiver clause in the parties' agreement is enforceable, [the question is] whether that clause is waivable and, if so, the circumstances under which waiver may occur." Id. at 482. The Court held, "[t]o the extent there has been any doubt up to this time, we affirm that a party’s rights under a nonwaiver provision may indeed be waived expressly or impliedly. On this point, there is much agreement." Id. at 482-83 (footnote omitted). The Court also noted, "the mere fact that a nonwaiver provision may be waived does not render the provision ‘wholly ineffective.’ " Id. at 483.
The Court agreed "a nonwaiver provision absolutely barring waiver in the most general of terms might be wholly ineffective." Id. at 484. The Court did not agree
that a nonwaiver provision is wholly ineffective in preventing waiver through conduct the parties explicitly agree will never give rise to waiver. Such a contract-enforcement principle would be "illogical, since the very conduct which the clause is designed to permit [without effecting a waiver would be] turned around to constitute waiver of the clause
permitting [a party to engage in] the conduct [without effecting a waiver].
Id. (citation omitted).
Therefore, the Court held that "engaging in the very conduct disclaimed as a basis for waiver [accepting late rental installments] is insufficient as a matter of law to nullify the nonwaiver provision in the parties' lease agreement." Id. at 484-85. However, the Court stated
For purposes of this case, the critical inquiry is whether Shields intentionally engaged in conduct inconsistent with claiming the right to enforce the nonwaiver agreement. We have explained:
Waiver is largely a matter of intent, and for implied waiver to be found through a party’s actions, intent must be clearly demonstrated by the surrounding facts and circumstances. There can be no waiver of a right if the person sought to be charged with waiver says or does nothing inconsistent with an intent to rely upon such right.
Waiver is "essentially unilateral" in character and "results as a legal consequence from some act or conduct of the party against whom it operates; no act of the party in whose favor it is made is necessary to complete it." Importantly, "[w]hile waiver may sometimes be established by conduct, that conduct must be unequivocally inconsistent with claiming a known right."
Id. at 485 (citations and footnotes omitted).
The Court held the evidence of Shields accepting late rent could not, as a matter of law, establish that Shields waived compliance with that term of the lease because the nonwaiver provision in the lease explicitly stated that acceptance of late rent did not constitute a waiver. Id. at 484. After examining the record, the Court concluded Bradberry did not identify any conduct constituting waiver other than Shields’s acceptance of late installments of rent without protest. Id. at 486. Nor did the Court find in the record any other conduct "unequivocally inconsistent" with Shields claiming its rights under the nonwaiver provision. Id. Therefore, the Court concluded that "[b]ecause the lease explicitly precludes acceptance of rental payments as constituting waiver of Shields’s enforcement rights, Shields conclusively established all the elements of a forcible-detainer claim." Id.
Although Shields Ltd. did not involve an appraisal provision in an insurance contract, we believe its reasoning applies here, and we hold that the inclusion in an insurance contract of a broadly-worded nonwaiver clause such as the one in this case is not dispositive, as a matter of law, on the issue of whether the insurer waived any of its rights under the contract. See EWB-I, LLC v. PlazAmericas Mall Tex., LLC , 527 S.W.3d 447, 468 (Tex. App.—Houston [1st Dist.] 2017, pet. denied) (applying Shields Ltd. to restrictive covenant, and holding, "A nonwaiver clause, itself, can be waived. ... Parties may waive nonwaiver clauses through their conduct."). Therefore, we must determine whether relator "intentionally engaged in conduct inconsistent with claiming the right to enforce the nonwaiver agreement." See Shields Ltd. , 526 S.W.3d at 485.
Here, unlike in Shields , the nonwaiver clause contains no specific provision regarding the conduct at issue, there is no other nonwaiver clause that mentions appraisals, the clause does not provide that any delay or omission in exercising a contractual right shall not be construed as a waiver of that right, and the clause does not expressly address whether specific conduct can constitute a waiver. Instead, the nonwaiver clause here is written in general terms and does not address specific conduct. However, Oh does not argue the nonwaiver clause is wholly ineffective; therefore, we do not consider that question. See id. at 484 ("a nonwaiver provision absolutely barring waiver in the most general of terms might be wholly ineffective").
Oh points to no evidence in the record that relator "intentionally engaged in conduct inconsistent with claiming the right to enforce the nonwaiver agreement." See id. Instead, she raises several policy arguments. First, Oh asserts the nonwaiver clause cannot be used to revive a contractual provision that is offensive to public policy. Second, she asserts the nonwaiver clause cannot be used to contravene the justified expectations of the parties that the contract will be performed in a reasonable time. Finally, she asserts the nonwaiver clause does not entitle relator to squander judicial resources.
Although we do not disagree with many of Oh’s assertions, "[c]ourts are not to avoid enforcing the plain meaning of contractual provisions because the court views the result as unreasonable or imprudent." Fairfield Indus., Inc. v. EP Energy E & P Co., L.P. , 531 S.W.3d 234, 250 (Tex. App.—Houston [14th Dist.] 2017, pet. filed). Parties have the right to contract as they see fit, even agreeing to provisions some might consider extreme, as long as their agreement does not violate the law or public policy. See Shields Ltd. , 526 S.W.3d at 481 ; Fairfield Indus. , 531 S.W.3d at 249. Therefore, because Oh did not show relator "intentionally engaged in conduct inconsistent with claiming the right to enforce the nonwaiver agreement," the nonwaiver clause here bars any implied waiver by relator of its right to seek an appraisal. For this reason, we conclude the trial court erred by denying the motion to compel appraisal.
PREJUDICE TO INSURED
Even if we conclude relator waived the nonwaiver clause and waived its right to seek an appraisal based on delay, Oh was required to also show that any failure to demand appraisal within a reasonable time prejudiced her. In re Universal Underwriters of Tex. Ins. Co. , 345 S.W.3d 404, 411 (Tex. 2011) (orig. proceeding); see also In re Ooida Risk Retention Grp., Inc. , 475 S.W.3d 905, 912 (Tex. App.—Fort Worth 2015, orig. proceeding) ("The prejudice required, however, is prejudice following impasse and prior to invocation of the appraisal process, i.e. , prejudice caused by the insurer’s unreasonable delay in invoking the process."). "If the insured has suffered no prejudice due to delay, it makes little sense to prohibit appraisal when it can provide a more efficient and cost-effective alternative to litigation. Of course, prejudice to a party may arise in any number of ways that demonstrate harm to a party’s legal rights or financial position." Universal Underwriters , 345 S.W.3d at 411. But, "it is difficult to see how prejudice could ever be shown when the policy, like the one here, gives both sides the same opportunity to demand appraisal. If a party senses that an impasse has been reached, it can avoid prejudice by demanding an appraisal itself. This could short-circuit potential litigation and should be pursued before resorting to the courts." Id. at 412.
Oh contends the financial impact of relator’s litigious conduct exceeds $145,000. She contends "several depositions, motions, expert retentions, mediation, and even a declaratory act have been required by [relator’s] litigation conduct." She asserts she "would not have had to incur those significant litigation expenses had [relator] invoked its right to an appraisal, rather than actively litigating the case for over 9 months."
Oh does not explain the nature of this amount. At the 2017 hearing on relator’s first motion to compel, Oh’s attorney stated over $100,000 in attorney’s fees and over $35,000 in case expenses had been expended.
But, Oh initiated the litigation rather than first pursuing an appraisal, she participated in discovery, and she otherwise prepared for mediation or trial. At no point did she request an appraisal. See In re Cypress Tex. Lloyds , 419 S.W.3d 443, 445 (Tex. App.—Beaumont 2012, orig. proceeding) (per curiam) ("When a party knows of its right to request an appraisal and does not make that request, it is difficult to attribute the costs incurred to the opponent.").
Also, Oh does not argue the discovery would not have been necessary but for the mediation. See In re GuideOne Mut. Ins. Co. , No. 09-12-00581-CV, 2013 WL 257371, at *2 (Tex. App.—Beaumont Jan. 24, 2013, orig. proceeding) (per curiam) (mem. op.) ("The expenses First Baptist incurred developing its case included approximately $10,000 in expert fees for accounting services and over $100,000 in attorney fees. Nevertheless, the mandamus record does not establish that these expenses would not have been incurred if GuideOne had moved for appraisal earlier.").
Accordingly, we conclude, absent an adequate showing of prejudice by Oh, the trial court erred by denying the motion to compel appraisal.
ABATEMENT
In its petition for writ of mandamus, relator asserts abatement of the underlying lawsuit is appropriate while the appraisal process goes forward. It appears that because the trial court denied relator’s motion to compel appraisal, it did not consider relator’s request to abate the case pending an appraisal. We, therefore, do not reach this issue.
CONCLUSION
For the reasons stated above, we conditionally grant relator’s petition for writ of mandamus and direct the trial court to (1) vacate its order denying relator’s motion to compel appraisal and (2) order the parties to engage in the appraisal process pursuant to the terms of the policy’s appraisal clause. The writ will issue only in the event the trial court fails to comply within fifteen days from the date of this opinion.