HOUSTON – Up and down the Texas coast, courts are being flooded with lawsuits seeking to compel appraisal against insurance companies.
A month after Hurricane Harvey made landfall in August 2017, Eric Dick, a storm attorney out of Houston, filed around 30 lawsuits, all of which were similarly worded, against insurers to invoke appraisal – a process that according to the Texas Supreme Court does not require a lawyer.
In its 2009 decision in State Farm Lloyds vs. Johnson, the state’s highest court stated: “Appraisals require no attorneys, no lawsuits, no pleadings, no subpoenas, and no hearings.” The court plainly stated that “appraisal is intended to take place before suit is filed.”
But despite this clear statement of Texas law, with Harvey’s two-year anniversary rapidly approaching, it seems more and more appraisal lawsuits are pouring in.
Court records show that on July 29 Dick filed five lawsuits against five different insurance companies in Harris County, alleging each respective insurer defendant refused to participate in the appraisal process.
A week later, on Aug. 5, Dick filed two more appraisal suits in Harris County. It was apparently a busy day for the attorney, as he also filed two appraisal suits in Fort Bend County.
All in all, Dick has filed more than a hundred appraisal suits in recent years, and the reason for the suits is evident to some – chiefly the defendant insurers being sued.
On July 3, Dick lost an appraisal case brought against the Southern Vanguard Insurance Company.
In its pleadings, SVIC had argued Dick was filing such suits to circumvent a Texas law requiring pre-suit notice and make a “legally unsupported” argument for fees to “justify” taking 45 percent of his clients’ insurance payments after appraisal.
This raises the question of why lawsuits are being filed, with the homeowner incurring filing fees, and contingency fees are being paid to lawyers, for a process that according to the Texas Supreme Court does not require lawyers or lawsuits.
While appraisal is a valid process for contractual dispute resolution in theory, the practice has become “problematic” in Texas, according to attorney Jeff Raizner, a partner at Raizner Slania LLP.
In a lawsuit or arbitration, there are defined rules and neutrality standards for decision makers. Appraisal, however, is different, says Raizner, who specializes in insurance litigation.
“The standard appraisal clause fails to define any meaningful rules or standards,” Raizner said. “Because appraisal lacks definition, the process gets murky, and parties often seek improper advantages.
“The ‘wild west’ nature of appraisal lends itself to significant abuses on both sides.”
There are no mandatory certification or training requirements to handle an appraisal, but that doesn’t mean an insured should venture into an appraisal without the protection of a qualified appraiser, or in a complex case, an attorney, says Raizner.
“The insurance company will certainly have an appraiser working for them,” Raizner said. “It would be prudent for any insured venturing into this murky appraisal process to have a professional that is appropriate for the job, because the insurance company will certainly have one.”
When asked if a lawyer can add value to the appraisal process, Raizner said it depends on the circumstances.
“On a large, complex claim … a lawyer can help navigate through the process and try to ensure its integrity,” Raizner said. “A simple residential roof claim may be a different matter.”
Rule 1.04 of the Texas Disciplinary Rules of Professional Conduct prohibits a lawyer from charging an “unconscionable fee”. The Rule lists various factors to consider in determining if a fee is unconscionable, including the amount of work required by the lawyer.
In the appraisal process, each party appoints an appraiser and they agree on an umpire. The three individuals evaluate the claim and determine an appropriate award. Lawyers do not participate in the appraisal process.
So then, is it really worth hiring a lawyer who could potentially snatch nearly half on an appraisal award?
The answer isn’t exactly clear-cut, as Raizner says there are some bad actors on both sides manipulating the process to their own advantage.
“Among the many problems with appraisal in Texas, there are insurance companies willing to deny large volumes of claims and then game the appraisal process,” Raizner said. “Appraisal misconduct is rampant, and I predict that the entire process will eventually be outlawed … if it doesn’t get cleaned up fast.
“When there are no rules, bad actors come out of the woodwork.”