Don’t Allow the Appraisal Process to Drag Out, as Appraisal Will Not Operate to Toll or Extend an Insured’s Statute of Limitations on Filing a Lawsuit for Breach of Contract in Texas
The "Texas Changes" endorsement adding the 2 year and 1 day limitation (or 3 years from the Date of Loss) into policies is somewhat new, meaning Texans really started seeing the Limitation on Suit provisions in many policies (even surplus lines policies) starting around 2016-17. Below is a perfect example to emphasize how serious this issue is for the unwary insured. In this claim, the insured’s public adjuster invoked appraisal prior to the insured retaining counsel. Below is the adjuster’s response to a request for tolling during the pendency of the appraisal. Unsurprisingly, the tolling request was denied and the insured was forced to file suit immediately to preserve its statute of limitations:
“We are in receipt of your April 13, 2022 correspondence requesting State Farm toll the statute of limitations. Per the policy, suit must be started within two years and one day after the cause of action accrues. Please refer to the applicable portion of the Homeowners Policy HW-2143:
SECTION 1 — CONDITIONS
6. Suit Against Us. No suit or action can be brought unless:
a. there has been compliance with the policy provisions;
b. except as provided in item c. below, suit or action brought against us is started within two years and one day after the cause of action accrues; and
c. with respect to a loss caused by windstorm or hail in the catastrophe area as defined under Texas law, suit or action brought against us is started within the earlier of:
(1) two years from the date we accept or reject the claim; or
(2) three years from the date of the loss that is the subject of the claim.
We respectfully decline your request to toll the statute of limitations in this matter.”
Be warned—a handful of courts have recently sided with carriers in finding an insured was BARRED from filing suit for breach of contract because the lawsuit was not filed within 2 years and 1 day of the carrier’s initial decision on the claim, even during the pendency of an appraisal (regardless of which side invoked the appraisal clause). Here’s an excerpt from a 2021 decision from the Fort Worth Court of Appeals:
“[The insured] next contends that the parties' invocation of the appraisal process tolls or restarts the limitations period. We are unaware of any authority, and [the insured] cites none, that the parties' decision to participate in the nonjudicial, contractual appraisal process tolled limitations or restarted limitations under these facts. Rather, [the carrier] cites authority stating that ‘use of the appraisal process to resolve a dispute has no bearing on any deadlines or enforcing any missed deadlines.’ Furthermore, there is no evidence that [carrier] strung [the insured] along without denying or paying his claim. Rather, [the carrier] promptly accepted and paid the claim shortly after the loss on October 13, 2017. No other activity occurred on the claim until January 28, 2019, when [the insured’s] counsel sent a notice of representation and purported formal notice of claim. Texas state and federal courts have held in similar cases-when a claim for a single event that caused damage is denied, partially paid, or closed, but later reinvestigated by the insurance carrier, yet ultimately denied-that no tolling or resetting of the statute of limitations occurs.” Abedinia v. Lighthouse Property Ins. Co., No. 12-2000183-CV, 2021 WL 4898456 (Tex. App.—Tyler Oct. 20, 2021)
A policy’s limitations provision also may contain a "savings clause," stating something to the effect that, "if the limitations provision in the policy is invalid, a lawsuit must be filed within the shortest amount of time permitted by the applicable law." There's a conflict of law on this, which depends on whether the insured’s lawsuit is in federal or state court. The 5th Circuit has held this to be enforceable and applied the minimum statute of limitations period permitted by Texas law (the 2 years and 1 day), while other Texas appellate courts have found the "savings clause" to be ambiguous, and applied the default statutory limitations period for breach of contract claims in Texas--4 years.
In short, for insureds, roofers or public adjusters who believe simply invoking appraisal is the answer, always consider seeking the advice of counsel to determine the earliest possible running of a state’s statute of limitations and the interplay with the specific policy language in issue. Statutes of limitation when a Texas appraisal is involved can be complex and lead to disastrous results for an insured if the issue is not carefully analyzed by a knowledgeable Texas policyholder lawyer.