The Risk Pool Failed to Show it was Prejudiced

Because the proof of loss is not a condition precedent and courts disfavor reading it as a condition precedent, the Risk Pool must prove that any noncompliance alleged was a material breach, which the Risk Pool has failed to do.

There is longstanding precedent in Texas that disfavors dismissal of a cause of action for failure to submit a proof of loss. In Cunningham v. Allstate Vehicle and Property Insurance Company, the insurance company moved to dismiss for lack of subject matter jurisdiction due to the insured’s failure to satisfy the proof of loss requirement. Cunningham v. Allstate Vehicle & Prop. Ins. Co., No. 4:18-CV-4, 2018 WL 2020723, at *2 (E.D. Tex. May 1, 2018).¹⁶ There, the policy provided that the

16 While the Risk Pool asserts in this appeal that the proof of loss is a condition precedent to appraisal it did not assert it was a condition precedent to bringing suit.

insured may not file suit earlier than 91 days after the insured submits a signed and sworn proof of loss—something not included in the Coverage Document at issue.

The Cunningham court noted that a sworn proof of loss used to be a condition precedent and the insured was required to show either, waiver or substantial compliance with the condition precedent. Id. However, the court observed that the Texas Supreme Court more recently “adopted a broad notice-prejudice rule.” Id.

(citing Polen v. Vehicle, 4:16-CV-00842, 2017 WL 661836, at *3 (E.D. Tex. Feb.

17, 2017), reconsideration denied sub nom. Polen v. Allstate Vehicle & Prop. Ins.

Co., 4:16-CV-00842, 2017 WL 3671370 (E.D. Tex. June 30, 2017) (citing PAJ, Inc.

v. Hanover Inc., 243 S.W.3d 630, 635 (Tex. 2008)); accord Presswood v. Allstate Vehicle & Prop. Ins. Co., 4:16-CV-00958, 2017 WL 7051074, at *3 (E.D. Tex. Aug.

11, 2017), report and recommendation adopted, 4:16-CV-00958, 2017 WL 3940525 (E.D. Tex. Sept. 7, 2017) (citations omitted); Wilson v. Allstate Ins. Co., 416CV00970ALMCAN, 2017 WL 3671861, at *3 (E.D. Tex. Mar. 6, 2017), report and recommendation adopted, 4:16-CV-970, 2017 WL 1313854 (E.D. Tex. Apr. 10, 2017) (citations omitted); Lopez v. Allstate Vehicle & Prop. Ins. Co., No. 4:17-CV- 00103, 2017 WL 1294453, at *3 (E.D. Tex. Apr. 4, 2017) (citations omitted)). Under Texas’s notice-prejudice rule, the insurer must be able to show prejudice caused by the insured’s failure to comply with the contract regardless of whether the terms at issue is a covenant, condition precedent, exclusion or provision.

A showing of prejudice generally requires a showing that one of the recognized purposes has been impaired. Id. at *3. The purpose of requiring a sworn proof of loss is to enable the insurer to properly investigate the circumstances of the loss while the occurrence is fresh in the minds of witnesses, to prevent fraud, and to enable it to form an intelligent estimate of its rights and liabilities so that it may adequately prepare to defend any claim that may arise. Id. “However, an insurer must offer more than the mere fact that it cannot employ its normal procedures in investigating and evaluating the claim.” Id. (internal quotations omitted). The Court has previously noted that a defendant’s only loss was its expectation of a head-start to litigation via a proof of loss and this alone cannot establish prejudice for Risk Pool, and Risk Pool has not provided any other reasons that it was prejudiced. See id.

Texas courts have found that “[p]rovisions of an insurance policy requiring proof of loss and appraisal are inserted for the insurer’s benefit and may be waived by it.” Brodie, 337 S.W.2d at 415. The vast majority of Texas case law on appraisal involves instances where an insurance carrier attempts to invoke appraisal, not the consumer. See In re Universal Underwriters, 345 S.W.3d at 412; see also In re Pub.

Serv. Mut. Ins. Co., No. 03–13–00003–CV, 2013 WL 692441, at *7 (Tex. App.–Austin Feb. 21, 2013, orig. proceeding) (mem. op.); see also In re GuideOne Mut. Ins. Co., No. 09-12- 00581-CV, 2013 WL 257371, at *3 (Tex. App.—Beaumont Jan. 24, 2013). As

insurance companies almost universally favor the enforceability of appraisal provisions, there are few cases that speak to instances where a consumer is precluded from invoking appraisal based on its failure to submit a proof of loss or satisfy a condition precedent to appraisal.

In In re State Farm Lloyds, Inc., however, a Texas Appellate Court addressed a consumer’s argument that the insurance carrier had effectively waived its right to appraisal by failing to comply with provisions in the contract necessary for enforcement of appraisal—including submission of a sworn proof of loss. See In re State Farm Lloyds, Inc., 170 S.W.3d 629, 634 (Tex. App.—El Paso 2005, orig.

proceeding). The homeowner argued that the insurer had waived its right to an appraisal or was estopped from seeking an appraisal because its conduct was inconsistent with a demand for an appraisal. See Id. The court rejected the homeowner’s arguments, as the homeowner had the burden to show that “State Farm’s alleged failure to comply with these other policy provisions constituted an intentional relinquishment of its right to seek appraisal.” Id. at 635.

Similarly, in the case at bar, the Risk Pool has offered no evidence that the City’s alleged failure to comply with certain policy provisions relinquished its contractual right to appraisal. Therefore, the City’s invocation of appraisal is authorized under the Coverage Document and Texas law.

Here, the Risk Pool has failed to offer any evidence that it was prejudiced by the City’s alleged failure to submit a proof of loss pursuant to the Coverage Document. As stated, the purpose of the proof of loss is for the Risk Pool to investigate its rights and liabilities to adequately prepare to defend any claim, and even if the City did not submit a proof of loss, the Risk Pool was well aware the City was contesting the amount of loss owed for the claim. Further, despite knowing the purpose of the proof of loss was for the City to inform the Risk Pool of the amount of damages it alleged were caused by the Storm, the Risk Pool provided the City with a proof of loss that had already been filled out by the Risk Pool with the information contained in Risk Pool’s initial assessment of the claim. CR 898. If the proof of loss was of any material significance to the Risk Pool’s adjustment and determination of a final claim’s decision, it would not have rendered a proof of loss with information it was already privy to.

So, while the Risk Pool claims that the City failed to comply with conditions precedent, it is clear not only are those provisions not conditions precedent, the Risk Pool waived any right to enforce the provision even if the court determines they are conditions precedent. Therefore, considering that the Risk Pool has not offered any evidence that the City’s submission of the proof of loss would have changed its investigation of the claim, and the Risk Pool submitted a redundant proof of loss with information it already had available, there is clear evidence the City’s alleged

failure to submit a proof of loss did not prejudice the Risk Pool in any way. As such, the Risk Pool’s arguments are without merit, and the lower court’s order compelling appraisal must stand.

5. Absent Waiver or Illegality the Appraisal Provision is Enforceable