Must I Play Ball with the Insurance Company and Submit an Estimate Prior to Appraisal? A Guide to Appraisal



“An appraisal clause binds the parties to have the extent or amount of loss determined in a particular way.” State Farm Lloyds v. Johnson, 290 S.W.3d 886, 888 (Tex. 2009).  Always check your policy’s appraisal clause to see if the policyholder must first provide an estimate or description of the differences prior to requesting an appraisal.  State Farm has a new appraisal clause that includes the following language:

At least 10 days before demanding appraisal, the party seeking appraisal must provide the other party with written, itemized documentation of a specific dispute as to the amount of the loss, identifying separately each item being disputed.

State Farm’s new appraisal language is enforceable and must be complied with.  The question becomes what happens if the appraisal clause doesn’t have this 10-day requirement?  As shown below, while the policyholder is not required to negotiate with the insurance company, a prudent policyholder will still want to provide an estimate in advance of demanding an appraisal.  It is always better to swim downstream and it speeds up the process.

American Fire Insurance Company v. Stuart

Some insurance defense lawyers attempt to argue a policyholder must first make an attempt at settlement (negotiate) with the carrier before invoking appraisal.  They cite American Fire Insurance Company v Stuart, 38 S.W. 395 (Tex.Civ. App. 1896) to support their position.

Decided in 1896, the case is penned by the court of civil appeals concerning a Texarkana fire claim brought by J.W. Stuart & Son for damage to goods inventoried in their store.    Unfortunately, the insurance defense lawyer or adjuster has conveniently left out several key facts:

  1.  Early judicial views expressed skepticism and hostility towards the appraisal process and many courts sought to find ways around requiring an appraisal.  In Scottish Union, the Court describes appraisal as “injudicious” and its willingness to enforcement of the provision as “constrained.”  Scottish Union & National Insurance Company v. Clancy, 71 Tex. 5, 8 S.W. 630, 631 (1888).   Moreover, intermediate Texas Courts were relatively quick to place impediments to the widespread use of the procedure; finding it was either easily waived or inappropriate.  See Manchester Fire Ins. Co. v. Simmons, 35 S.W. 722 (Tex. Civ. App. 1896, no writ); American Fire Ins. Co. v. Stuart, 38 S.W. 395 (Tex. Civ. App. – 1896, no writ); Boston Ins. Co. v. Kirby, 281 S.W. 275 (Tex. App. – Eastland 1926);
  2. Not a single modern era Texas case has relied on Stuart for this proposition.   There are no conflicting opinions between the appellate courts;
  3.  The American Fire Insurance Company fire policy at issue was unique and this fact was specifically noted by the court of appeals.  ‘In some instances the requirement of appraisement has been left to the request of either party, and in others it has not been made obligatory by the use of words such as “may,” instead of “shall.  The policy in this case is peremptory, and the appraisement would be required whenever the disagreement should arise;’  Id.                                                                     
  4. As early as 1929, Texas recognized ‘an insurance company is held to that degree of care and diligence which a man of ordinary care and prudence would exercise in the management of his own business.’ G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929, holding approved).
  5. Prior to 1973, most persons injured by abusive insurance practices were left with only common law actions for fraud and breach of contract.  See History of Article 21.21 and Deceptive Trade Practices Act, Journal of Consumer & Commercial Law, Consumer & Commercial Law Section of the State Bar of Texas, Vol. 11, no. 1, Fall 2007.
  6. In 1983, the Texas Supreme Court described the Stowers duty discussed above as a ‘duty of good faith and fair dealing [which] springs from the relationship.’  See English v. Fischer, 660 S.W.2d 521 (Tex. 1983).
  7. §542.003(b)(4) of the Texas Insurance Code requires the carrier to attempt in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear.  This duty does not require counter-offers or negotiation.

    Best Practice:

    Always review the policy’s appraisal clause before requesting an appraisal.  Insurance carriers are constantly reevaluating the role of appraisal and changes to traditional appraisal clauses should be anticipated.  Even if the insurance company hasn’t adopted a State Farm approach to appraisal (requiring an estimate 10 days in advance of requesting appraisal), it is a good practice to always send your appraiser’s estimate a couple weeks in advance of requesting an appraisal.  The reason for this is simple—it avoids arguing over whether there is a duty to attempt settlement prior to requesting an appraisal.  While the case law might indicate a policyholder has no duty to negotiate (absent a State Farm style appraisal clause), avoid the fight and swim downstream.  Doing so will expedite the appraisal process—which is something every policyholder desires.


This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this article or any of the e-mail links contained within the site do not create an attorney-client relationship between Thomas W. Hamrick and the user or browser. The opinions expressed in this article are the opinions of the individual author and may not reflect the opinions of other lawyers.

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