Appraisal & Bad Faith After Ace American

Bad-Faith Allegations as a Defense to Appraisal After In re Ace American Insurance Co.

The Supreme Court of Texas held that "an insurer’s alleged bad faith in handling a claim does not constitute an exception to the general enforceability of an appraisal clause" In re Ace American Insurance Co., No. 25-0461 (Tex. May 8, 2026). Applying the framework of State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), the court also held "that the parties’ dispute is at least in part about the amount of loss and that potential coverage disputes do not defeat a contractual right to appraisal," reaffirming that "[t]he policy directs the appraisers to decide the ‘amount of loss,’ not to construe the policy or decide whether the insurer should pay." Nor does a shifting valuation negate the disagreement that triggers appraisal: assuming the insurers’ valuation of the claim had changed over time, "it is nevertheless abundantly clear that they have consistently viewed the amount of loss as significantly less than Insured does. The appraisal provision requires nothing more." The court conditionally granted the petition for writ of mandamus and directed the trial court to grant the motion to compel appraisal, because erroneously denying appraisal "would vitiate the insurer’s right to defend [the insured’s] breach of contract claim."

The Texas courts of appeals have applied that holding in mandamus proceedings compelling appraisal in 2026. In re Germania Farm Mutual Insurance Ass’n, No. 13-26-00015-CV (Tex. App.—Corpus Christi June 5, 2026) explained, quoting In re Ace American, that "coverage disputes do not render an appraisal improper," that the Supreme Court of Texas has recognized "two specific, limited exceptions (illegality and waiver) to the enforcement of an appraisal provision," and that "the rationales offered by Chavez to avoid appraisal on public policy grounds do not fall within these categories." The court further concluded that "any alleged breaches of the insurance policy would not excuse compliance with the appraisal provision in the insurance policy," and it applied the rule of Ortiz v. State Farm Lloyds, 589 S.W.3d 127 (Tex. 2019), that waiver of an appraisal clause "occurs when the party seeking appraisal fails to demand it within a reasonable time after the parties reach an impasse on the amount of the loss, if the failure prejudices the opposing party." The court conditionally granted mandamus and directed the trial court to compel appraisal, while denying mandamus relief as to the insurer’s companion request for abatement of the suit.

Florida channels bad-faith allegations into a separate statutory action rather than treating them as a ground to resist appraisal. Under Fla. Stat. § 624.155, a civil action lies against an insurer for "[n]ot attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests," subject to sixty days’ written notice, and "[n]o action shall lie if, within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected." Zaleski v. State Farm Florida Insurance Co., 315 So. 3d 7 (Fla. Dist. Ct. App. 2021) held that "[t]he language of section 624.155(3)(d) does not toll the cure period until an appraisal is completed," explaining that "the focus in a bad faith case is not whether the insurer ultimately paid the amounts due under the policy, but whether it acted reasonably in evaluating the claim prior to the determination of damages," and repeating the observation that "a lowball offer made in bad faith is not cured by an insurer ultimately paying what it is later found to owe via the appraisal process."

Minnesota and Colorado likewise enforce appraisal while allocating the remaining protections differently. Quade v. Secura Insurance, 814 N.W.2d 703 (Minn. 2012) held "that the phrase ‘amount of loss,’ as it relates to the authority of the appraiser under the policy, unambiguously permits the appraiser to determine the cause of the loss," while confirming that an appraisal award "does not preclude the insurer from subsequently having its liability on the policy judicially determined." Colorado polices the fairness of the appraisal process itself rather than excusing participation in it: Owners Insurance Co. v. Dakota Station II Condominium Ass’n, 2019 CO 65 (Colo. 2019) held that the policy’s impartiality requirement "requires appraisers to be unbiased, disinterested, and unswayed by personal interest," so that "[t]hey must not favor one side more than another, so they may not advocate for either party," though the court declined to condemn contingent-cap fee agreements categorically: "while we are wary of the possible incentives these agreements create, we decline to hold that they render appraisers partial as a matter of law."

Under these decisions, Texas treats the appraisal clause as enforceable notwithstanding allegations about how the insurer handled the claim: the only recognized exceptions are illegality and waiver, a coverage or causation dispute does not remove the case from the appraisal provision, and mandamus issues to correct a trial court’s refusal to compel appraisal because the error would deprive the insurer of the independent valuation needed to defend the contract claim. The bad-faith and extra-contractual theories survive, but they proceed after or alongside the appraisal rather than in place of it. The comparison states reach compatible results by different routes. Florida permits the statutory bad-faith action to mature on its own timetable, so that an insurer’s demand for appraisal neither tolls the sixty-day cure period nor cures an unreasonably low evaluation made before the award. Minnesota assigns causation to the appraisers as part of the amount of loss while reserving coverage and policy-construction questions for judicial determination after the award. Colorado directs its scrutiny at the appraisers themselves, requiring that party-selected appraisers remain unbiased and refrain from advocacy. In each jurisdiction, the answer to alleged insurer misconduct is a remedy that follows the appraisal — a statutory action, judicial review of coverage, or a challenge to the award — not a judicial refusal to enforce the appraisal agreement at the outset.