Salas demanded that Transportation appoint an appraiser.

Transportation claimed, however, that under the insurance policy it was not obligated to hire an appraiser.

Salas went to court. It argued that it was entitled to an appraiser because the disagreement concerned the amount of loss resulting from the hail storm.

For its part, Transportation contended that its adjuster had determined that the loss had resulted directly from wear and tear, so the dispute concerned the cause of the damage, not the amount of loss.

The Transportation Insurance Policy

The Transportation policy stated:

If the Named Insured and the Insurer fail to agree on the amount of loss for physical damage or business income or extra expense, either may make a written demand for appraisal in which case within 20 days of that written demand each shall select an appraiser and shall notify the other of its chosen appraiser. This APPRAISAL Condition is not available to the named Insured or the Insurer if there is a dispute as to whether the loss or damage was caused in whole or in part by the covered peril. This APPRAISAL Condition is not available if there is a dispute as to whether or not the loss is covered in whole or in part under this coverage part. 

The District Court's Decision

The district court directed the parties to appoint an appraiser and instructed the two appraisers to select an umpire.

In its decision, the district court explained that, in State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), the Texas Supreme Court determined that an appraiser could determine the amount of loss, even though the appraiser may need to decide an inherent causation question.

The district court then ruled that the causation exclusion in the Transportation insurance policy's appraisal provision was "void as against public policy" under Johnson. The district court reasoned that the appraisal clause allowed Salas to elect an appraisal when the parties disagreed about the amount of loss but that the causation exclusion prevented the parties from electing appraisal when the parties disagreed over whether the loss was caused by a covered peril, meaning that Salas could not elect appraisal when the dispute concerned separating covered loss from wear and tear.

Based on Johnson, the district court found, appraisal "appropriate when separating loss from a covered event from wear and tear, even though the appraiser may have to make a causation determination."

The district court ruled that because Transportation's causation exclusion rendered the appraisal clause inoperative, the clause was void.

Accordingly, the district court concluded that the parties should appoint appraisers and select an umpire as provided in the policy, and that the appraisers could make a causation determination to separate the damages resulting from the storm from the damages resulting from wear and tear.

The case is Salas Realty LLC v. Transportation Ins. Co., No. 3:19-CV-1572-N (N.D. Tex. Dec. 2, 2019). Attorneys involved include: For Salas Realty LLC, Salas Plumbing Inc, Plaintiffs: Christopher G Lyster, LEAD ATTORNEY, Puls Haney PLLC, Fort Worth, TX; Todd Michael Hurd, Todd Hurd & Associates, Burleson, TX. For Transportation Insurance Company, Defendant: Anthony S Cox, LEAD ATTORNEY, CNA Coverage Litigation Group, Dallas, TX.