Chapa Blue, LTD v. Mt. Hawley Insurance Company

Background

Chapa Blue sued Mt. Hawley Insurance Company over an insurance claim for property damage in Pharr, Texas. Chapa Blue alleged that hail and windstorm events on April 29, 2023 damaged property it owned and that Mt. Hawley violated the insurance policy by denying or delaying payment for covered losses.

Mt. Hawley denied coverage on June 6, 2023. It stated that the damage resulted from wear and tear, interior water damage from rain entering through wear and tear, improper installation, lack of maintenance, and preexisting roof openings, rather than wind or hail.

Chapa Blue filed the lawsuit in Texas state court on August 29, 2023. Mt. Hawley removed it to the Southern District of Texas and later sought transfer to the Southern District of New York based on the policy’s forum-selection clause. The Texas court granted the transfer on February 2, 2024.

After filing suit, Chapa Blue invoked the policy’s appraisal provision and moved to compel an appraisal and pause the court proceedings until the appraisal was completed.

The appraisal provision

The policy allowed either party to demand an appraisal when the parties disagreed about the amount of loss. It provided for each party to select an appraiser, with an umpire resolving differences if necessary. The policy also stated that appraisal could not determine causation or whether coverage existed, was not allowed when coverage for the claimed loss had been denied entirely, and could not be invoked after suit had been filed.

Court’s reasoning

The court applied New York law because the policy contained a New York choice-of-law provision. The court explained that clear insurance-policy language must be given its ordinary meaning and that the policy must be read as a whole. The court also stated that Chapa Blue had abandoned any argument that law other than New York law applied to the appraisal provision because it did not directly respond to Mt. Hawley’s New York-law argument and declined the court’s opportunity to submit further authority.

The court held that the policy’s clear language did not allow appraisal where Mt. Hawley had denied coverage for the entire claimed loss. The policy also barred Chapa Blue from filing suit and then requesting appraisal later.

The court further relied on New York law stating that appraisal applies to disagreements about the amount of loss or damage, not disputes in which the insurer denies liability. According to the court, disputes about coverage, liability, and the cause of damage are legal issues for a court, while appraisal is limited to factual disputes about the amount of loss. Because Mt. Hawley attributed the damage to wear and tear and poor or improper maintenance, the court concluded that this dispute was not subject to appraisal for that additional reason.

Disposition

The court denied the motion to compel appraisal and to abate, or pause, the judicial proceedings. The Clerk of Court was directed to close Docket No. 9. The opinion addressed only whether the policy required an appraisal; it did not decide the ultimate coverage dispute.