Appraisal Provision Prevails Over Time-of-Loss Valuation and Triggers Bad Faith Penalties

Introduction

This case commentary examines the Fifth Circuit’s per curiam decision in First Assembly of God Church, Inc. v. Church Mutual Insurance Company, No. 24-30173 (5th Cir. Apr. 14, 2025). The dispute arose when Hurricane Laura struck a Louisiana church campus, causing extensive wind and water damage. First Assembly of God (“FA”) filed an insurance claim with Church Mutual Insurance (“CM Insurance”). After protracted delays and partial payments, FA invoked the policy’s appraisal provision. CM Insurance resisted the process and ultimately refused to honor the umpire’s award. The district court compelled appraisal, submitted the matter to a jury, and awarded FA (1) policy benefits equal to the appraisal award less prior payments, (2) statutory penalties for bad-faith delay under Louisiana law, and (3) attorneys’ fees. CM Insurance appealed on multiple fronts. The Fifth Circuit affirmed all rulings except it remanded the attorneys’ fees question for clarification.

Summary of the Judgment

Key holdings and outcomes:

The policy’s appraisal provision governs valuation—even if other clauses reference “time of loss”—and appraisal awards are presumptively accurate.
An assignment of benefits to a contractor (Hero Design) was void under Louisiana law because the policy prohibited assignment without written insurer consent.
The district court did not err in refusing untimely dispositive motions, declining an adverse-inference instruction, or in its jury instructions regarding proof of loss and appraisal awards.
The jury’s damage findings—interior repairs, HVAC replacement, sign replacement, and miscellaneous items—were supported by substantial evidence and not clearly erroneous.
CM Insurance’s pattern of untimely or partial payments after satisfactory proof of loss justified a 50% statutory penalty under La. Rev. Stat. § 22:1892.
The Fifth Circuit affirmed all aspects of the judgment except it remanded the attorneys’ fees calculation (both trial and appellate) for district-court clarification.

Analysis

1. Precedents Cited

Jack v. Evonik Corp. (79 F.4th 547): Diversity‐jurisdiction cases apply substantive state law and federal procedure.
Trans-Serve, Inc. v. United States (521 F.3d 462): Mixed questions of law and fact review.
Geiserman v. MacDonald (893 F.2d 787): Abuse‐of‐discretion standard for scheduling and in‐limine rulings.
First Baptist Church of Iowa v. Church Mutual (105 F.4th 775): “Time of loss” valuation clauses and appraisal provision interplay.
La. Bag Co. v. Audubon Indem. Co. (999 So. 2d 1104): Insurer’s failure to pay undisputed amounts triggers penalties.
Warner v. Liberty Mut. Fire Ins. (543 So. 2d 511): Penalties on entire claim if insurer fails to pay undisputed portion.

2. Legal Reasoning

The court’s reasoning unfolded in several strands:

Appraisal Provision Governs Valuation: The policy differentiated between valuation clauses (Replacement Cost/Actual Cash Value “as of time of loss”) and a separate appraisal procedure. The Fifth Circuit held that once appraisal is invoked, its mechanism—silent as to “time of loss”—controls and the award is presumptively accurate. Any residual right to deny a claim does not undermine the valuation.
Assignment Prohibition: Under La. Civ. Code art. 2653, rights arising under a contract that forbids assignment without consent cannot be assigned. FA’s policy expressly barred assignment without written insurer consent, which CM Insurance never gave. Therefore, the purported assignment to Hero Design was void.
Insurer’s Bad Faith and Penalties: La. Rev. Stat. § 22:1892 imposes a 50% penalty if an insurer receives satisfactory proof of loss, fails to pay within 30 days, and does so arbitrarily or without probable cause. The jury found multiple late payments after proof of loss. Even disputed portions did not excuse payment of undisputed amounts, so the statutory penalty applied to the entire owed sum.
Preservation and Discretionary Rulings: CM Insurance’s motions to dismiss and in limine were untimely or mis-characterized as dispositive. The denial of an adverse inference instruction and certain jury instructions was within the district court’s broad discretion.

3. Impact

This decision reinforces critical points in Louisiana‐governed insurance disputes:

Appraisal provisions in commercial policies will be enforced according to their own terms, even if other clauses insist on “time of loss” valuation.
Insurers must carefully monitor statutory deadlines once proof of loss is provided; any failure to pay undisputed portions exposes them to severe penalties on the full claim.
Contractual prohibitions on assignment are strictly enforced; insureds cannot delegate claim rights without insurer consent.
Insurers resisting appraisal must weigh the risk that appraisal awards, once made, carry presumptive weight before juries.

Complex Concepts Simplified

Appraisal Provision: A contractual clause allowing parties to appoint independent appraisers and an umpire to set the value of a loss, bypassing courtroom fact‐finding on valuation.
Time of Loss vs. Appraisal: “Time of loss” valuation fixes value at the moment of damage. An appraisal provision can override that if it has its own valuation methodology.
Assignment of Benefits: A legal transfer of rights under an insurance policy. Many policies prohibit assignment without insurer consent to prevent third‐party interference.
Bad Faith Penalties (La. § 22:1892): A statutory fine (50% of the amount due) plus attorney fees when an insurer unreasonably delays payment after receiving proof of loss.

Conclusion

The Fifth Circuit’s decision in First Assembly of God v. Church Mutual cements the supremacy of appraisal provisions in Louisiana insurance contracts and underscores insurers’ statutory duties once a satisfactory proof of loss is received. Insurers that resist or delay payment of undisputed amounts risk steep penalties. The ruling also reaffirms that policy clauses prohibiting assignment will bar third-party claim‐handling absent written consent. Finally, this opinion illustrates the careful procedural choreography required in federal diversity litigation involving state insurance law.