Clarifying the Governmental-Action Exclusion and Appraisal Rights in Homeowner’s Insurance Policies: Wright v. ASI Lloyds

1. Introduction

Wright v. ASI Lloyds, decided June 5, 2025 by the Fifth Circuit, resolves several recurring disputes in Texas insurance litigation. Plaintiff Elizabeth Wright sued her insurer, ASI Lloyds (“ASI”), after her home suffered structural damage when a city‐ordered demolition of a neighboring building punctured her siding and drywall. Wright claimed breach of contract, bad faith, violations of the Texas Deceptive Trade Practices Act (DTPA), the Texas Insurance Code and Prompt Payment Act, and sought an appraisal of her loss. ASI denied coverage under the policy’s “governmental‐action” exclusion, won dismissal of all claims on summary judgment, successfully obtained discovery sanctions against Wright’s counsel, and unsuccessfully moved for additional sanctions and taxable costs. This appeal and cross‐appeal test:

the scope of the governmental‐action exclusion;
when a party may compel appraisal under a homeowner’s policy;
the standard for discovery sanctions under Federal Rule of Civil Procedure 37(d); and
the presumptive award of costs to the prevailing insurer.

2. Summary of the Judgment

The Fifth Circuit affirmed summary judgment for ASI, holding that the policy unambiguously excludes losses “caused directly or indirectly by” property destruction “by order of any governmental or public authority.” The demolition fell squarely within that exclusion.
Wright’s extra-contractual claims (bad faith, DTPA, Insurance Code, Prompt Payment Act) fail because no contractual coverage exists and she identified no independent injury.
The court affirmed sanctions under Rule 37(d) against Wright’s law firm for missing a scheduled inspection, finding no substantial justification for the failure.
The court affirmed denial of Wright’s motion to compel appraisal and abate the suit, because the policy requires an appraisal only when parties agree on coverage scope but dispute amount, and Wright had waived any appraisal right.
The court vacated the denial of ASI’s second sanctions motion (for lack of a stated rationale) and remanded for explanation, and instructed the district court to reconsider costs under Rule 54(d).

3. Analysis

3.1 Precedents Cited

Flowers v. Wal-Mart Inc., 79 F.4th 449 (5th Cir. 2023) – Reiterates de novo review of summary judgment in diversity contracting cases.
Nationwide Mut. Ins. Co. v. Baptist, 762 F.3d 447 (5th Cir. 2014) – Affirms application of Federal Rule 56(a) and Texas contract interpretation rules.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) – Defines “genuine dispute” for summary judgment.
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000) – Instructs courts to draw inferences for non-movant at summary judgment.
Nat’l Union Fire Ins. Co. of Pittsburgh v. McMurray, 342 F. App’x 956 (5th Cir. 2009) – Explains Texas law treats insurer contracts like ordinary contracts.
Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455 (Tex. 1997) – Holds ambiguous policy provisions construed in favor of insured.
Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456 (5th Cir. 1997) – Sets high bar for bad‐faith refusal: insurer must lack any reasonable basis.
Addicks Servs., Inc. v. GGP-Bridgeland, LP, 596 F.3d 286 (5th Cir. 2010) – Defines implied waiver, requiring clear demonstration of intent.
Copeland v. Wasserstein, Perella & Co., 278 F.3d 472 (5th Cir. 2002) – Requires district courts to explain exercise of sanction power.

Each precedent shaped the court’s approach to contract interpretation, summary judgment, extra-contractual claims, waiver of appraisal, and discovery sanctions.

3.2 Legal Reasoning

(a) Governmental‐Action Exclusion. The court applied Texas contract rules to interpret the exclusion’s plain language. Under the policy:

“Loss caused directly or indirectly by governmental action” is excluded, except when the government’s act is “taken at the time of a fire to prevent its spread.”

The undisputed record showed the City had ordered demolition as a nuisance abatement, not to fight a fire. Wright pointed to neither evidence of a fire risk nor any firefighting exception. Thus, ASI had a reasonable basis to deny coverage; the exclusion applies whether the government demolished the insured’s own building or its neighbor’s.

(b) Extra-Contractual Claims. Under Menchaca (545 S.W.3d 479 (Tex. 2018)), an insured cannot recover statutory damages if contractual benefits are unavailable. Wright identified no independent injury apart from covered damages and raised no fact dispute on coverage. Accordingly, her bad-faith, DTPA, Insurance Code and Prompt Payment Act claims collapse.

(c) Appraisal and Abatement. The policy’s appraisal clause applies only when parties “agree on the scope of direct physical loss” but contest its value. Here, coverage itself was contested. Moreover, Wright waited years before invoking appraisal and actively litigated, thereby clearly waiving the right.

(d) Discovery Sanctions. Under Rule 37(d)(3), the court must award expenses if a party fails to obey a properly‐served inspection request unless “substantially justified.” Wright’s counsel failed twice to produce the property—no key on August 22, and her absence in 2021. The magistrate judge reduced fees ASI requested but properly sanctioned the Law Firm under Rule 37(d), which reaches negligent or inadvertent noncompliance, not only bad faith.

(e) Second Sanctions Motion & Costs. The district court denied ASI’s later sanctions bid without explanation. The Fifth Circuit vacated that aspect, instructing the court to articulate its reasoning—reinforcing Copeland’s mandate for transparent exercise of judicial discretion. The court also must reconsider costs under Rule 54(d), which creates a strong presumption in favor of the prevailing party.

3.3 Potential Impact

Insurers will invoke governmental‐action exclusions more confidently, knowing courts require evidence of fire‐fighting exceptions.
Policyholders face a high bar to compel appraisal when coverage itself is disputed and to revive extra-contractual claims without independent injury.
Counsel risk mandatory fee awards under Rule 37(d) for simple inspection failures—emphasizing the need for strict calendaring and logistics.
District courts must explain sanctions and cost decisions on the record to survive appellate review.

4. Complex Concepts Simplified

Governmental‐Action Exclusion: Excludes coverage for property damage caused by government orders, unless the order prevents a fire’s spread.
Appraisal Clause: A contract provision allowing parties to hire neutral experts to value a covered loss; only triggers if coverage is not in dispute.
Summary Judgment: A court decision without trial when no “genuine dispute” of material fact exists and one party is entitled to judgment as a matter of law.
Waiver by Conduct: When a party delays or acts inconsistently with a contractual right long enough to show clear intent to relinquish it.
Rule 37(d) Sanctions: Mandates award of expenses when a party disobeys discovery inspection requests unless there is substantial justification.
Rule 54(d) Costs: Presumptively awards a prevailing party taxable court costs unless the court provides a valid reason not to.

5. Conclusion

Wright v. ASI Lloyds crystallizes key tenets of Texas insurance law: exclusions are enforced according to plain terms; extra-contractual remedies vanish with coverage denial absent independent harm; appraisal clauses cannot salvage coverage disputes; and discovery missteps carry automatic financial penalties. The Fifth Circuit’s remand on sanctions and costs underscores the imperative for judicial transparency. Going forward, insureds and insurers alike must heed precise policy language, exercise appraisal rights promptly, and observe exacting discovery protocols. This decision will guide courts and practitioners in carving the boundary between covered loss and policy exclusion, streamlining claim resolution, and preserving judicial resources.