1. The purpose, intent and effect of “new disposition” letters;

2. The standard procedure for gathering information for, and then sending, notice letters (acceptance, denial, or partial acceptance);

3. The TWIA employee (or indep. Contractor) hierarchy during Hurricane Harvey and now; and,

4. The meaning of documentation sent to insureds informing them of their rights to appraisal and what will be appraised.

The aforementioned topics and examination thereon will be limited, however, to this matter, as well as TWIA's general standards, policies, and procedures on instances where changes were made to an initial determination of coverage or payment of a claim. In such instances, Plaintiff may inquire into those topics set forth herein, including without limitation TWIA's practices, guidelines, and policies in situations where any changes were made to an initial determination of coverage or payment of a claim.

The TWIA asked an appellate court to vacate the trial court's order. It argued that the only claims that could be litigated against it were whether the TWIA had properly denied coverage for a particular claim and the insured's recoverable damages under Texas law, including the amount of the covered loss payable under the policy, plus interest, consequential damages, and attorneys' fees. The TWIA complained that the trial court ordered broad, institutional discovery from the TWIA concerning its decision to accept coverage in other cases after Hurricane Harvey and the TWIA's internal organization and understanding of the appraisal process. The TWIA claimed the ordered discovery had no relevance to any justiciable issue.

According to the TWIA, Mr. Espinoza explained in detail how and why the “new disposition” letter was sent to Ms. Gonzalez and any additional information about “new disposition” letters and the TWIA's procedure for issuing “new disposition” letters would concern claims other than Ms. Gonzalez's.

The TWIA claimed the employees and contractors involved in the decision to revise Ms. Gonzalez's coverage determination were discovered in Mr. Espinoza's deposition and the TWIA's institutional hierarchy was irrelevant to whether the denial of coverage was proper or in determining Ms. Gonzalez's damages. The TWIA argued that the extra-judicial appraisal process was irrelevant to any issue before the trial court.

For her part, Ms. Gonzalez argued the trial court had jurisdiction over the lawsuit and discovery was proper because the TWIA failed to provide a timely notification of denial of coverage. She claimed that the TWIA changed its decision from a denial to an acceptance of coverage to avoid discovery. She argued discovery as to the manner and reason for the TWIA's acceptance of previously denied claims was relevant to the issue of the improper denial of her claim because she suspected there were no policies and procedures for post-suit acceptance of coverage and that conduct was simply a litigation tactic. She argued her deposition topics were relevant and narrowly tailored because they related to those claimants victimized by Hurricane Harvey.

The Appellate Court's Decision

The appellate court decided that the trial court had abused its discretion.

In its decision, the appellate court explained that information about policies and procedures that applied to the initial denial of coverage and the delayed acceptance of part of Ms. Gonzalez's claim would aid in the resolution of the dispute under the parties' pleadings. Therefore, the appellate court ruled, the trial court had not abused its discretion by allowing discovery to proceed notwithstanding the TWIA's decision to accept coverage for part of Ms. Gonzalez's claim and the request for appraisal.

However, the appellate court continued, the trial court allowed discovery of:

• Letters regarding the disposition of claims and notices of appraisal rights in cases other than Ms. Gonzalez's;
• Procedures for gathering information and sending notice letters without regard to whether the procedure was applied in Ms. Gonzalez's case or was applicable to her but was not applied;
• The TWIA's institutional hierarchy without limiting it to the hierarchy involved in handling Ms. Gonzalez's claim; and
• The meaning of documentation that Ms. Gonzalez did not receive.

The appellate court then ruled that by allowing discovery where any changes were made to an initial determination of coverage or payment of a claim, the trial court allowed discovery that was “not probative of [the] TWIA's conduct with respect to [Ms.] Gonzalez's claim.”

It concluded, therefore, that the trial court had abused its discretion by failing to limit discovery to relevant evidence and ordering discovery that was beyond that discoverable under Texas law.

The case is In re Texas Windstorm Ins. Ass'n, No. 09-18-00446-CV (Tex. Ct. App. March 28, 2019).