Chapter Iii
Scope Of The Issues Covered By The Appraisal Clause
Pages
Appraisers May Not Exceed
Their Commission 69
Appraisal of “Loss and Value”
to Property as Well as Economic
Loss and Other Claims 78
Valued Policies and a Total Loss 82
Issues of Scope of Loss, Causation
and Coverage 88
Issues of Bad Faith 162
The “Loss Settlement” Provision 171
The Suit Against Us Provision 173
Appraisers May Not Exceed Their Commissions
Most insurance policies and statutes which contain the appraisal clause leave much to the imagination and discretion of the parties and their appraisers with regard to appraisal procedure.
It is the insured who states the items c laimed, and swears to it in a proof of loss.
The parties should agree in advance on the issues to be determined and the relative amount of detail to be contained in the award in order to give life to the appraisal provision. It is most appropriate to do this in an appraisal agreement signed by the parties.
The appraisers may not exceed the authority granted to them in the appraisal agreement.114
The
process only pertains “(i)n case the insured and
t his company shall fail to agree.”115
It is not
Mapleton Processing, Inc. v. Society Ins. Co., 2015 WL 3467190 (N.D. Iowa 2013).
Safeco Ins. Co. v. Sharma, 160 Cal. App. 3d 1060, 207 Cal. Rptr. 104 (Ct. App. 1984);
Edison Textiles, Inc. v. Topa Ins. Co., 2004 WL 1203072 (Cal. App. 2nd Dist. 2004).
Lines 1-2 of the Standard Fire Policy.
previously paid or agreed to by the parties. As
to such amounts previously paid, the parties did not “disagree on the amount of loss” and t he appraisers thus exceeded their authority. The court granted the insured’s petition for an upward modification of the award in such amount.116
However, when the appraisers discharge their duty and then exceed their commission, the excess exercise of authority may not destroy what was well done within the submission.117 An unauthorized portion of an award that does not effect or prejudice the excepting party, should not invalidate the authorized portion of the award. For example, if an umpire who is appointed in accordance with a clause in a standard insurance policy considers the validity of the insured's title to covered property in his or her decision, the unauthorized or invalid parts of an award can be treated as mere surplusage, unless the opposing party is prejudiced.118
Maiden Creek T.V. & Appliance, Inc. v. General Cas. Ins. Co., 2008 WL 351906 (E.D. Pa. 2008).
Nichols v. Rensselaer Ins. Co., 22 WEND 125 (N.Y. Sup. Ct. 1839); Soars v. Home
Ins. Co., 140 Mass. 343, 5 N.E.149 (1885).
118 Hexter v. Equitable F& M. Ins. Co., 123 Me. 77, 121 A. 555 (1923).
This will not prevent the parties from appraising aspects of the loss beyond an undisputed amount previously paid.
An award for lost rents is invalid, for example, where the premises was vacant at the time of loss and the policy language makes clear that rent coverage only applies when the premises are occupied. 119
complaint did not
Furthermore, as the dispute the appraiser’s
valuations or their methodology, and dealt only with the appraisers’ authority to make their
DeCrescenzo v. Capital Mut. Co., 187 A.D.2d 793, 589 N.Y.S.2d 669 (3d Dept. 1992).
award, the complaint states a claim for relief and should not have been dismissed.120
In one Massachusetts matter where an insured attempted to vacate an award because an appraiser had exceeded his authority by determining insurance coverage in the course of appraisal, the court set forth its standards governing an appraiser’s authority. In addressing the scope of an insurance appraiser’s authority for the first time in Massachusetts, the court first established that it was “empowered” to review the decision of the appraiser which had been adopted in the umpire’s issuance of the award. It analogized an appraiser’s role to that of an arbitrator in stating it “must be limited by and derived from the plain language of the parties’ agreement…[t]herefore, an appraiser, like an arbitrator, exceeds his authority by awarding relief beyond the scope of the parties’ agreement or beyond that to which the parties otherwise agreed to be bound.”121
AIU Ins. Co. v. Lexes, 815 A.2d 312 (Del.Supr. 2003).
Sun Microsystems, Inc. v. Electronic Services, Inc., 2009 WL 987336 (Mass Super 2009).
Id.
It has been held that appraisers exceeded their authority by resolving such issues as the number and amount of deductibles where this was in dispute or by including an award for interest.123
125 Thus, an effort to unduly limit the scope of the appraisal process or to mandate the form of the award in some manner different than required by the policy
Hanson v. Commercial Union Ins. Co., 150 Ariz. 283, 723 P.2d 101 (Ct. App. Div. 1
1986).
Three Palms Pointe, Inc. v. State Farm Fire & Cas. Co., 250 F.Supp.2d 1357, 16 Fla.L.
Weekly Fed.D. 231 (M.D. Fla. 2003), aff’d, 362 F.3d 1317, 17 Fla. L. Weekly Fed C. 315 (11th Cir Fla. 2004).
Summerfield v. North British & Mercantile Ins. Co., 62 F. 249 (C.C.W.D. Va. 1894).
may waive the right of appraisal as a condition precedent.(See Chapter IV [A] for more on the issue of waiver of appraisal.)
In any event, where issues are raised by the parties in an effort to limit and/or expand the issues to be determined in the appraisal, such a judicial determination is beyond the scope of an application to appoint an umpire. Requests for such clarification as part of such a limited action were properly denied.126
In Louisiana, it was held that the total destruction of movable property did not render a policy’s appraisal option either impossible or unnecessary. In that case, an insured’s argument that there was nothing to appraise under the subject policy because the automobile at issue was wholly destroyed was deemed “not tenable”. The court substantiated its position by asserting that no state statute imposed liability upon an insurer for movable property’s full value where total destruction occurs.127
In the Matter of Merrimack Mut. Fire Ins. Co. v. Seibert, 31 Misc.3d 523, 917 N.Y.S.2d 839, 2011 N.Y. Slip Op. 21060 (Monroe Cty. 2011).
Hart v. Springfield Fire & Marine Ins. Co., 66 So.558 (La. 1914).
The Michigan Court of Appeals has held that where the carrier did not properly exercise its right to repair (as by not providing written notice within 30 days of the filing of a proof of loss), a repair unsatisfactory to the insured was insufficient. Without a right to repair, the carrier is bound by its own express language and is bound to pay the “scheduled value contained in the fine art floater and appraisal was deemed inappropriate as there is no dispute regarding the scheduled item’s value.128
A court in Pennsylvania clarified the applicability of appraisal to issues of scope and extent of loss. While a dispute involving coverage would not warrant appraisal, one surrounding the extent of damage or cause of a portion of the damage pertains to the amount of loss and thus is appropriate for appraisal. It was held that disputes involving scope of repairs and causation assessments would not render such a disagreement a coverage dispute.129 Indeed, this is the modern view as will be detailed below.
Should a question arise about the authority of an appraiser to act, the testimony of the appraiser himself may be offered to
Shemesh v. Citizens Ins. Co. of America, 2012 WL 6720588 (Mich. Ct. App. 2012). 129 Currie v. State Farm Fire and Cas. Co., 2014 WL 4081051 (E.D. Pa.), citing Ice City, Inc. v. Ins. Co. of North America, 314 A.2d 236 (1974).
establish his authority to act on behalf of the party that appointed him.130
Where there is a dispute as to the existence of coverage, the burden of proof to show coverage generally remains with the party seeking to compel appraisal.131 Query whether the result should be different in the event of an all-risk policy where coverage is assumed and the insurer has the burden of establishing an exclusion or limitation.
Where there was an issue of what items were in the house at the time of the loss, it is appropriate to appraise the claim as presented and allow the insurer to litigate the issue later if it chooses.
Isaac v. Donegal & Conoy Mut. Fire Ins. Co., 301 Pa. 351, 152 A. 95 (1930).
Fishman v. Middlesex Mut. Ins. Co., 4 Conn. App. 339, 494 A.2d 606 (1985).
APPRAISAL OF “LOSS AND VALUE” TO PROPERTY AS WELL AS ECONOMIC LOSS AND OTHER CLAIMS
An appraisal may determine both the amount and extent of partial damage and the cost to remediate it, as well as whether there has been a total loss. The value of damaged property is also appraisable. As will be seen, however, these are not universal truths.
Other varieties of loss and damage in addition to property damage are subject to the appraisal provision. For example, business interruption claims, extra expense, lost rents, additional living expenses and other economic losses are also appraisable.132
For example, under New York law, calculation of the restoration period during which the insured’s business income losses can be attributed to a covered event is a factual question about damages, albeit sometimes a complex and contentious one, appropriately addressed by appraisal. However, an appraiser may not resolve coverage disputes or legal questions regarding the interpretation of the policy.133
Amerex Group, Inc. v. Lexington Ins. Co., 678 F.3d 193 (L.A.2 (N.Y.) 2012); Lakewood Mfg. Co. v. Home Ins. Co., 422 F.2d 796, 24 Ohio Misc. 244 (6th Cir. 1970).
133 Id. at 205-206.
Indeed, in Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co.,134 a claim related to the attack on the World Trade Center, the court held that under New York law, the question of the length of the restoration period of a business interruption claim was a question of valuation for appraisers though the definition of the restoration period was to be settled by the court as a legal issue. In this claim which involved the destruction of the insured’s store located on the concourse of the World Trade Center, the court was confronted with the insured’s claim for business interruption carried forward for the actual amount of time required to restore operations at an identical store to the previous level against an assertion by the carrier that the claim should be limited to the time required to restore the level of business of the entire Duane Reade chain. Finding the carrier’s position to be “manifestly unreasonable” the court determined the definition of the period of restoration as the length of time required for the insured to resume “functionally equivalent operations at the same location” and delegated the determination of the number of months and years to the appraisers.
Where the appraisal award stated both that the insured was entitled to loss of use
134 279 F.Supp.2d 235 (S.D.N.Y. 2003).
coverage and that entitlement to the amount depended upon whether the court found the loss to be covered, the insured was not necessarily entitled to the amount of the award. One decision found no abuse of discretion by a trial court which subtracted an amount awarded for “loss of use” from an original appraisal judgment based on “the plain and unambiguous language of the policy, as well as the uncontradicted evidence that [the insured] did not incur any additional living expenses as a result of the fire.”135
Care should be taken in selecting appropriate appraisers who have expertise in the type of claim at issue. On behalf of the insured, an experienced and qualified public adjuster or forensic accountant may be appropriate for economic claims.
The appraisal clause applies to first-party disputes over the value of loss to tangible property, but not to “causes in action” such as personal injury claims.136
In Florida, even where the insurer denies the claim in full and asserts defenses to coverage like failure to cooperate or to comply with conditions precedent, a cause of
Westfield Nat. Ins. Co. v. Nakoa, 963 N.E.2d 1126 (Ind. Ct. App. 2012).
McDonnell v. State Farm Mut. Auto Ins. Co., 299 P.3d 715 (Alaska 2013) .
action to compel appraisal is not subject to dismissal prior to an evaluation of those defenses, as compelling appraisal may become appropriate should the defenses not be sustained. Dismissal of an appraisal claim is not compulsory even where a claim is fully denied.137
Cypress Chase Condo Ass’n “A” v. QBE Ins .Co., 2013 WL 1191413 (S.D. Fla. 2013); State Farm Fire & Cas Co. v Wingate, 604 So.2d 578, 579 (Fla. 4th DCA 1992) (staying appraisal to allow resolution of coverage issues).
Valued Policies And A Total Loss
Some jurisdictions have considered the applicability of the appraisal provision where the parties have agreed within the policy as to the value of the property insured. Generally, such a policy does not allow for appraisal once there is a total loss.
The New York Court of Appeals discussed the issue of a total loss under the agreed value form of policy in the seminal case of Lee v. Hamilton Fire Ins. Co.138 In Lee, New York’s highest court stated that under these circumstances, the appraisal covers only loss or damage less than a total loss. According to the court, if the insured under such a policy claims a total loss and the insurer asserts a partial loss, and the latter insists on an appraisal, the granting of an appraisal by the insured cannot estop him from litigating the question of whether he suffered a total loss. If it is decided by the court that the loss is not total, then the appraisal stands, but should the court conclude that the loss was total, then, under the valued policy, the insured would be entitled to receive the amount of the policy. Any other construction would emasculate the
138 251 N.Y. 230, 167 N.E. 426 (1929).
valuation portion of the policy and disregard the fact that the policy is a valued policy.139
A Minnesota court has asserted there is no need for appraisal in the event of a total loss since the amount of loss is predetermined. It explained that the language found within both the pertinent state statute and a policy’s appraisal provision stating “except in the case of total loss” was meant to prevent parties from claiming an amount higher or lower than a policy’s limits where a total loss occurs.
Total loss, while not defined by the statute or policy, has been described at common law: “A building is not a total loss…unless it has been so far destroyed by the fire that no substantial part or portion of it above ground remains in place capable of being safely utilized in restoring the building to the condition in which it was before the fire…There can be no total loss of a building so long as the remnant of the structure left standing above ground is reasonably and safely adapted for use (without being taken down) as a basis upon which to restore the building to the condition in which it was immediately before the fire; and whether it is so adapted depends upon the question whether a reasonably prudent owner of the building, uninsured, desiring such a structure as
Id.
the one in question was before the fire, would, in proceeding to restore the building, utilize such standing remnant as a basis. If he would, then the loss is not total.”140
In Minnesota, the determination of whether a total loss has been sustained is beyond the scope of appraisal. In a case which applied the aforementioned “total-loss prudent-person” standard, total loss was distinguished from the factual dispute submitted to appraisal. Although Minnesota had not previously considered whether an appraisal or court was a more appropriate forum for such a determination, it adhered to the prevailing rule that “the sole purpose of an appraisal is to determine the amount of damage…[a]s a consequence, an appraisal clause does not permit appraisers to determine whether a loss was, in fact, total.” The court was found to be the most appropriate forum for a determination of total loss, as the statutory appraisal procedure and appraisers’ authority were inconsistent with the common law guidelines, and a total loss requires “interpretation and application of common- law and legal standards that are broader than
Auto-Owners Ins. Co. v. Second Chance Investments, LLC, 812 N.W.2d 194 (Minn. Ct. App. 2012).
loss valuation.”141
If the policy is not a valued form and there is no question but that a total loss occurred, the appraiser can typically determine what the value of the total loss actually is.142
It should be noted that while some courts do not authorize appraisers to determine whether a loss is total, an appraisal agreement may be so drawn as to cover the question whether or not there was a total destruction.143
A Florida case has illuminated the distinction between a total loss and a constructive total loss. In an action by an insured against an insurer involving wind damage, a District Court of Appeal found that the lower court was correct in allowing a jury to decide which type of loss a mobile home had suffered. This particular matter did not address appraisal, but clarified the distinction between these losses. It applied the identity test in stating, “a building is considered an actual total loss…if it ‘has lost its identity and specific
Id., citing 15 Lee R. Russell & Thomas F. Segalla, Couch on Insurance 3d. §210:42 (2005).
Littrell v. Allemannia Fire Ins. Co. of Pittsburgh, Pa., 222 A.D. 302, 226 N.Y.S.343 (3d Dept. 1928), modified on other grounds, 224 A.D. 523, 231 N.Y.S. 520 (3d Dept.
1928) rev’d on other grounds, 250 N.Y. 628, 166 N.E. 350 (1929).
Yendel v. Western Assur. Co., 21 Misc. 348, 47 N.Y.S.141 (App. Term 1897).
character as a building, and becomes so far disintegrated, it cannot be possibly designated as a building, although some part of it may remain standing.’” However, “‘[A] building is considered a constructive total loss when the building, although still standing, is damaged to the extent that ordinances or regulations in effect prohibit or prevent the building’s repair, such that the building has to be demolished.’”
Further, the county’s substantial damage determination, which required demolition of the property to comply with regulations, was relevant to a determination of constructive total loss.144
It has long been recognized that where a policy is a valued policy as to merchandise sold and not delivered, appraisal is not appropriate in the event of a total loss.145
In California, where a total loss had occurred, it is for the court to determine whether the policy at issue is either “open or valued” should that issue reasonably be raised.
Citizens Prop. Ins, Corp. v. Hamilton, 43 So.3d 746 (Fla. 1st DCA 2010).
Buchholz v. US Fire Ins. Co., 293 N.Y. 82, 56 N.E.2d 43 (1944); Lite v. Fireman’s Ins.
Co. of Newark, N.J., 119 A.D. 410, 104 N.Y.S. 434 (1st Dept. 1907); Buffalo Elevating v. Prussian Nat. Ins. Co., 64 A.D. 182, 71 N.Y.S. 918 (4th Dept. 1901); Harris v. Eagle Ins. Co., 5 Johns 368 (N.Y. Sup. Ct. 1901); Lang v. Eagle Fire Co., 12 A.D. 39, 42 N.Y.S. 539 (4th
Dept. 1896); Baldwin v. Fraternal Acc. Ass’n of America, 21 Misc. 124, 46 N.Y.S. 1016 (1897); Knickerbocker Ins. Co. of New York v. Tinguaro Sugar Co., 16 F.2d 128 (2d Cir. 1926); Young v. Allstate Ins. Co., 351 Ill. App.3d 151, 812 N.E. 2d 741 (App. Ct. of Ill. 1st Dist, 6th Div. 2004).
An open policy is one in which the value of the subject matter is not agreed upon but is left to be ascertained in case of loss.” (Cal. Ins. Code
§411) “A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specified sum. (Ins. Code
§412)146
In Missouri, it has been held that the state’s “valued policy statute” only applied to fire claims and has no applicability to losses caused by risks other than fire.147
Certain Underwriters at Lloyd’s of London v. Bart Enterprises, Int’l Ltd., 2013 WL 2252914 (Cal. App. 2013).
147 Garvin v. Acuity, 2012 WL 5197223 (W.D. Mo. 2012); Mo. Rev. Stat.§379.140
Issues Of Scope Or Extent Of Loss, Causation And Coverage
Scope or Extent of Loss
The appraisal team is generally limited to a determination of the value and the amount of the loss to each item of damage sustained by the insured.
A frequent issue that regularly causes frustration and antagonism in the determination of value and the amount of loss is whether the scope of loss is something that may be appraised under the Standard Fire Policy.
For example, it is universally accepted that the cost of replacing wooden beams which have been charred by fire would be subject to an appraisal. However, the question of how many beams would require replacement, it has been argued, is not subject to appraisal, as a possible coverage issue.
In practice, perhaps the most commonly occurring issue might, for example, be in a fire claim where the issue of how many beams or joists need be replaced and how many merely repaired or deodorized. Similar issues arise in almost every claim and become the focus of
the appraisers’ attention. A number of insurance companies have asserted that this is “an issue of scope” and not subject to appraisal. Logically this is at odds with the Standard Fire Policy and tends to thwart the fundamental purpose of the appraisal provision.
The Standard Fire Policy, in the first sentence of its appraisal clause, states that appraisal is appropriate “in case the insured and this company shall fail to agree as to the actual cash value or the amount of loss...”148 Objective analysis of the unambiguous terminology of the policy must lead one to conclude that in determining the amount of loss, one must draw conclusions as to the extent of damage to the property which is the subject of the appraisal and the amount, extent, and cost of remediation or replacement in order to fulfill the carrier’s responsibility under the policy.
Certainly at its extreme, an overly strict interpretation would tend to frustrate the clear intent of the appraisal provision which is to provide an efficient mechanism to determine the value of loss and damage.
See e.g., N.Y. Ins. Law §3404.
Historically, there had been a tendency by the courts to treat issues relating to scope of loss as a coverage issue and deprive the parties of the right to appraise that aspect of a disagreement. 149
In late 2014, historic legislation was signed into law by Governor Andrew Cuomo which clarified that issues of scope of loss (or “extent of loss or damage” as stated in the legislation) are appraisable in the state of New York. This legislation was the culmination of ten years of effort within the legislature and on behalf of consumers to encourage the use of appraisal to resolve all of the issues that comprise the question of the “amount of loss”. The author drafted the legislation which passed both houses of the legislature unanimously. The relevant language reads:
“An appraisal shall determine the a c t u a l c a s h v a l u e , t h e replacement cost, the extent of the loss or damage and the amount of the loss or damage which shall be determined as specified in the policy and shall proceed pursuant to the terms of the applicable appraisal clause of the insurance
Kawa v. Nationwide Mut. Ins. Co., 664 N.Y.S.2d 430, 174 Misc.2d 407, 1997 N.Y. Slip
Op. 97580 (1997).
policy and not as an arbitration. Notwithstanding the provisions of this subsection, an appraisal shall not determine whether the policy actually provides coverage for any portion of the claimed loss or damage.”150
As of 2015, the existence of issues of scope of loss or minor issues of causation within a covered loss afford no excuse for avoiding appraisal in New York.
A Minnesota court affirmed an award for replacement of all siding panels of a property where matching was required by the applicable policy. The policy there required the replacement of “damaged property with other property…[o]f comparable material and quality.” The Court determined that this required a reasonable (not identical) color match between damaged and undamaged material, a standard correctly applied by the appraisal panel. Because the policy also required compensation for direct physical loss or damage to covered property as a result of a covered loss, when combined with the inability to replace damaged panels with siding of comparable material and quality
150 N.Y. Ins. Law §3408, amended L. 2014. C451 §1, eff. Nov. 21, 2014.
resulting in a color mismatch, the insured was entitled to the replacement of all of its siding panels. There, it was ultimately held that “an appraisal panel can appropriately resolve questions of law when determining the amount of loss [but] [t]his authority is...subject to judicial review.” The Court found that the appraisal panel had applied the correct legal standard on the basis of that the plain meaning of the phrase indicated material suitable for matching. However, the Court limited its opinion to the facts before it, observing that each storm-related property damage claim was unique.151
In Wisconsin, it was necessary for the Court to distinguish its role from that of an appraiser where it was asked to determine the cost of repair and replacement. The Court affirmed that the cost of repair was a decision properly before the appraisers. It illuminated the purpose of the appraisal process, to determine the total loss claimed – meaning that appraisers should assess each item of damage claimed in proof of loss statements, determine the damaged portions of the property and the cost of repair, and finally issue an award itemizing damages and cost of
Cedar Bluff Townhome Condo Ass’n v. American Family Mut. Ins. Co., 857 N.W. 290 (Minn. 2014).
repair. The Court emphasized that in the case before it, only then might it be necessary for it to resolve the replacement cost for the insureds’ home. It further clarified that appraisers should not consider causation for items of damage; such a determination should be made by the court along with whether the damage was covered under the policy.152
However, a partially covered loss is more likely appraisable than a complete denial.
In a recent Missouri case in which parties agreed that there was a covered loss but disagreed as to the amount of loss covered, the Court ultimately found the dispute resolvable by appraisal, stating it could not allow the insurer to “circumvent the appraisal provision the parties contracted for by casting the dispute in this light.” As the policy unambiguously provided coverage for the perils at issue, the Court observed a dispute over extent of loss caused by such perils is appraisable.153
Another example is found in the case of Safeco Ins. Co. v. Sharma,154 in which the court reversed a prior confirmation of an appraisal
Gronik v. Balthasar, 2013 WL 5376025 (E.D. Wis. 2013).
Underwriters at Lloyd’s of London, Syndicate 4242 v. Tarantino Properties, Inc., 2012
WL 3835385 (W.D. Mo., 2012).
154 160 Cal. App.3d 1060, 207 Cal. Rptr.104 (Ct. App. 1984).
award where the insured had claimed theft of a matched set of 36 paintings. The appraisal determined that the stolen paintings were not a matched set and thus of lesser value. In rejecting the award, the court stated, “[I]n no authority is it suggested that an appraisal panel is empowered to determine whether an insured lost what he claimed to have lost or something different.” Thus, though the issue of whether the insured’s property was what is was claimed to be impacted on its value, it was held to be beyond the scope of the appraisal provision.
An example of an appropriate and efficient approach in Safeco would have had the appraisers render two conclusions; the first assuming a matched set, the second assuming a non-matched set, leaving it for a subsequent court to enforce the appropriate award.
In an appraisal involving a hotel destroyed by fire while under construction and insured under a builder’s risk policy the cost of reconstruction and coinsurance were the prime issues. During appraisal, issues arose concerning what constituted covered property for purposes of calculating the amount of insurance required for coinsurance purposes. For example, questions of whether the cost of parking lots, personal property, site work and other items should be included for coinsurance purposes.
The appraisal team elected to create an award format that valued all items in dispute and calculated two awards; one which included all disputed items and the other which excluded values of the disputed items giving the parties the opportunity to litigate the definition of covered property while having the undisputed portion of the award paid immediately. If the insured prevailed in litigation it would be easy for the court to determine the amount of the additional award.155
An appropriate and reasonable approach to issues of this nature would be for the appraisal team to render conclusions of loss and value based upon each of the party’s submissions and leave it for a court to make coverage determinations and confirm these parts of the award as appropriate.
For example, the issue of what items were in the home was appraisable, subject to judicial review after the award.156
In Texas it has been held that an appraisal should go forward as a preliminary matter because “allowing litigation about the
See Appraisal Award Form, Section IX, Form 5, page 698 for this award form.
Dorpfield V. Preferred Mut. Ins. Co., Index # 11-386682 (Sup. Ct. Orleans Co. NY, 2011).
scope of appraisal before the appraisal takes place would mark a dramatic change in Texas insurance practices and surely encourage much more of the same.”157
A Washington insured was entitled to the amount awarded by appraisal for loss of use of his property where his policy provided for such coverage. There, the insurer contested the amount established by appraisal, on the grounds that the amount owed was dependent on a future determination of the scope of applicable coverage. It asserted that the award’s own language reflected the inability to resolve coverage issues and believed the insured sought to “equate the appraisal award to the existence of insurance coverage.” The Court found that the insurer had presented no basis for challenging the award’s fairness, deeming the award conclusive.158
A California superior court has deemed it an error to compel appraisers to assign loss values to items without regard to whether they had actually sustained damage. It clarified that while compelling appraisal in light of a dispute over scope of loss in itself would not be
State Farm Lloyds v. Johnson, 290 S.W.3d 886 at 894 (Tex. 2009).
Kochendorfer v. Metropolitan Prop. & Cas. Ins. Co., 2012 WL 1204714 (W.D.Wash. 2012).
precluded, the fact that a lower court had compelled appraisers to assign values to items that may not have been damaged or ever existed, simply because the insured claimed they were damaged, prevented their compliance with Insurance Code § 2071 requiring appraisal of an insured’s actual loss. The lower court decision had misconstrued precedent to suggest that an appraisal panel is compelled to assign a loss value to anything that is submitted to it for consideration by an insured regardless of an item’s state of damage or existence. The determinations of whether an item exists or is damaged are “fundamental” to valuation of a loss.
However, the court asserted that “a trial court does not necessarily err in compelling appraisal of disputed items when the disputes turn on issues such as coverage, causation, or policy interpretation. Those legal issues can be resolved in subsequent litigation, although it may be appropriate in certain cases to stay an appraisal pending resolution of the disputed issues. However, when the disputes turn on the condition or quality of damaged or destroyed items-and it is possible for the panel to assess an item’s condition or quality without simply having to rely on the insured’s representation-it is error to compel the appraisal panel to assign values to items that inspection reveals were not damaged or did not ever exist.” It also clarified
that an appraiser’s authority is exceeded when nothing is awarded for damaged items based on coverage determinations; however, it is not exceeded when nothing is awarded for undamaged or nonexistent items whose nature and existence is readily ascertainable, nor is authority exceeded by determining and labeling different amounts of loss where the amounts differ due to stated assumptions about the property’s condition before the loss.159
However, a court determined that appraisers did not exceed their scope of authority in carrying out their duties to value a loss, despite the insurer’s assertion that the panel had assigned values to items that did not exist or were not damaged because the insured’s representative included them within the scope of loss presented to the panel. A review of the record indicated that the panel had not simply “rubber stamp[ed] the estimate” as claimed by the insurer. The court’s review of the award did not support the determination that the panel had failed to make factual determinations necessary to value the loss, and decided that if the insurer believed coverage did not extend to certain items included in the scope of loss, it could
Lee v. California Cap. Ins, Co., Alameda County Superior Court No. RG11571734 (2015).
pursue legal options available to it outside of appraisal.160
Citing Safeco Ins. Co. v. Sharma, supra, it was held that asking the appraisal panel to determine the length of time for which plaintiff’s business was interrupted would be akin to asking the panel “to determine whether an insured lost what he claimed to have lost or something different.161
A similar result was reached in the case of Edison Textiles, Inc. v. Topa Ins. Co.162 where the court recognized the distinction between deciding the value of an item which is the thrust of the appraisal process and deciding the type of item taken. This court was additionally troubled by the umpire’s determination of issues of credibility and the burden of proof regarding the extent of the insured’s claimed loss.
Similarly, it has been held that where, for example, the parties disagreed as to the length of time for which the policy covered business interruption, or whether or not a particular employee was an “important employee” as
Fidelity Nat. Ins. Co. v. Yolanda Owens, Alameda County Superior Court No. RG11589323)(6/18/15).
Turnstone Consulting Corp. v. United States Fidelity and Guaranty Co., 2007 WL 1430037 (N.D. Cal. 2007).
162 2004 WL 1203072 (Cal. App. 2nd Dist. 2004).
defined in the policy, or where the differences as to the amount of loss were all “incidental to the actual underlying legal controversy between the parties as to the meaning of the insurance contract and its application to the facts”, appraisal was inappropriate.163
This approach was refined in the case of Duane Reade, Inc. v. St. Paul Fire and Marine Ins. Co.,164 where prior to September 11, 2001, the plaintiff operated a drug store in the World Trade Center in downtown Manhattan. When the towers and store were destroyed, plaintiff sought coverage for “business interruption losses” under an insurance policy issued by defendant. The prime dispute between the parties was whether the plaintiff had a right under the policy to recover business interruption losses for the entire period until the World Trade Center was rebuilt or whether plaintiff’s recovery was limited to those suffered within 21 months following the terrorist attacks. The District Court determined that appraisal would be premature where there were unresolved claims for declaratory judgment regarding the scope of coverage and related issues.
163 Hawkinson Thread Tire Service Co. v. Indiana Lumbermen’s Mut. Ins. Co., 362 Mo. 823, 830, 245 S.W.2d 24, 28 (1951).
164 261 F.Supp.2d 293 (S.D.N.Y. 2003).
This view was taken to an extreme when a trial court asserted authority to determine the period of restoration, applying this period to the appraiser’s determination of monthly loss.
Typically, the court should help to define ambiguous policy terms and determine issues of policy interpretation and leave it for the appraisers to quantify the loss.165
In a case in which there are issues of both coverage and of loss valuation, most courts will stay that part of the litigation that involves loss valuation. However, that part of the litigation that involves coverage issues should continue pending the appraisal.166
A simplified statement of the rule is that issues of coverage are to be decided by the courts, the dollar value of the loss being resolved by appraisal, with the result binding on the parties. In State Farm Fire & Cas. Co. v. Licea,167 the Florida Supreme Court stated as follows:
Meridian Ins. Co. v. Cha Cha, Inc., 868 N.E.2d 922, 2007 WL 1747968 (Ind. App. 2007).
See Glenbrook Patiohome Owners Ass’n. v. Lexington Ins. Co., 2011 WL 666517
(S.D.Tex. 2011).
685 So.2d 1285 (Fla., 1996); See also, Harco National Ins. Co. v. Robles, 685 So.2d
1288 (Fla. 1996).
Thus, where there is a demand for an appraisal under the policy, the only defenses which remain for the insurer to assert are that there is no coverage under the policy for the loss as a whole or that there has been a violation of the usual policy conditions such as fraud, lack of notice, and failure to cooperate. We interpret the appraisal clause to require an assessment of the amount of the loss. This necessarily includes determinations as to the cost of repair or replacement and whether or not the requirement for repair or replacement was caused by a covered peril or a cause not covered such as normal wear and tear, dry rot, or various other designated, excluded causes. For the reasons discussed, we hold that the appraisal clause at issue is not void for lack of mutuality of obligation simply because of a retained rights clause [the right of the carrier was reserved to deny the claim after the appraisal], where we interpret the clause as retaining only the right to dispute the issue of coverage as to the whole loss, or whether the policy
conditions have been violated as specified above.168
The scope of appraisal in Florida was further examined in a recent matter in which a condominium association sought confirmation of an appraisal award in the face of an insurer’s argument that damages were improperly awarded for excluded property and that certain amounts should have been deducted upon consideration of its defenses.169
The court discussed the differences in the roles of an appraiser and court involved in the appraisal process and clearly outlined the duties of each. It stated that “appraisers determine the amount of loss, which includes calculating the cost of repair or replacement of property damaged, and ascertaining how much of the damage was caused by a covered peril as opposed to things such as “‘normal wear and tear, dry rot, or various other designated, excluded causes.”. 170 Further, it clarified that “the court decides whether the policy provides coverage for the peril which inflicted the damage, and for the particular
Licea, Id.
Citizens Prop. Ins Corp. v. River Manor Condominium Ass’n, Inc., 125 So.3d 846 (Fla 4th DCA 2013).
citing Johnson v. Nationwide Mut. Ins. Co., 828 So.2d 1021, 1025 (Fla. 2002) and State
Farm Fire and Cas. Co. v. Licea, 685 So.2d 1285, 1288 (Fla., 1996).
property at issue; in other words, all coverage matters.”
More recently the Eleventh Circuit Court of Appeals stated that Florida law is clear that “if an insurer and an insured go to appraisal, the insurer can only dispute ‘coverage for the loss as a whole.” Causation is a coverage question for the court when the insurer wholly denies that there is a covered loss. However, it is more likely to be an appraisable “amount of loss” question for the appraisal panel when the insurer admits that there is a covered loss, the amount of which is disputed.171
In Pennsylvania, the Federal District Court has stated that disputes as to “scope of loss” and “extent of loss” are appraisable. The Court confirmed that those are defined as “an estimation of the dollar value of the loss and a judgment of what repairs are necessary to recoup from the loss.”172
In keeping with the Eleventh Circuit, the Supreme Court of Rhode Island has held that unless the insurer denies coverage for the
Three Palms Pointe, Inc. v. State Farm Fire & Cas. Co., 250 F.Supp.2d 1357, 16 Fla.L. Weekly Fed.D. 231 (M.D. Fla. 2003), aff’d, 362 F.3d 1317, 17 Fla. L. Weekly Fed C. 315 (11th Cir Fla. 2004); Muckenfuss v. The Hanover Ins. Co., 2007 WL 1174098 (M.D. Fla. 2007).
Correnti v. Merchants Preferred Ins. Co., 2013 WL 373273 (E.D. Pa.); Sydney v. Pacific
Indem Co., 2012 WL 3135529 (E.D. Pa. 2012); Williamson v. Chubb Ind. Ins. Co., 2012 WL 760838 (E.D. Pa. 2012).
claimed loss, and as long as the dispute is limited to the amount or extent of the loss, the parties are required to submit to the statutory appraisal process. In Hahn v. Allstate Ins. Co., the insured brought suit seeking an injunction to compel the insurer to submit to appraisal. In affirming the trial court’s issuance of the injunction, the supreme court held that although the insurer argued that scope-of- coverage issues existed which were not appropriate for appraisal, the insurer’s vague allegations of pre-existing damage were insufficient to put the insured on notice and were not a genuine attempt to litigate such issues.173 The insured was entitled to timely and adequate notice of the specifics of the dispute in order to contest the insurer’s denial of coverage.
The word “loss” in a property insurance policy clause means “the injury or damage caused by the accident for which the insurer may, under the provisions of the policy, be liable.174
In New York, an insured’s motion for the appointment of an umpire to conclude an appraisal of both loss and damage to an insured’s property was granted where the
See Hahn v. Allstate Ins. Co., 15 A.3d 1026 (R.I. 2011).
44 Am. Jur.2d Insurance §1327 (2002); Miller v. USAA Cas. Ins. Co., 44 P.3d 663 (Utah
2002).
parties’ “Agreement for Submission to Appraisers” used both terms. There, the court found that use of the terms “loss” and “damage” served to represent “patently two separate matters”, evidenced particularly by language in the first paragraph stating “the parties hereto have disagreed on the amount of the loss of or damage to the following properties…” The Court found the agreement was reasonably read and even expected to provide for one person to address both issues. The Court reasoned that “[i]n a sense, the two different issues are necessarily conjoined, and an appraisal which determines first, how badly the building was damaged and, second, how much that damage will cost to fix, reasoning, “how is the money value of the damage to be determined until and unless the extent of the damage is determined?”175
In one Virginia matter which examined the term “amount of loss” where causation was undisputed but controversy surrounded the extent of replacement and type of repairs required, the Court deemed the disagreement to pertain to extent or amount of loss. It found that appraisal was an appropriate means of resolution, as “the question of what must be replaced in order to adequately repair the
Kirkpatrick v. Harleysville N.Y. Cas. Co., RJI 32-01-0317 (2008)(unreported decision).
damage caused by the admittedly covered event…is not a question of coverage.” Because the term “amount of loss” was not defined by the subject policy nor the Virginia Code or any Virginia court, the Court looked to other jurisdictions having similar appraisal statutes for guidance as to how it should be construed. The Court relied upon two decisions in particular; first, a Texas Supreme Court decision which found appraisal appropriate for resolving which portions of a roof were damaged as well as whether undamaged portions also required replacement to fix the damage sustained. Second, it found a Florida decision instructive in which appraisal was appropriate where coverage was similarly found to be undisputed and the only outstanding issue was “the scope of the required repair or replacement and the amount of the loss.”176
A Florida court considered scope of loss in characterizing a dispute over necessary repairs to revolve around amount of loss as opposed to a dispute of coverage. It stated, “[n]otably, in evaluating the amount of loss, an appraiser is necessarily tasked with determining both the extent of covered damage and the amount to be paid for repairs. Thus, a question
Coates v. Erie Ins. Exchange, 2009 WL 7416039 (Va. Cir. Ct., 2009), citing State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex.2009) and Florida Farm Bureau Cas. Ins. Co. v. Sheaffer, 687 So.2d 1331 (Fla. 1st DCA 1997).
of what repairs are needed to restore a piece of covered property is a question relating to the amount of “loss” and not coverage.”177
An Arizona court determined a dispute was properly resolvable by Appraisal where the parties disagreed over the amount of loss and the extent of an insurer’s liability rather than the meaning of the insurance policy itself.178
Issues of Causation
Courts have disagreed as to whether the “amount of loss” includes a determination of the “cause of loss.” Some jurisdictions have regularly held that appraisers may not consider causation while most other jurisdictions have permitted it, and still other courts have been somewhat ambiguous.179
In Ohio, courts have decided the issue on a case by case basis as directed by the appraisal language in the policy. In Hull v. Motorists Ins. Group, the Ohio Court of Appeals reversed a decision made by the trial court which ordered the appraisal panel not to make
Cincinnati Ins. Co. v. Cannon Ranch Partners, Inc., 2014 WL 7404045 (Fla. 2d DCA 2014).
Harvey Prop. Mgmt . Co. Inc. v. Travelers Indem. Co., 2012 WL 5488898 (D. Ariz. 2012).
Cigna Ins. Co. v. Didimoi Prop. Holding, N.V., 110 F. Supp.2d 259, 265-69 (D. Del. 2000).
any determination as to causation issues when deciding the amount of loss. The Court of Appeals found that under the policy, the parties only agreed to allow the court to select an umpire, but they did not agree to restrict the means by which the appraisers and umpire would determine the value of the insured’s property or the amount of loss. Thus, the Court of Appeals did not weigh in on whether appraisers and umpires may consider causation when determining the amount of loss to a structure; it found only that the trial court’s causation instruction was “outside the scope of its authority under the parties’ contract.”180
In California it was held that an appraisal panel’s consideration of factors of causation as evidenced by allowances for $0.00 for obviously damaged i tems was an unacceptable coverage determination exceeding the authority of the panel.181 Such a determination of issues of causation was held inappropriate despite the inclusion of language in an appraisal agreement that read:
Hull v. Motorists Ins. Group, 2011 WL 2040958 (Ohio Ct. App. 2011).
Kacha v. Allstate Ins. Co., 140 Cal. App.4th 1023, 45 Cal. Rptr.3d 92, 2006 WL 1515827 (2006).
“We, the undersigned, ... in accordance with our appointment as appraisers and/or umpire without bias or personal interest, have observed the subject property and have examined the evidence submitted to us and, in a c c o r d a n c e w i t h o u r appointments, have made the following determination and award of damage, if any, to the insured’s residence attributable to the fire...”.
The inclusion of the words “if any” was held to refer to the degree of damage if any, and not to a covered cause, if any. By making a determination of a non-covered cause of loss to various items, the panel’s award was vacated.
In North Carolina, it was held that where an appraisal award purported to determine that wind had caused a loss, factual issues existed as to the causes of damage and coverage under the policy. It was held that “‘when, as here, the facts and circumstances surrounding a claim - especially causation - remain in dispute,’ the finder of fact must ‘determine whether the ultimate cause of the claimed damages falls within the scope of the policy’s exclusionary provisions, as defined by the trial court.’” Under these circumstances,
factual disputes remained as to which damages were directly caused by wind and which of those related damages may have stemmed from another direct cause, and to coverage under the policy. In North Carolina, appraisal “is limited to a determination of the amount of loss and is not intended to interpret the amount of coverage or resolve a coverage dispute” as an appraisal award may be affected by policy exclusions.182
Another North Carolina decision concluded that an appraisal award was invalid where appraisers had inappropriately distinguished what they believed was damage caused directly by fire from that caused by the insured’s “post-fire neglect”. The Court observed that appraisers are authorized “to assign a value to the damage done by a given event. One cannot measure a loss without determining a starting point…what is not appropriate for an appraiser to decide is how much of the deterioration resulted from a covered cause and how much came from an uncovered cause.” North Carolina is among the more conservative states in dealing with causation in this manner.183
North Carolina Farm Bureau Mut. Ins. Co., Inc. v. Sadler, 711 S.E.2d 114 (N.C. 2011), citing Markham v. Nationwide Mut. Fire Ins. Co., 125 N.C. App. 443, 453, 481 S.E.2d 349,
355, disc. rev. denied, 346 N.C. 281, 487 S.E2d 551 (1997).
Glendale LLC v. Amco Ins. Co., 2012 WL 1394746 (W.D.N.C., 2012).
Some recent Florida decisions appeared to extend the scope of the appraisal process to allow the award to consider causation.184
Florida courts had seen previous conflict on this point. In 2000, Opar v. Allstate Ins. Co.,185 the First District Court of Appeals concluded that coverage issues were not to be addressed during the appraisal process. The Third District Court of Appeals in Florida has also held that causation was not a proper issue for appraisal. In Gonzalez v. State Farm,186 the carrier had claimed that the entire loss fell within a policy exclusion and the court determined that such a defense is a legal question to be resolved through litigation and not a question of amount of loss to be determined by appraisers. Interestingly, the Third District, in concluding that the appraisers
Nationwide Mut. Ins. Co. v. Johnson, 828 So.2d 1021 (Fla. 2002); Gonzalez v. State Farm Ins. Co., 805 So.2d 814 (Fla. Dist. Ct. App. 3d Dist. 2000), quashed in part and approved in part, 828 So.2d 1021 (Fla. 2002); Florida Select Ins. Co. v. Keelean, 727 So.2d 1131 (Fla.2d DCA 1999); But see, Allstate Ins. Co. v. Suarez, 786 So. 2d 645, aff’d, 833 So.2d 645 (Fla. 2002); See also, Allstate Ins. Co. v. Martinez, 833 So.2d 761, 27 Fla. L. Weekly S1043 (Fla. 2002); Kendall Lakes Town Homes Developers, Inc. v. Agricultural Excess and Surplus Lines Ins. Co., 916 So.2d 12, 2005 WL 2447887, 30 Fla L. Weekly D2349 (Fla. App.3d Dist. 2005), (where some of the loss is covered, causation is an “amount of loss” question for appraisal panel and not a coverage question to be decided by the trial court. The carrier had agreed that there was some covered loss but disagreed as to the amount of loss. Note that the award was overturned and the matter remanded with an instruction that the appraisal process be repeated before a new umpire, as the trial court had previously limited the umpire’s authority and the umpire failed to follow the court’s instructions.).
Opar v. Allstate Ins. Co., 751 So.2d 758 (Fla. Dist. Ct. App. 1st Dist. 2000).
Gonzalez, 805 So.2d 814; See also, Delisfort v. Progressive-Express Ins. Co., 785 So.2d
734 (Fla. Dist. Ct. App. 4th Dist. 2001).
impermissibly decided whether the entire claim was within the coverage of the insurance policy, quoted the same State Farm v. Licea187 case that the Second District Court of Appeals cited in Johnson in drawing the opposite conclusion.
The Florida Supreme Court’s decision in Nationwide Mutual Ins. Co. v. Johnson,188 however, issued in 2002, seems to have clarified a significant body of Florida jurisprudence which had expanded the scope of appraisal to include a determination of causation.
In Johnson, the intermediate appellate court was confronted by a coverage issue where the consumer claimed his loss was caused by sinkhole, a covered peril, whereas the carrier contended the cause was earth movement, an excluded one. In determining that this issue was a proper one for appraisal, the court stated:
“The issue presented here is whether causation is a coverage question for the court or an amount of loss question for the appraisal panel. Based on State Farm Fire &
187 685 So.2d 1285 (Fla. 1996).
188 828 So. 2nd 1021 (Fla. 2002).
Cas. Co. v. Licea189 and Florida Select Ins. Co. v. Keelean,190 we hold that causation is an amount of loss issue for the appraisal panel.”
In its Suarez191 decision, decided in late 2002, the Supreme Court of Florida attempted to resolve these conflicting decisions in handing down its decision in a joint appeal of both Johnson v. Nationwide Mutual Ins. Co.192 as well as State Farm Fire & Cas. Co. v. Gonzalez.193 In resolving the conflict, the Supreme Court of Florida adopted the analysis of Judge Kope in the Gonzalez case. Judge Kope stated:
“Very simply, the Licea court was saying that when the insurer admits there is a covered loss, but there is a disagreement on the amount of loss, it is for the appraisers to arrive at the amount to be paid. In that circumstance, the appraisers are to inspect the property and sort out how much is to be paid on
189 685 So.2d 1285 (Fla. 1996).
190 727 So. 2d 1131 (Fla.2d DCA 1999).
191 Allstate Ins. Co. v. Suarez, 786 So.2d 645 (Fla. Dist. Ct. App.3d Dist. 2001), aff’d, 833 So.2d 762 (Fla. 2002); See also, Allstate Ins. Co. v. Martinez, 833 So.2d 761, 27 Fla. L. Weekly S1043 (Fla. 2002).
192 828 So.2d 1021.
193 805 So.2d 1021.
account of a covered peril. In doing so, they are to exclude payment for ‘a cause not covered such as normal wear and tear, dry rot or various other designated excluded causes.’
Thus, in the Licea situation, if the homeowner’s insurance policy provides coverage for windstorm damage to the roof but does not provide coverage for dry rot, the appraisers are to inspect the roof, arrive at a fair value for the wi n d s to r m d a ma g e wh i l e excluding payment for the repairs required for pre-existing dry rot.
In the present case (unlike Licea) State Farm says that there is no c o v e r a g e f o r t h e c l a i m whatsoever, while the homeowners say that the claim falls within an applicable coverage. Whether the claim is covered by the policy is a judicial question, not a question for the appraisers.”194
Gonzalez, 805 So.2d 816-817 (citations omitted) quashed in part and approved in part, 828 So.2d 1021 (2002).
In reversing the Johnson decision and affirming the Gonzalez decision, the Florida Supreme Court has adopted a logical and practical resolution of this issue. This resolution would appear to bring Florida within the mainstream of states on this issue.
In the years since Johnson, courts have attempted to confront the varied circumstances that arise. For example, where the insurer acknowledged coverage and paid the claim, but then the insured attempted to reopen the claim several years later which was denied by the insurer, as the entire remaining claim was denied, the court found appraisal inappropriate, stating the carrier “has asserted that the losses now claimed by plaintiffs were not covered under the policies.”195
The continuing challenge in dealing with this issue will be that inevitably, in fulfilling their duties as appraisers in determining value and the amount of loss, it is inherent in the appraisers’ task to make an initial determination as to the cause of damage.
In Colorado, the issue was confronted for the first time in 2011. While acknowledging that other jurisdictions disagree on the question of whether the appraisers’ powers include
767 Building LLC v. Allstate Ins. Co., 2010 WL 1796564 (S.D. Fla. 2010).
identifying the cause of particular damage when ascertaining the loss the insured has sustained, the Elbart County District Court, relying in part on Florida’s Johnson v. Nationwide Mutl Ins. Co., 828 So.2d 1021 (Fla 2001), Delaware’s Cigna Ins. Co. v. Didimois Prop. Holding N.V., 110 F.Supp.2d 259 (D.Del. 2000) and Maryland’s Wausau Ins. Co. v. Herbert Halporin Dist. Corp., 664 F. Supp.987 (D. Md. 1987) determined that the plain meaning of the policy phrase “amount of loss” necessarily includes a determination of the cause of loss as well as the cost to repair that which was lost. Finding such definition consistent with that found in Blacks Law Dictionary and the word “loss” as found in Webster’s Dictionary, detailed its rationale as follows:
“If... the court limits the appraisers to simply make dollar value determinations without regard for whether property was damaged by a covered peril, it could be reserving a plethora of detailed damage assessments for judicial review thereby debunking the purpose of appraisal which is to minimize the need for judicial intervention...Moreover the court believes that its approach to the appraisal process may foster the
parties’ resolution of certain issues without legal intervention, thereby promoting the purpose of appraisal... For the appraisal may assist the parties in narrowing and identifying the disputed issues thereby encouraging the partes to attempt a resolution of those matters before seeking judicial intervention.”196
A more recent Colorado decision has affirmed these principles. There, causation was challenged in a claim which raised a question as to whether damage sustained had been caused by one storm as opposed to a previous one, demonstrating that “as a matter of common usage, one determines the amount of loss with reference to a particular cause.” The Court cited the purpose of the appraisal provision as in Rooftop Roofing, holding that to preclude causation from appraisers’ consideration would “significantly undermine” its objective. Third, the Court relied upon Colorado public policy in “caution[ing] against an overly restrictive reading” of the provision. Finally, i t acknowledged that any determination made by the appraisers as to damage caused by the storm in question
(quoting Aqua Ins. Co., supra p.249), Rooftop Roofing Inc. v. Fire Ins. Exchange, 2010 CV 243 Dist. Court, Elbert Co., Co. (2011).
would have no bearing on coverage matters, and that such issues may still be disputed by the parties following the conclusion of appraisal.197
In Illinois, it has been held that determining the cause of damage is inherent to the appraisers’ duties.198
In considering this issue, care must be taken to avoid frustrating the clear intent of the appraisal provision by an aggressive assertion of causation as an issue when it is plain that the principal issue between the parties is the amount and value of the loss.
In Iowa as well, the scope of appraisal was found to include issues of causation (but not coverage). In a case where insureds submitted a claim under their policy for hail damage sustained to their roof and two years later, for additional damage suffered from a second storm, a dispute surrounded causation of damage claimed to be a result of the second storm and whether such damage was covered by the policy or excluded by prior compensation. In evaluating this matter, the court asserted that a provision for appraisal of a loss, whether under the terms of an insurance
Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, 2015 U.S. Dist. LEXIS 48854. 198 Spearman Ind. Inc. v. St. Paul Fire & Marine Ins. Co., 109 F. Supp.2d 905 (N.D. Ill 2002).
policy or pursuant to an independent agreement between parties, are valid and binding. The court acknowledged that the issue of an appraiser’s authority to determine causation or issues of coverage had not previously been fully considered in Iowa. Ultimately, it held that an appraiser must determine the amount of loss as part of appraisal process, an undertaking “which often requires consideration of causation.” Absent the ability to consider causation, an “integral part of the definition of loss,” an appraiser would be unable to take part in its assigned functions. The court determined that this would constitute an improper limit of the appraisal process to circumstances where only the monetary amount of a loss was a disputed matter.199
Indeed, a Federal District Judge sitting in the Northern District of Iowa, in attempting to predict how the Iowa Supreme Court would rule on the appraisability of claims raising causation and coverage issues, stated:
“...[T]he outcome I predict would be adopted in Iowa, is that a dispute over coverage or causation does not eviscerate an
North Glenn Homeowners Ass’n v. State Farm Fire and Cas. Co., 854 N.W. 2d 67 (Iowa Ct. App. 2014).
insurance policy’s appraisal clause. Instead, upon either party’s written demand, a dispute over the amount of loss is subject to the contractual appraisal process despite questions as to coverage or causation. Once appointed, the appraisers must determine the amount of the loss without regard to causation, disputes or defenses to coverage. Basically, this means “valuing each item of loss claimed by the insured, in a sworn proof of loss, even if the insurer disputes causation of and/or coverage for some or all of these items. Questions as to wether the insurer is liable for all or part of the loss must be resolved by the court, not by the appraisers.”200
Where a challenge based on the improper consideration of causation in an appraisal award was raised by one insurer, a Louisiana decision clarified that causation determinations will not necessarily nullify appraisal awards in that jurisdiction. The Court acknowledged that while causation determinations may be improper in rendering an appraisal award in Louisiana, an award
Mapleton Processing, Inc. v. Society Ins. Co., 2013 WL 3467190 (N.D. Iowa 2013).
may still stand as any such determinations can be challenged and thus are not binding on either party or the Court. There, an appraiser had argued that issues of causation must be assessed in order to evaluate the “amount of the loss” under the plain language of the policy, recognizing that his work as an appraiser was not to decide coverage or liability matters. Finding no contrary state authority, the Court ultimately held the extent to which the appraiser incorporated causation into the appraisal process alone did not form sufficient grounds for vacating the award.201
In a minority of jurisdictions, the rule that causation and other coverage issues are not proper for appraisal is commonly held.202 However, where coverage for a portion of the loss is accepted, there is a logic and efficiency to allowing the appraisers to determine that
St. Charles Parish Hospital Service Dist. No. 1 v. United Fire and Cas. Co., 681 F.Supp.2d 748 (E.D. La. 2010).
Munn v. National Fire Ins. Co. of Hartford, 237 Miss. 641, 646, 115 So.2d 54, 56 (1959)
(holding appraisers did not have authority to decide liability and coverage questions because “nowhere in the standard fire policy is any power vested in or conferred upon the appraisers to determine the cause of loss...”); St. Paul Fire & Marine Ins. Co. v. Wright, 97 Nev. 308, 629 P.2d 1202 (1981); Elberon Bathing Co., Inc. v. Ambassador Ins. Co., Inc., 77 N.J. 1,
389 A.2d 439 (1978); Minot Town & Country v. Fireman’s Fund Ins. Co., 1998 N.D. 215,
587 N.W. 2d 189 (1998); Kentner v. Gulf Ins. Co., 66 Or. App. 15, 673 P.2d 1354 (1983),
aff’d and remanded, 297 Or. 470, 686 P.2d 339 (1984), modified at reh’g, 298 Or. 69, 689 P.2d 955 (1984), superceded by statute on other grounds, Concealment, Fraud, Representations by Insured, Or. Rev. Stat.§742.208(3)(2001); Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142 (Tenn. Ct. App. 2001); Wells v. American States Preferred Ins. Co., 919 S.W.2d 679 (Tex. App. Dallas 1996); Auto-Owners Ins. Co. v. Kwaiser, 190 Mich. App. 482, 476 N.W.2d 467 (1991); H4C Associates. v. Assur. Co. of America, 256 F.Supp.2d 505
(ED Va. 2003).
portion of the loss which is covered. This nuance represents the majority view currently.
For example, in LeBlanc v. Travelers Home and Marine Ins. Co., the District Court sitting in the Western District of Oklahoma held that although the umpire’s decision touched on issues of coverage, his analysis was appropriate. The court explained that as there was no dispute that tornado damage was a covered peril under the homeowner’s policy, it was not appropriate for the umpire to determine what damage was caused by the tornado and what damage was caused by some other peril. While the court noted that “[u]nder a typical appraisal clause, the only issue to be determined by the appraiser is the amount of the loss...The problem...is that drawing lines between ‘coverage,’ ‘causation’ and ‘amount of loss’ is not always clear cut in actual practice.”203
In Texas, appraisers acted within their authority “to the extent [they] merely distinguished damage caused by pre-existing conditions from damage caused by [a] storm”
LeBlanc v. Travelers Home and Marine Ins. Co., 2011 WL 1107126 (W.D.Okla.2011); See also Knop v. The Travelers Home and Marine Ins. Co., unpublished decision, 2:10-cv- 05506-JCJ (E.D. Pa. 2010) (Court granted a motion to compel appraisal and stay litigation and directed compliance with an appraisal provision, “find[ing] that the decisions interpreting ‘amount of loss’ as having an embedded causation element…persuasive and…on point.”.
in a case where the court considered the aspect of causation in an appraisal determination. It referenced a state supreme court holding that matters of damage were determinable by appraisal and that liability questions should be resolved by the court, but which also stated that the distinction between liability and damage will not necessarily be clear and that causation relates to both issues.
The court further clarified that should causation be determinable by appraisal then there would be no liability questions before the courts; “[b]y contrast, when different types of damage occur to different items of property, appraisers may have to decide the damage caused by each before the courts can decide liability”…and “‘[a]ny appraisal necessarily includes some causation element, because settling the ‘amount of loss’ requires appraisers to decide between damages for which coverage is claimed from damages caused by everything else.’”204
A Texas court stated: “[W]hen an indivisible injury to property may have several causes, appraisers can assess the amount of damage and leave causation up to the courts. When divisible losses are involved, appraisers
TMM Investments, Ltd. v. Ohio Cas. Ins. Co., 730 F.3d 466 (5th Cir. 2013), citing State Farm Lloyds v. Johnson, 290 S.W.3d 886, 892-93 (Tex.2009).
can decide the cost to repair each without deciding who must pay for it…[w]hen an insurer denies coverage, appraisers can still set the amount of loss in case the insurer turns out to be wrong.”205
In Massachusetts, policy coverage issues have been held properly determinable by the Court as a matter of law. In one matter, it was held that an appraiser had properly considered whether certain equipment was part of a covered loss under an insurance policy, but the Court was not bound by the appraiser’s interpretation of policy exclusions. There, the insured had contended that an appraiser exceeded his authority by determining coverage issues as part of his appraisal, including a decision that coverage was governed by Form 0180 and an interpretation of policy exclusions. The Court found an insured’s claim was subject to appraisal but an insurer’s liability in terms of coverage was to be considered after the appraisal. In that action the insured argued that the appraiser had acted outside his authority “ by making a threshold determination” pertaining to coverage under the parties’ insurance contract. The policy’s
In re Southern Ins. Co., 2011 WL 846205 (Tex. App. 2011), citing State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009) and Scottish Union & Nat. Ins. Co. v. Clancey, 8
S.W. 630, 631 (1888); Amtrust Ins. Co. of Kansas Inc. v. Starship League City, L.P., et al, 2012 WL 2996489 (E.D. Tex. 2012).
language additionally implied that an appraiser must necessarily consider covered losses under the policy in order to carry out its obligations.206
An appraisal provision could not be circumvented in Texas where a disagreement surrounded the matters of both coverage and amount of loss. In that case, the overlap of coverage and causation issues with those related to amount of loss and repair cost did not preclude the appraisal provision’s applicability. The Court confirmed that with respect to appraisal, causation was always a consideration as appraisers must allocate damage caused by covered and excluded perils in the determination of damages caused by an occurrence.207
It was held appropriate to compel the insurer to submit to appraisal where the dispute between the parties had to do with the extent of hail damage. The insurer argued that any decisions by appraisers on the extent of damage would be beyond the scope of their authority because their decisions necessarily will involve decisions about causation,
Sun Microsystems, Inc. v. Electronic Services, Inc., 2009 WL 987336 (Mass. Super 2009).
In re Texas Windstorm Ins. Ass’n, 2013 WL 4806996 (Tex. App.-Houston [14th Dist.] 2013)
coverage and liability. The Court stated clearly the most logical and appropriate resolution to this common misconception about appraisal:
“If the parties had to first agree on which specific shingles were damaged and approach every disagreement on extent of damage as a causation, coverage or liability issue, either party could defeat the other party’s request for an appraisal by labeling a disagreement as a coverage dispute. Instead, as the process is designed, once it is determined that there is a covered loss and a dispute exists about the amount of that loss, the appraisal process determines the amount that should be paid because of loss from a covered peril.”208
This Court’s approach represents a fundamentally fair and reasonable interpretation of the appraisal provision and gives life to the process.
Johnson v. State Farm Lloyds, 204 S.W.3d 897 (Tex. App-Dallas, 2006); See also, Carbonneau v. American Family Ins. Co., 2006 WL 325724 (D. Ariz. 2006) (“Were such doubts not resolved in favor of appraisal, insurance companies could avoid appraisal obligations merely by claiming that the dispute concerned coverage.”).
As stated above, the 2014 change in New York law which clarifies that issues of “extent of loss” are appraisable, establishes that issues of causation as to specific items within an otherwise covered claim would be appraisable as part of the determination of “the amount of loss and damage”.209
While the cases generally hold that questions of liability are reserved for review in court, when the insurer alleges fraud in the submission of the claim, it should not be assumed that the liability issue must be decided prior to appraisal. In fact, in Dock Resins Corp. v. Sorema N.A. Reinsurance Co.,210 the court pointed out that while Elberon211, held that under a fire appraisal the question of liability is preserved for a reviewing court, nothing in the opinion supports the insured’s assertion that when the insurer alleges fraud in the submission of the claim, the liability issue must be decided prior to appraisal.
In 201 N. Wells LLC v. Fidelity and Guaranty Ins. Co.,212 the court was confronted with a situation where the insured had suffered an extensive water damage and the principal
209 N.Y. Ins. Law §3804, amended L.2014. C 451 §1. Eff. Nov. 21, 2014.
Unpublished opinion, Index No. Civ. 01-3975 U.S.D.C. D.NJ., 2003.
Elberon Bathing Co., Inc. v. Ambassador Ins. Co., 77 N.J. 1, 389 A.2d 439 (1978).
C.V.03855 (N.D. Ill. Feb. 2, 2001), as amended, (Feb. 7, 2001) (Minute Order).
dispute was over what portion of the loss was caused by water damage and what portion of the loss, if any, was caused by the insured’s failure to dry out the building, leading to mold and asbestos problems. In commenting that the appraisal provision is used to determine the amount of damages, and not coverage, the court nevertheless found the appraisal provision applicable to this situation. The court noted that the insurance company could not direct its appraiser to ignore certain types of damage to the building because it had already decided that it was not liable for the specific type of damage. The court went on to state:
“[S]uch behavior would also render an appraisal (and therefore appraisal provisions) largely useless if a court subsequently decides that liability does exist for the type of damage the insurer excluded from the appraisal process.”
The District Court concluded that an appraiser’s proper duty is to evaluate the amount of damage to covered property after which the insurance company can attempt to apply any alleged mitigating factors, leaving it to the parties to litigate these issues when and if they arise. The court analogized this situation to a situation where a building has pre-existing
damage and the appraiser cannot determine the amount of loss without evaluating what damage was caused by the covered event and which damage was caused, for instance, by previous wear and tear. The court required the appraisers to evaluate not only the amount of damage to the building, but also to determine the amount of loss caused by water damage, asbestos, mold and fungi. This will avoid the necessity of litigating these damage issues should the court subsequently decide that coverage existed for some of these categories.
A similar result was seen in Cigna Ins. Co. v. Didimoi Prop. Holdings, N.V.213 where the court determined that the appraisers were authorized to determine the amount of money necessary to repair or replace the damage as well as the amount of “covered” loss. The court stated: “[A]n appraiser’s assessment of the ‘amount of loss’ necessarily includes the determination of the cause of the loss as well as the amount it would cost to repair that which was lost.”214
In order to maintain the efficiency of the process as intended by the policy and to avoid the necessity of litigating these issues, the parties may wish to consider clarifying the
213 110 F. Supp.2d 259, 265-69 (D. Del. 2000).
214 Id. at 264.
powers of the umpire and appraisers by a written agreement signed by the parties authorizing the appraisal team to make such determinations.215 This grant of authority by the parties to the umpire may be beyond the scope of an insurance appraisal. If the parties should agree to make such an additional grant of authority, the matter becomes, in essence, an arbitration.
If the parties are unable to agree on whether to resolve these issues through appraisal, disputes of this nature may be determined by a court of competent jurisdiction on a motion for declaratory or summary judgment, sometimes avoiding the necessity of expensive and time consuming discovery and a trial.
The difficulty is that in many claims, the line between permissible policy interpretations and those deemed beyond the scope of appraisal is often a blurry one.
Indeed, it is hypocritical to assert this type of limitation on the appropriate scope of the appraisal process as a coverage or “legal” issue, when in most every appraisal, the
Visselli v. American Fidelity Co., 155 Conn. 622, 237 A.2d 561 (1967), over-ruled by statute on other grounds, Uninsured and Under-Insured Motorist Coverage, Conn. Gen Stat.
§38a-336 (2003); Connecticut Union of Tel. Workers v. Southern New England Tel. Co.,
148 Conn. 192, 169 A.2d 626 (1961).
appraisers and the umpire are left to define the phrase “actual cash value.” Many policies do not offer a definition or other guidance as to its meaning. At best, the participants are left to draw upon legal interpretations to assist them in drawing conclusions; at worst, they muddle through based on past experience and negotiation. Couldn’t it be said then, that in each and every appraisal that takes place under these circumstances, that the participants are resolving issues of law and coverage in order to reach their conclusion? To the contrary, the proper resolution of this issue is to give life to the intent of the drafters of the Standard Fire Policy and allow for a broad degree of discretion on the part of the appraisers and the umpire in making their good faith effort at doing justice to the policy of insurance.
It is not unusual during the appraisal process for issues to arise that present mixed questions of coverage and damage which will require the appraisers to make quantitative decisions as to causation. For example, appraisers have been upheld where they determined which part of a business interruption loss had been caused by a covered peril on the one hand and which was
caused by a labor dispute which was excluded.216
Appraisers have similarly been sustained when determining what damage was caused by lightning as opposed to wind in a claim where coverage was affected by the outcome.217
In Texas, it has been stated that an appraisal award that assesses causation, coverage or liability is made without authority. In this case, the issue arose as to allowances for mold remediation in areas not directly affected by water and the parties vigorously disputed whether items not physically damaged by water are covered by the policy.218
In a matter litigated in a New York Federal Court determining Connecticut law, it has been held that appraisers will be able to determine an amount of loss only after the covered losses are separated from those losses which are not covered. It was held that in the state of Connecticut directing the parties to proceed with an appraisal prior to the determination of the contours of insurer liability would be premature. Moreover, an insured
Lakewood Mfg. Co., Inc. v. Home Ins. Co., 422 F.2d 796, 24 Ohio Misc. 244 (6th Cir. 1970).
Fox v. Employer’s Fire Ins. Co., 330 Mass. 283, 113 N.E.2d 63 (1953).
Hartford Lloyds Ins. Co. v. Yarbrough, 2006 WL 1469705 (S.D. Tex. 2006).
must file a proof of loss and await a determination of the amount of loss even prior to commencement of appraisal. Thus, an insured cannot initiate an action against an insurer prior to the insurer ascertaining at least an initial amount of loss or denying the claim in its entirety.219
The issue of what caused or did not cause a loss so as to trigger coverage under an insurance policy often is a question to be decided by a court and are not appropriate for appraisal.220
In Arizona, which seems to favor the minority view, a hail claim presented a situation where the issue was whether a “significant portion” of plaintiff’s roof claim is covered under the policy as questions of causation were raised. This was held to not be a dispute about the amount of loss that all parties agreed were covered and was beyond the scope of appraisal.221
Specifically, in a North Carolina Supreme Court case, the court explained that the insurance policy both provides for and constrains the appraisal process and that the
Secord v. Chartis Inc., 2011 WL 814743 (S.D.N.Y.).
Kawa v. Nationwide Mut. Ins. Co., 664 N.Y.S.2d 430, 174 Misc.2d 407, 1997 N.Y. Slip
Op. 97580 (1997).
San Souci Apts. v. National Surety Corp., 2013 WL 428091 (D. Ariz).
“process cannot exceed the scope of the contractual provisions authorizing it.”222 The court elaborated that while it is the job of the appraisal process to assess the value of the loss, the insurer “retains the right to determine in the first instance what portion of that loss is covered by the policy.”223 Thus, on an insured’s motion for summary judgment, there existed issues of fact as to: (1) the causation of the damages; and (2) what part of the damages, if any, are limited to a specific maximum amount under the policy. Causation issues in North Carolina, therefore, must be resolved by a court before the loss covered by the policy can be determined.
In a case of first impression, the Alabama Supreme Court concluded that a trial court which had directed issues of causation to be resolved by appraisal was in error. It determined that the issue of whether the loss was caused by settlement or a tornado was for the lower court to determine.224
However, in Ohio, the Court of Appeals has found that an action to appoint an umpire is not the appropriate vehicle to challenge
North Carolina Farm Bureau Mut. Ins. Co., Inc.,711 S.E.2d 114, 117 (2011).
Id.
Rogers v. State Farm Fire & Cas. Co., 984 22d 382 (Ala. 2007); See also, Laird v CMI Lloyds, 261 S.W.3d 322 (Tex. Ct. App. 2008).
causation. In Hull v. Motorists Ins. Group, the court found because the parties had only agreed in the insurance policy to let the court select an umpire, and not to instruct the appraisers on causation issues, such instruction went beyond the scope of the court’s authority under the contract. As the contract did not call for the court to limit the way in which the appraisers and umpire determine the value of the insured’s property and the amount of loss he suffered, no instruction on causation could be given.225
Some courts have drawn a very fine line with respect to whether appraisers may resolve the issue of causation. The Federal District Court of Maryland for example was confronted with a roof collapse where the carrier asserted a portion of the loss was due to rotted and decayed framing members from long term exposure to water. Nevertheless, the insurance carrier offered a substantial sum in satisfaction of the insured’s claim based on its evaluation of the value of the immediate and direct damage resulting from the collapse of the roof. In these circumstances, the court rejected the insurance company’s assertion that appraisal was limited only to the monetary valuation of areas of damage that the parties agreed were covered by the policy. The court stated: “[T]o
See Hull v. Motorists Ins. Group, 2011 WL 2040958 (Ohio Ct. App. 2011).
so read the appraisal clause would make the term ‘amount of loss’ simply redundant to the term ‘actual cash value’.”226 The court nevertheless concluded that the appraisal provision did not apply to these facts. The court reasoned that the appraisal provision would apply only if the insurance company had disputed the factual issue of whether a larger area than that immediately damaged by collapse had to be repaired in order to restore the damage. The court determined instead, that the insurance company had contested the legal causation of the collapse on the grounds that certain policy exclusions applied to limit the scope of coverage. The court concluded as follows:
“This issue is one of contract interpretation which is within the competence of the court, not an appraiser, to resolve. Of course, to the extent that issues of design and construction relating ‘to the amount of loss’ are ultimately presented, these will be properly referable to the appraisal process.”227
Similar results have been seen for example in Illinois, where the Northern District
Wausau Ins. Co. v. Herbert Halporin Dist. Corp., 664 F.Supp. 987 (D. Md. 1987).
227 Id. at 989.
Court held that causation is a matter for the courts, not an appraiser.228
The Texas Court of Appeals has held that “[A]ppraisers have no power to determine the cause of damages; their power is limited to the function of determining the money value of the property damage.”229 In Wells v. American States Preferred Ins. Co., the Texas court stated that “the weight of authority from other jurisdictions discussing the issue follows the rule that appraisers have no power or authority to determine questions of causation, coverage or liability.” However, a detailed review of this chapter leads to a different conclusion on these issues, even back in 2008.230
In the state of Minnesota, the Court of Appeals was confronted with a claim for hail damage which was said to have caused dents in the home’s siding whereas the insurer claimed the hail merely caused marks on the siding, but no dents. In concluding that the matter was appropriate for appraisal, the Court stated that the insurer’s claim that this factual
Spearman Ind. Inc. v. St. Paul Fire & Marine Ins. Co., 109 F. Supp.2d 905 (N.D. Ill. 2000).
Wells v. American States Preferred Ins. Co., 919 S.W.2d 679 (Tex. App.-Dallas 1996);
See also, Holt v. State Farm Lloyds, 1999 WL 261923 (N.D. Tex. 1999) (appraisers may only determine the amount of loss and may not determine issues of causation, coverage, or liability for damages).
Wells, Id., See also, Salinas v. State Farm Lloyds, 267 Fed. Appx 381, 2008 WL 552498 (5th Cir. 2008) appraisal panel was limited to determination of amount of loss not questions concerning cause, liability or questions of coverage).
dispute is outside the scope of appraisal is unpersuasive. In the Court’s view, the dispute centered around the “amount of the loss to the siding” and also “the cost to repair or replace the siding.” This is precisely the type of factual dispute the policy’s appraisal process is designed for. Thus the dispute falls within the scope of the appraisal process contained in the insurance policy. The Court directed the appraisal team to determine the cost to put the siding back in the same condition it was before the hailstorm–whether it is dented or marked.231
However, where there was found to be an issue of fact as to whether the damage occurred before or during the policy period, a motion to compel an appraisal was denied.232
The Supreme Court of Minnesota undertook the issue of whether causation is appraisable. In concluding that an appraiser’s duty to determine the “amount of loss” requires appraisers to determine causation. It stated:
“The parties’ disagreement concerning the scope of the appraisal process focuses on the
Sampson v. Horace Mann Ins. Co., 2003 WL 22234692 (Minn. App. 2003).
Natureview Vista Townhome Ass’n. v. Phoenix Ins. Co., 2011 WL 221616 (D.Minn. 2011)
meaning of the phrase “amount of loss.” After reading the appraisal clause in the context of the insurance policy as a whole, we conclude that the phrase “amount of loss” is not ambiguous, because it is susceptible to only one r e a sona b l e i n te rp r e ta t i o n . Specifically, in the insurance context, an appraiser’s assessment of the “amount of loss” necessarily includes determination of the cause of the loss, and the amount it would cost to repair that loss. With respect to insurance, “loss” is defined as “[t]he amount of financial detriment caused by ...an insured property’s damage, for which the insurer becomes liable.” Blacks Law Dictionary 1030 (9th ed. 2009 ). Merriam- Webster’ s Collegiate Dictionary defines “loss” in the insurance context as “the amount of an insured’s financial detriment by debt or damage that the insurer becomes liable for.” Merriam-Webster’s Collegiate Dictionary 687 (10th ed. 2001). These definitions state that as a general matter the term “loss” refers to damages for which the insurer is responsible. Thus, the
dictionary definitions of “loss” for purposes of insurance expressly contemplate an element of causation. By extension, an appraiser’s duty to determine the “amount of loss” requires the a p p r a i s e r t o d e t e r m i n e causation.”233
A similar result was obtained in Texas where it was stated that once it is determined that there is a covered loss, the appraisal process determines the amount of loss that resulted from a covered peril. A dispute over the extent of damage to a roof from hail is a dispute concerning the amount of loss and is appraisable. Extent of loss is an appraisable issue. 234
In Arizona, the Federal District Court found the policy provision to be “not without ambiguity”. Given the state’s strong policy of construing policies in favor of the insured, where the dispute concerns issues of causation on specific portions of an otherwise covered event, “the disagreement focuses on the extent of the insurer’s liability, not over the
Quade v. Secura Ins., 814 N.W.2d 703 (Minn. 2012).
Johnson v. State Farm Lloyds, 204 S.W.3d 897 (Tex. App-Dallas, 2006); In re Allstate County Mut. Ins. Co., 85 S.W.3d 193, 195 (Tex. 2002); See also, Carbonneau v. American Family Ins. Co., 2006 WL 325724 (D. Ariz. 2006) (holding extent of loss is not a coverage issue.
meaning of the policy itself,” and is appraisable despite such causation issues.235
In Alabama, it has been held that as a matter of law, the term “amount of loss” is not ambiguous as to whether it encompasses liability, coverage and causation issues, it does not.236
This conclusion is appropriate as long as it would not tend to emasculate and frustrate the intent of the policy pursuant to standard rules of contract construction. An interpretation which has such an effect is not supportable.237
Issues of Coverage
Today, nearly all jurisdictions allow or require the parties to an insurance contract to provide for a reasonable method of estimating and ascertaining actual cash value and the amount of the loss. However, the appraisal provision in the insurance contract does not contemplate the determination of liability. The determination of liability is entirely within the
Harvey Property Mgt. Co., Inc. v. Travelers Indem. Co., 2012 WL 5488898 (D.Ariz. 2012).
Caribbean I Owners Ass’n., Inc. v. Great American Ins. Co. of New York, 2008 WL
687381 (S.D. Ala. 2008); In re Cullman Bowling Center, LLC v. Tower Ins. Co of New York, 2013 WL 4489961 (Ala. 2013); White v. State Farm Fire and Cas. Co., 984 So.2d 382 (La. Ct. App. 2007).
Commissioner of State Ins. Fund v. Ins. Co. of North America, 80 N.Y.2d 992, 607 N.E.2d 795 (1992).
jurisdiction of the courts. The courts have generally held that appraisers are limited to determining the amount of the loss sustained by the insured, and are without power to determine potential defenses to coverage.238 Accordingly, the appraisal may not consider whether an insured's claim is fraudulent.239 Generally, the appraiser may not consider questions of law.240 For example, the questions of whether damage caused by smoke and particulate matter were covered by an insurance policy and whether replacement costs qualified as “Extra Expenses” in a contract were matters of contract law and thus resolvable by a court, “Coverage does not refer exclusively to the underlying event that is the cause of Defendant’ s losses. Rather…coverage also refers to those categories of losses which fall within the meaning of the insurance policy and for which the Plaintiff is hence liable.”241
An Ontario court which observed no need for its own interpretation of an insurance policy provision also found that appraisers required no direction by the court before the
United Boat Service Corp. v. Fulton Fire Ins. Co., 137 N.Y.S.2d 670 (Sup. Ct. 1955); In re Delmar Box Co., 309 N.Y. 60, 127 N.E.2d 808 (1955).
Kearney v. Washtenau Mut. Fire Ins. Co., 126 Mich. 246, 85 N.W. 733 (1901); Hartford Ins. Co. v. Miller, 2006 WL2844124 (E.D. Mich. 2006).
Dunton v. Westchester Fire Ins. Co., 104 Me. 372, 71 A.1037 (1908): Relentless,
LLC v. Basin Marine, Inc., 2011 WL 2682691 (C.D. Cal.2011).
Hartford Fire Ins. Co. v. Computer Data Source, Inc., Case 3:09-cv-01400-AET-LHG.
appraisal process could be undertaken. The Court was “satisfied that qualified appraisers [were] quite capable of making that determination or in the event of a dispute an umpire chosen by the appraisers can properly determine the matter.” The policy provision at issue mandated that the insurer pay the actual cash value of the loss from the date of loss to the applicable limit or coverage.242
Courts in some states have strictly enforced the above mentioned rule. For example, a Nevada court held that the umpire who considers whether the subject fire policy covered reconstruction costs alone or also the additional cost of bringing the subject motel into compliance with the local building code, had exceeded his authority. The court found that the umpire and appraisers clearly interpreted coverage provisions to arrive at the award figure and in so doing, exercised discretionary judgment not allowed them under the Standard Fire Policy's appraisal clause.243
In a case where an insured sought coverage for lost business income, a New York court evaluated the distinction between coverage and damages and concluded that
Greer v. Co-operators General Ins. Co., (1999) O.J. No. 3118 (2000) I.I.R. 1-3785, 90
A.C.W.S. (3d) 479, 1999 CarswellOnt 2570.
St. Paul Fire & Marine Ins. Co. v. Wright, 97 Nev. 308, 629 P.2d 1202 (1981).
an appraisal panel focused only on extent of damage in forming its award and did not make any determination as to coverage. There, circumstances required that appraisers calculate an insured’s business losses to generate its award. The Court recognized that although legal considerations as to coverage existed at the time of appraisal and that the appraisers had “made a complex decision among several competing factual theories, it did not adjudicate the law.” Its decision referenced three legal principles in finding that they were not violated by the appraisers’ valuation: “First, an appraiser may not resolve coverage disputes or legal questions regarding the interpretation of the policy. Second, the calculation of the restoration period, unless subject to legal challenges, is a factual question about damages - albeit sometimes a complex and contentious one - appropriately addressed by an appraisal. And third, the presence of a coverage dispute does not preclude an appraisal demand. Only a coverage dispute that precedes the valuation of damages will prevent such a demand.” 244
An appraisal award which factored in a co-insurance penalty in the calculation of the award was not upheld where there was an
Amerex Group, Inc. v. Lexington Ins. Co., 678 F.3d 193 (L.A.2 (N.Y.) 2012).
issue of what operations were insured under the policy’s business interruption coverage.245
Similarly, in a claim arising out of the September 11, 2001 on the World Trade Center, the umpire correctly concluded that the issue of co-insurance was one of coverage and thus outside his purview. Upon the carrier’s refusal to pay the award, an action ensured and upon the insurer’s motion for summary judgment, the disputed issue of valuation was resolved with the matter then referred back to the appraisal team to fashion an award consistent with the court’s interpretation of the co-insurance clause. A distinction is necessary between situations where, as here, the disagreement between the parties was the applicability or interpretation of the co-insurance clause from cases where the issue was merely one of valuation to determine the amount of co- insurance applicable, which would properly be within the purview of the appraisal team.246
With respect to co-insurance, the Court of Appeals of Michigan has stated that the co- insurance provision is not merely a factor to be used in determining the amount of the loss. Instead, the co-insurance provision was said to
Lewis Food Co. v. Fireman’s Fund Ins. Co., 207 Cal. App.2d 515, 24 Cal. Rptr. 557 (2d Dist. 1962).
New York Career Institute v. Hanover Ins. Co., 6 Misc.3d 734, 791 N.Y.S.2d 338 (2005).
be a limitation on the carrier’s obligation to pay once the loss is determined. Accordingly, because the application of the co-insurance provision was not a matter subject to the appraisal process, at least in Michigan, the insurer was held not to be obligated to raise the issue during the appraisal and may properly assert it thereafter subject to judicial review.247 This is inconsistent with common practice. It is also inconsistent with the appraisal provision which authorizes the appraisal team to resolve issues of value.
As a co-insurance calculation requires a determination of value which is within the purview of the appraisal team, prudence and best practices suggest including such a determination within the appraisal agreement. Such determinations have been successfully achieved and are generally accepted as appropriate absent legal or coverage issues which may arise in the unusual case.
Where the appraisers are uncertain as to the scope of their authority and a disagreement exists with respect to this issue, a determination of the scope of the appraisal clause is a question of law for determination by
Professional Team, Inc. v. Safeco Ins. Co. of America, 2006 WL 9322414 (Mich. App. 2006).
a court of competent jurisdiction as it is a matter of contract interpretation.248
Questions relating to the interpretation of written contracts involve legal rather than factual issues.249 Insurance policies are contracts and thus, issues of scope of coverage present questions of law for a court to decide.250
For example, if the parties fail to agree on the definition of “actual cash value” it is appropriate to seek guidance from the court.251
A New York court deemed parties’ requests that the Court limit or define an umpire’s assessment of damages to be beyond the scope of the parties’ application for selection of an umpire following a disagreement as to umpire selection. While the insurer under those circumstances sought to limit the appraisal determination to actual cash value of damages, the insured believed the umpire should act without limitations and the
Miller v. USAA Cas. Ins. Co., 44 P.3d 663 (Utah 2002).
Brandt v. Bib Enterprises, Ltd., 986 S.W.2d. 586 (Tenn. Ct. App. 1998); Rapp Const.
Co., Inc. v. Jay Realty Co., Inc., 809 S.W.2d. 490 (Tenn. Ct. App. 1991).
Pyle v. Carpenter, 118 Tenn. 288, 99 S.W. 360 (1907); Pennsylvania Lumbermen’s Mut.
Fire Ins. Co. v. Holt, 32 Tenn. App. 559, 223 S.W.2d 206 (1949); Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142 (Tenn. Ct. App. 2001).
S.R. Intern. Business Ins. Co., Ltd. v. World Trade Center Properties LLC, 445 F.Supp.2d 320 (S.D.N.Y. 2006).
determination should encompass the value of the loss, actual cash value, repair and replacement costs and incidental issues. However, the Court held that “[p]ursuant to the policy terms, a decision agreed by any two, consisting of the appraisers and the umpire, sets the amount of the loss. The amount of loss shall be determined according to the policy terms and applicable provisions of the Insurance Law by the appointed umpire.” 252
The question whether a manufacturer’s property insurance policy required the insurer to pay the amount necessary to repair or replace the destroyed equipment or its sales price was held to be outside the scope of appraisal as such a determination was a question of contract interpretation.253
In California, when such a disagreement arose, the matter was brought before the lower court which referred the issue back to the appraisers, finding a reference for litigation was premature. On appeal, the lower court was found to have erred in referring the determination of the scope of the appraisal to the panel. The appellate court held that in doing so, the District Court improperly
In the Matter of Merrimack Mut. Fire Ins. Co. v. Seibert, 31 Misc.3d 523, 917 N.Y.S.2d 839, 2011 N.Y. Slip Op. 21060 (Monroe Cty. 2011).
FTI Intern., Inc. v. Cincinnati Ins. Co., 339 Ill. App.3d 258, 790 N.E.2d 908, 274 Ill.
Dec. 135 (Ill. App. 2 Dist, 2003).
abdicated its duty to interpret the appraisal clause and determine the scope of the appraisal.254 Thus in California, it is not essential to await the outcome of an appraisal where the parties are in disagreement as to the scope and either party may apparently seek guidance from the local court.
In Pennsylvania, it has been held that where the amount of loss to items for which coverage had been admitted was substantially less then the amount of loss to items where coverage is disputed, appraisal is inappropriate, as it would result in a bifurcated damage determination and is a waste of judicial economy.255
A Florida decision has deemed the question of coverage to include whether post- loss policy conditions had been complied with. In a dispute over whether a policy’s appraisal provision was applicable, it was held that a party’s request for appraisal was premature until a determination of coverage was made. In that case, where an insurer denied coverage of a claim completely, the court observed “a judicial question that cannot be determined by
Id.; Portland Gen. Elec. Co. v. U.S. Bank Trust Nat. Ass’n. as Trustee for Trust No. 1, 218 F.3d 1085, 1090 (9th Cir. 2000); Lundy v. Farmer’s Group, Inc., 322 Ill. App.3d 214,
750 N.E.2d 314 (2d Dist. 2001).
Banks v. Allstate Ins. Co., 1993 WL 40113 (E.D. Pa. 1993).
an appraiser and must first be determined by the trial court.”256
Interestingly, while Florida law has established appraisal’s inapplicability to matters of coverage, it has also acknowledged that “the issue of coverage is not necessarily a matter of all or nothing” and its prior decision in State Farm Fire & Casualty v. Licea257 did not address the situation where scope of coverage is in dispute. Thus, in one matter, it was held that an insurer was not precluded from disputing scope of coverage and asserting a challenge to an element of loss as not having coverage pursuant to the subject policy. This Court clarified that “only if a court determines that coverage exists for that element of loss will the amount of appraisal for that element…be binding on [the insurer].”258
Where the parties’ dispute is essentially a difference regarding coverage, a request for appraisal should be denied.259
Courts have made a distinction between deciding the value of an item and deciding
Hartford Cas. Ins. Co. v. 600 La Peninsula Condo. Ass’n, Inc., 2010 WL 555686 (M.D. Fla., 2010).
257 685 So.2d 1285 (Fla., 1996).
Liberty American Ins. Co. v. Kennedy, 890 So.2d 539 (2005).
Indian Chef, Inc. v. Fire & Cas. Ins. Co. of Connecticut, 2003 WL 329054 (S.D.N.Y. 2003); Kawa v. Nationwide Mut. Ins. Co., 664 N.Y.S.2d 430, 431, 174 Misc.2d 407, 1997
N.Y. Slip Op. 97580 (1997).
the type of the item that was damaged. For example, in Edison Textiles, Inc. v. Topa Ins. Co.,260 the California Court of Appeals found fault with an umpire who exceeded his powers by improperly looking into what nature or type of property comprised the loss inventory. The insured also established that the umpire had improperly looked into the insured’s credibility as well as whether the insured had carried its burden of proof with regard to proving what inventory was actually lost. Rather than assessing the value of the damaged property, the umpire exceeded his powers by making a factual determination as to what part of the inventory was residual fabric/trim and what part was bulk fabric. This was held to be impermissible.
The insurance policy’s appraisal clause is devoid of any authority to determine coverage, deductibles, credits or off-sets of any kind. Additionally, there is no authority to award interest, attorneys’ fees or other professional fees (unless coverage is specifically provided therefore).261
260 2004 WL 1203072 (Cal. App. 2nd Dist. 2004).
Hanson v. Commercial Union Ins. Co., 150 Ariz. 283, 723 P.2d 101 (Ariz. App. Div 1 1986); Jefferson Ins. Co. of New York v. Superior Court of Alemeda County, 3 Cal.3d 398, 475 P.2d 880, 90 Cal. Rptr. 608 (1970); Commonwealth Ins. Co. v. Solomon, 32 Del. 98, 119 A. 850 (1923); Opar v. Allstate Ins. Co., 751 So.2d 758 (Fla. Dist. Ct. App. 1st Dist. 2000); St. Paul Fire & Marine Ins. Co. v. Wright, 97 Nev. 308, 629 P.2d 1201 (1981);
Elberon Bathing Co., Inc. v. Ambassador Ins. Co., 77 N.J. 1, 389 A.2d 439 (1978); Minot
Town & Country v. Fireman’s Fund Ins. Co., 1998 N.D. 215, 587 N.W.2d 189, 190 (1998);
Kentner v. Gulf Ins .Co., 66 Or. App. 15, 673 P.2d 1354 (1983), aff’d and remanded, 297
It has been held that an award for loss under an Extended Recovery Period provision of business interruption coverage exceeded the authority of the appraisal team where the insured was not entitled to claim under such coverage until after the “repair, replacement, or rebuilding of such part of the property as has been damaged is actually replaced”, and at the time of the award the property had not been replaced.262
This problem may be avoided by issuance of an award that distinguishes between monies then due and additional monies that would be due upon compliance with certain conditions like actual replacement. This approach seems most efficient and fair without overstepping the authority of the appraisal team.
In the state of Florida where a statute requires the court to award attorneys’ fees upon the rendition of a judgment against the
Or. 470, 686 P.2d 339 (1984), modified at reh’g, 298 Or. 69, 689 P.2d 955 (1984),
superceded by statute on other grounds, Concealment, Fraud, Representations by Insured, Or. Rev. Stat.§742.208(3)(2001); Wells v. American States Preferred Ins. Co., 919 S.W.2d 679 (Tex. App.-Dallas 1996); Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142 (Tenn. Ct. App. 2001); Trooper Jake, Inc. v. Auto-Owner’s Ins. Co., 2005 WL 1923120 (Mich. App. 2005)(where appraisal award is paid timely, an award of pre-award interest is inappropriate.); See Pfister v. State Farm Fire & Cas. Co., 2011 WL 3651349 (W.D.Pa.2011) (citing Black’s Law Dictionary (9th ed. 2009)(“[A]ppraisal is the act of determining ‘what constitutes a fair price’...and is not appropriate where, as here, the scope of coverage is in dispute.”).
Duane Reade Inc. v. St. Paul Fire and Marine Ins. Co., 503 F.Supp.2d 699 (S.D.N.Y. 2007).
insurer, an appraisal award issued after the insurer demanded appraisal during pending litigation acted as a confession of judgment in the insured’s suit requiring the court to award attorneys’ fees.263
It is well-settled that an insured is not entitled to attorney’s fees pursuant to the Florida statute if the insured initiates litigation when the insurer complies with the terms of the alternative dispute resolution provided for in the insurance contract. This is so the insurer will not be faulted for complying with the terms of its insurance contract by participating in the appraisal process and paying in a timely manner.264
However, attorneys’ fees are not recoverable under the Florida statute where the trial court’s appointment of an umpire was the sole basis of the litigation. Nevertheless, the insured was entitled to recover court costs.265
Jerkins v. USF & G Specialty Ins. Co., 982 So.2d 33 (Fla. App. 5 Dist., 2008); F.S.A.
§627.428(1); See also, Tooles v. Safeco Ins. Co. of America, 2007 WL 45749 (M.D. Fla.2007); See also, Tri-Star Lodging, Inc. v. Arch Specialty Ins. Co., 434 F.Supp.2d 1286 (M.D. Fla. 2006); Holder v. State Farm Ins. Co., 944 So.2d 521, 33 Fla. L. Weekly D2694 (Fla. 3d DCA 2008); ; see also Kopp v. Meritplan Ins. Co., 2011 WL 397951 (M.D.Fla. 2011).
Chateaubleau Villas Condo Ass’n., Inc., v. Mt. Hawley Ins. Co., 2010 WL 4923112 (S.D.Fla.).
Peraza v. Citizens Prop. Ins. Corp., 973 So.2d 490, 32 Fla. L. Weekly D2766 (Fla. 3d DCA 2007); F.S.A. §627.428(1).
Attorneys’ fees were not recoverable under the Florida Statute where the insurer was at all times ready to pay the appraisal amount but the insured failed to participate in the process in a timely fashion.266
However, where an award of attorneys’ fees was rendered in favor of insureds but their insurer had been replaced by the Florida Insurance Guaranty Association (FIGA) as a party due to insolvency, FIGA was not responsible for payment of this fee under the Florida Insurance Guaranty Association Act. The Court determined that the fee award was not a covered claim under §627.428 of Florida law, which provides in part that: “Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which recovery is had.” The Court clarified that the provision serves as
Progressive Express Ins. Co. v. Weitz, 218 Fed. Appx. 846, 2007 WL 496785 (C.A. 11 Fla.).
a penalty for the wrongful refusal to pay benefits. Further, the Act provides that a covered claim must “‘arise out of’ the insurance policy and be ‘within the coverage of’ the insurance policy. In the instant action, the damages resulting from the insurer’s breach of contract arose out of the insurance policy but were not within its coverage. It deemed §627.428 an implicit part of an insurance policy, but noted “this does not mean that the insured’s claim against the insurer for fees and costs is part of the policy’s coverage.’”267
It has been held that appraisal may not be possible where the damage at issue involved the cost of code upgrades incurred upon the actual repair or replacement of the subject property where actual repair or replacement had not yet occurred and may actually have been impossible. It was determined that a question of fact existed as to whether appraisal was appropriate under these circumstances.268
In the state of Washington, it has been held that a determination of whether work was required to bring the property up to code is not
Florida Ins. Guar. Ass’n, v. Petty, 44 So.3d 1191, 35 Fla. L. Weekly D2149 (Fla. 2d
DCA 2010); Fla. Stat. 627.428 and Fla. Stat. 631.50-70 .
Mish, Inc. v. American County Ins. Co., 2003 WL 22905161 (Conn. Super. 2003).
a coverage determination. Therefore, it was held that by deciding such an issue, the appraisal panel did not exceed its authority, and thus, the award was not unfair.269
Similarly, where the parties’ disagreement was over necessary repairs and methods of repair, those issues did not constitute disputes about coverage.270
Where the insured sought a determination of whether a total loss has occurred under the policy where the property cannot be restored to the special subjective needs of the homeowners or only, as the carrier argues that the policy requires merely that the property be restored to pre-loss condition, without reference to the particularized medical needs of the insureds, that this constituted a coverage issue and was not subject to resolution by appraisal.271
It has been held that the appraisal process is not relevant to the issue of whether a policy reimbursed for permit fees mandated by the county.272
Progressive Express Ins. Co. v. Weitz, 218 Fed. Appx. 846, 2007 WL 496785 (C.A.11 Fla).
Williamson v. Chubb Ind. Ins. Co., 2012 U.S. Dist. LEXIS 31648 (E.D. Pa. 2012)
(insureds were required to comply with an appraisal provision.).
Gordon v. Amica Mut. Ins. Co., 2005 WL 123851 (D. Conn, 2005).
Clinard v. Allstate Floridian Ind. Co. and Allstate Floridian Ins. Co., 2008 WL 879316 (M.D.Fla. 2008).
Issues relating to coverage must be litigated, stipulated, or arbitrated. They should be adjudicated with the least possible delay and it is incumbent upon the court to either order appraisal or deny it according to the rights of the parties, but to do so as expeditiously as possible to accomplish the ends of the appraisal provision.273
It has been held that when one party to an insurance contract fails to perform its end of the contract, that party is bound to make good all damages that result naturally from the breach. The non-breaching party must be put in as good condition pecuniarily as he would have been by the performance of the contract.
In Massachusetts, where the standard form of policy requires a reference procedure in the event the parties fail to agree to the amount of loss, the three referees to whom the matter is referred are generally empowered only to determine loss or damage to covered property but may not determine loss or damage to property claimed not to be covered.274 Again, a more efficient approach would be to segregate items subject to
Visselli v. American Fidelity Co., 155 Conn. 622, 237 A.2d 561 (1967), over-ruled by statute on other grounds, Uninsured and Under-Insured Motorist Coverage, Conn. Gen Stat.
§ 38a-336 (2003).
Fox v. Employer’s Fire Ins. Co., 330 Mass. 283, 113 N.E.2d 63 (1953).
coverage issues in a separate portion of the award so that upon issuance of the bifurcated award, an undisputed payment could be made while the parties litigate those items subject to the dispute but with value and loss already determined in the event the insured prevails.
Another Massachusetts court has expounded upon the scope of determination by this mandatory disinterested board of referees. It asserted the board was not to determine matters of coverage and fault in a decision where it held that the binding nature of such a determination “clearly [did] not preclude a lawsuit” and that the process is actually a condition precedent to suit. Rather, the Court cited a prior holding, stating “[i]n order intelligently to determine the amount of loss or damage under a given policy, as an incidental step in their deliberations, the referees must reach their own conclusions as to what they think that loss or damage is. Such conclusions must necessarily be affected by what they think the coverage is. Their views so far as ultimate liability goes are wholly tentative and in no sense a decision on that underlying question.” In that case, a board of referees’ award was not binding on insureds’ subsequent action against their insurer for
coverage under their policy.275
In Massachusetts, policy coverage issues have been held properly determinable by the Court as a matter of law. In one matter, it was held that an appraiser had properly considered whether certain equipment was part of a covered loss under an insurance policy, but the Court was not bound by the appraiser’s interpretation of policy exclusions. The Court found an insured’s claim was subject to Appraisal but an insurer’s liability in terms of coverage was to be considered after the appraisal. In that action the insured argued that the appraiser had acted outside his authority “ by making a threshold determination” pertaining to coverage under the parties’ insurance contract.276
However, it has been held that appraisal is mandatory where there is a disagreement as to the amount of the loss even where the insurer denies any liability for the loss on the ground that the insured had intentionally set the fire.277
While legal issues between the parties are
Bertrand v. Merrimack Mut. Fire Ins. Co., 2010 WL 2102994 (Mass. App. Div.), citing
Fox v. Employers’ Fire Ins. Co., 330 Mass. 283, 113 N.E.2d 63 (1953).
Sun Microsystems, Inc. v. Electronic Services, Inc., 2009 WL 987336 (Mass Super
2009).
McCord v. Horris Mann Ins. Co., 390 F.3d 138 (1st Circ. Mass. 2004).
generally not for appraisers to decide, appraisers do have a responsibility “to make factual conclusions to enable the Court to do so.” Such detailed determinations include cost of replacement of undamaged property for the purpose of matching and calculation of disputed costs for the Court’s inclusion or exclusion depending on its coverage decision. It has been held in Colorado that “[f]ollowing this course will enable the parties to avoid unnecessary discovery or additional appraisals.”278
Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, 2015 U.S. Dist. LEXIS 48854.
Issues Of Bad Faith
Though an appraisal is generally final and conclusive on the issues of the amount of loss and value, issues such as bad faith, to the extent they are provable, would survive the appraisal process and might properly be brought in a subsequent suit after both parties completed the appraisal.279
Where the dispute between parties pertained to amount of loss, a Pennsylvania court held that insureds could not yet pursue a bad faith claim against their insurer since the dispute did not constitute a denial of the claim. The insureds’ action, which would require them to allege that the insurer knew or recklessly disregarded its lack of a reasonable basis for its claim denial, was premature prior to the appraisal process taking place. The Court stayed the claim until appraisal was completed.280
Indeed, it has been held that where the insured contends that the insurer is engaged in a fraudulent scheme to undervalue claim payments by the use of inferior materials, in which the appraisal process constitutes an
279 Buchholz v. U.S. Fire Ins. Co., 269 A.D. 49, 53 N.Y.S.2d 608, 610 (1st Dept. 1945).
280 Williamson v. Chubb Ind. Ins. Co., 2012 U.S. Dist. LEXIS 31648 (E.D. Pa. 2012).