The long-established law of Tennessee is that the appraisal process does not resolve questions of causation or coverage. This principle, espoused in the case Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142, 152-53 (Tenn. Ct. App. 2001), remains intact. However, a series of recent decisions has clarified that the appraisal process, once invoked, must move forward despite disputes over causation and coverage.
In State Farm Fire & Cas. Co. v. Harper, the insured’s home was damaged by a tornado. No. 3:20-cv-00856, 2022 U.S. Dist. LEXIS 59865 (M.D. Tenn. Mar. 31, 2022). The insurer issued payment for repairs, and the insured’s engineer opined that the home was a total loss and must be demolished and rebuilt. The insured requested appraisal, but the carrier denied the appraisal request on the basis that the appraisal process is designed to be used when there is a disagreement about the “monetary value of the property damage,” not to determine the scope of work to be completed.
The carrier filed for declaratory judgment that the appraisal provision did not apply in this instance. It argued that the disagreement was not a dispute of the amount of damages, but of the scope of work to be performed. The insured countered that the disagreement over what was required ot return the property to its pre-loss condition and the costs associated with that work amounted to a dispute over the amount of loss. The court agreed with the insured, finding that defining the “scope of work” is inherent in determining the value of the property damages. The insurer remained free to raise any coverage and causation issues, but the appraisal process must be completed.
Similar circumstances resulted in a declaratory judgment action and motion to compel appraisal in Cin. Ins. Co. v. BMC Enters., No. 3:21-cv-00079, 2022 U.S. Dist. LEXIS 104934 (M.D. Tenn. June 13, 2022). There, the insured claimed damage to the premises that had not been covered, while the carrier asserted that there was no additional covered loss. The court held: “By contesting whether there is additional covered loss, CIC necessarily disagrees with [the insured] about the total amount of loss [the insured] incurred.” Thus, the court found that the appraisal agreement was applicable and enforced apprsaisal.
Under this trend, Tennessee courts are routinely enforcing appraisal provisions, even when questions of causation and coverage form the basis of the dispute. The carriers maintain the ability to challenge causation and coverage, but the appraisal process will move forward despite these concerns.
This article is not intended to offer legal advice but is for discussion purposes only.
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