An insurer’s ability to request an appraisal of damaged property provides an opportunity to investigate a loss with great specificity as well as examine the status and necessity of repairs as they are made at the property location.
The question presented in a recent Texas appellate decision was when, if ever, does an insurer waive its right to demand an appraisal. In re: Clarendon Insurance Co., No. 2-04-305-CV, 2004 WL 2984916 (Tex.App. 2d Dist. 2004).
The facts of the case are relatively straight-forward. The insured submitted a claim to his homeowner’s insurer, Clarendon Insurance Company, for water and mold damage to his home. Clarendon retained a third-party claim administrator to help adjust the insured’s losses. After learning that the insured was a homebuilder, a representative for the third-party administrator verbally agreed to allow the insured complete his own repair work. There was no documentation identifying the amount of the loss, and the understanding was that the insured would submit his invoices on a monthly basis.
After paying the insured $263,998.50 over the course of four months, Clarendon hired a new third-party administrator to examine the claim. Shortly thereafter, Clarendon stopped making payments as the insured refused to allow a claims professional access to his home so that a determination could be made as to whether the repairs were being completed as described in invoices previously submitted to the insurer.
In response, the insured forwarded a policy limits demand to Clarendon. Subsequently, the insured filed a declaratory judgment action naming Clarendon as a defendant. During the initial phases of litigation between the parties, Clarendon sent the insured a demand for appraisal and filed a motion to dismiss the insured’s action. Clarendon maintained that the insured, pursuant to the terms of the policy, was not permitted to bring suit against Clarendon unless he had complied with all of the policy terms, i.e. allowed the insurer access to the damaged property. In the alternative, Clarendon argued that the insured’s suit should be abated pending the outcome of the requested appraisal.
The trial court denied Clarendon’s motion to dismiss or in the alternative to abate. In addition, the trial court granted a motion by the insured to strike Clarendon’s appraisal demand.
The Second District of the Texas Court of Appeals held that Clarendon did not waive its ability to request an appraisal. The court noted that (1) the insurance policy did not contain a deadline for demanding an appraisal; and (2) Clarendon had always intended to compare the repairs completed at the subject property with the invoices submitted for the work. The Appellate Court emphasized that an appraisal only became necessary when Clarendon was denied access to the property and the insurer should not be deprived of a right that could be found in the insurance contract.
The Appellate Court also disagreed with the insured’s proposition that Clarendon was not entitled to mandamus relief because Clarendon had an adequate remedy of law (i.e. the ability to confirm the work through a request for inspection of the subject premises pursuant to the Texas Rules of Civil Procedure). In supporting Clarendon on the issue, the Court reasoned that any attempt to deprive Clarendon of its requested appraisal would prevent Clarendon from obtaining an independent valuation of the repairs. Thus, Clarendon’s appraisal right was directly at issue and gave Clarendon the right to pursue an appellate answer on the questions presented.
Appraisals are a valuable tool used by insurers to address claim situations with their insureds. Some may contend that allowing an insurer to request an appraisal at a later stage of the claims process hinders an insured’s ability to reach a timely resolution of its claim. Others would contend that the insurer’s right to request an appraisal reduces costs associated with potentially unnecessary litigation and reduces the incidence of fraud.
At least for this court, an insurer’s ability to demand an appraisal could not be superceded by a lengthy passage of time between the submission of the claim and actual appraisal request.
Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country, including general coverage, directors and officers liability, professional liability, environmental, and asbestos cases. Questions and responses to this article are welcome at email@example.com The Tip of the Month runs each month on claimsguides.com
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