Appraisal Provisions for Property Policies, Part 1

August 12, 2008

Presented at PLRB/LIRB claims conference April 13-16, 2008 in Boston, Mass by Andrew P. Rock, attorney, The Rock Law Group, Rick L. Hammond, attorney, Johnson & Bell and Lisa Cronin, coverage counsel, St. Paul Travelers Property & Casualty Co.

Please note, the opinions and views expressed herein relate only to the authors, and should not be construed in any way to be the views, opinions, or representation of The Rock Law Group, P.A., Johnson & Bell, Ltd , The Travelers Companies, Inc., and/or the PLRB.

Appraisal as a preferred means of alternative dispute resolution.

Appraisal is faster, generally less expensive and more final than litigation.

Considering business interruption loss, a court refused to uphold an appraisal award where the appraisers had to determine whether all of the insured’s operation at the loss location was insured. Lewis Food Co., v. Fireman’s Fund Ins. Co., 207 Cal.App2d 515, 24 Cal.Rptr. 557 (1962).

Scope of Appraisal.

The appraisal is not enforced until after the policy conditions are met.

Examinations Under Oath (EUO) were not required of an insured’s public adjuster nor an insured’s maintenance supervisor as a condition precedent before appraisal was appropriate. Florida Gaming Corp. v. Affiliated FM Insurance Co ., 502 F. Supp. 2d 1257 (S.D. Fla. 2007).

Before entitlement to demand appraisal, an insured must comply with the policy conditions, including a submission of a proof of loss and a submission to a requested examination under oath. USF&G v. Romay, 744 So.2d 467 (Fla. 3rd DCA 1999); Jacobs v. Nationwide Mutual Fire Ins. Co., 236 F.3d 1282 (11th Cir. Fla., 2001).

An insured did not provide a proof of loss to the insurer. The insurer then demanded appraisal while the court held appraisal would have been premature as the insured had not satisfied the conditions precedent of the policy. Boston Ins. Co. v. A.H. Jacobson Co. v. Titus, 33 N.W.2d 602 (Minn. 1948).


In order to be entitled to compel an appraisal under a homeowners’ insurance policy, plaintiffs were required to meet all post-loss duties under a policy, including examination under oath and supply requested documentation. Jacobs v. Nationwide Mut. Fire Ins.Co., 236 F.3d 1282 (11th Cir. 2001).

General cooperation.

An appellate court refused to review a trial court’s refusal to grant insured’s motion to compel appraisal for not complying with obligations under policy. El Cid Condominium Assoc., Inc. v. Public Service Mutual Ins. Co., 780 So2d 325 (Fla. 3rd DCA 2001).

Insureds must comply with their post-loss obligations before the appraisal provision can be invoked. Galindo v. Ari Mut. Ins. Co., 203 F. 3d 771 (11th Cir. 2000).

Motion to Dismiss.

A court held an insurer’s delay in sending proof of loss form to insureds was unrelated to an insurer’s right to arbitration and could not constitute a waiver of that right. An insurer’s failure to immediately demand arbitration upon discovery of a large disparity between its amount of loss and the insureds’ did not constitute waiver of right to arbitration and the insurer’s motion to dismiss complaint constituted necessary demand for arbitration. United States Fire Ins. Co. v. Franko, 443 So.2d 170 (Fla. 1st DCA 1983).

Most states recognize the enforceability of appraisal clauses.

Like other forms of arbitration, insurance appraisal was a favored means of dispute resolution. Unetco Industries Exch. v. Homestead Ins. Co., 57 Cal.App.4th 1459 (1997).

The insurer’s demand for arbitration was timely, and the insurer did not act inconsistently with that right at any point in the proceedings. Arbitration was mandatory once invoked by one of the contracting parties. United Community Insurance Company v. Lewis, 642 So. 2d 59 (Fla. 3rd DCA 1994).

Condition precedent.

During a dispute arising from a supplemental claim for damages, an insured demanded an appraisal pursuant to the appraisal clause in the insurance policy. The insurer failed to designate its appraiser within 20 days and the insured filed suit, refusing to perform any other conditions pursuant to the policy. The Court held that an action to compel appraisal does not accrue until the policy conditions precedent have been performed or waived, and then appraisal is refused. Chimerakis v. Sentry Ins. Mut. Co., 804 So.2d 476 (Fla. 3rd DCA 2001).

The record showed that Liberty Mutual had notice of the loss, and that there was a disagreement about the amount of the loss. Therefore, the amount of the loss was properly submitted to the appraisal panel. Liberty Mutual Fire Ins. Co. v. Buenaventura Lakes Shopping Center, Inc., 846 So. 2d 1204 (Fla. 3rd DCA 2003).

Either party has the right to invoke the appraisal clause in the policy and the other party cannot deny the demand for appraisal. United Community Ins. Co. v. Lewis, 642 So.2d 59 (Fla. 3rd DCA 1994).

Appraisal is a condition precedent to a right of action on the contract. Southern Home Ins. Co. v. Faulkner, 57 Fla. 194 (Fla. 1909).

Appraisal provisions are deemed to be conditions precedent to recovery under insurance policies. Preferred Mut. Ins. Co. v. Martinez, 643 So.2d 1101 (Fla. 3rd DCA 1994).

A court held that Florida Statute entitled insured to attorney’s fees incurred in appraisal process demanded by insurer after suit was brought by insured. The court also held that appraisal was not condition precedent to insured’s suit. Ajmechet v. United Automobile Ins. Co., 790 So.2d 575 (Fla. 3rd DCA 2001).

New Jersey
Allegations of arson would not preclude appraisal from being mandated. Hala Cleaners v. Sussex Mut. Ins. Co., 115 N.J.Super. 11, 277 A.2d 897 (N.J.Ch. 1971).

A court found an insured had a right to rely on the plain language of his policy, which allowed for appraisal to commence upon the demand of either party.

In a theft loss case, a demand for appraisal was denied because the panel would not have authority to determine whether the interruption to plaintiff’s business for a specified period of time was caused by the burglary, or by a plaintiff’s own delay. The appraisal panel’s role was only to determine the monetary value of the interruption to plaintiff’s business. The panel’s role was not to determine whether the policy covers that interruption. Turnstone Consulting Corporation v. United States Fidelity and Guaranty Company, et al., 2007 U.S. Dist. LEXIS 38053 (USDC N.C. Cal. 2007).

An insurer admitted there was covered loss, but there was a disagreement on the amount of loss, it was determined the appraisers must arrive at the amount to be paid. In that circumstance, the appraisers have to inspect the property and sort out how much is to be paid on 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. In other words, causation is a coverage question for the court when an insurer wholly denies that there is a covered loss, and an amount-of-loss question for the appraisal panel when an insurer admits that there is a covered loss, the amount of which is disputed. Kendall Lakes Townhomes Developers, Inc. v. Agric. Excess & Surplus Lines Ins. Co., 2005 Fla. App. LEXIS 15692 (Fla. 3rd DCA 2005)

(Florida appellate court stating Eleventh Circuit in Three Palms Point, Inc. misinterpreted Florida law.) A challenge of coverage under property insurance policy is exclusively a judicial question. Submission of claim to appraisal does not foreclose an insurer’s subsequent challenge on the issue of coverage. If a court decides coverage exists, a dollar value is agreed upon in appraisal process will be binding upon both parties. Coverage questions are outside the scope of appraisal proceedings. Coverage issues may exist even where the insurer has not denied the claim as a whole, and therefore issues of coverage were not necessarily a matter of all or nothing. Liberty American Insurance Co. v. Kennedy, 890 So.2d 539 (Fla. 2d DCA 2005).

An insured’s dispute over a “betterment” deduction taken by an auto insurer was not appraisable because the issue was not factual, but a legal question of insurer’s rights under the policy. Delisfort v. Progressive Express Insurance Co., 785 So.2d 734 (Fla. Dist. Ct. App. 2001).

Appraisers could not determine if loss was caused by blasting (covered) or settling (excluded). A court distinguished this from Licea where coverage was acknowledged for some portions of the loss, because in this case, all coverage was denied. Gonzalez v. State Farm and Casualty Company, 805 So.2d 814 (Fla. App. 3 Dist 2000).

A policy made payment contingent on determination of the loss by appraisal or by court judgment. The insured was properly pursuing determination by court judgment and the insurer by appraisal. Thus, the policy was ambiguous as to which method of determination superseded the other. The policy was therefore construed against the insurer in accordance with state law, and the court found that enforcement of the appraisal procedure was improper. Hayes v. Allstate Ins. Co., 722 F.2d 1332 (7th Cir. 1983).

A court held that the dispute was not one subject to appraisal because the issue of whether policy exclusions applied so as to limit the scope of coverage was one of contract interpretation for the court, not an appraiser, to resolve. Issues of design and construction relating to “the amount of loss” which could be later presented would be referable to the appraisal process. Wausau Ins. Co. v. Herbert Halperin Distribution Corp., 664 F. Supp. 987.

A court ignored demand for appraisal made prior to litigation on the theory that the real issue separating the parties was not the actual calculation of the insured’s removal of its operation to other premises after the loss. Hawkinson Tread Fire Serv. Co. v. Indiana Lumbermans Mutual Ins. Co., 362 Mo. 823, 245 S.W.2d 24 (Mo. 1951).

New York
As a general matter under New York law, questions concerning valuation of loss, as opposed to coverage under an insurance policy must be submitted to appraisal. Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 279 F.Supp.2d 235 (S.D.N.Y. 2003).

Appraisal is only binding on the demanding party. Molodyh v. Truck Ins. Exchange, 304 Or. 290, 744 P.2d 992 (Ore. 1987).

Rhode Island
Court upheld confirmation of appraisal award that included prejudgment interest. Waradzin v. Aetna Cas. & Sur., Co., 570 A.2d 649 (R.I. Sup. Ct. 1990).

Where insured’s suit included a claim on insurance contract and an extracontractual claim (bad faith), to which appraisal provision did not apply, a court refused to order immediate appraisal because it was against judicial efficiency. In re: Terra Nova Ins. Co., 992 S.W.2d 741 (Tex.App. 1999).

An insured cannot be compelled to submit to appraisal as the appraisal clause is inserted wholly for the protection of the insurer. Hanover Fire Ins. Co., v. Drake, 170 Va. 257, 196 S.E. 664 (Va.App. 1938).

Appraisal procedure set out in insurance policy contemplates a formal demand for an appraisal, a prescribed methodology for selecting an umpire and resolving any disputes between the parties’ experts, and provision for payment of fees and costs. A mere “agreement” by the parties to meet and discuss the differences in experts’ findings does not trigger appraisal as contemplated within Wisconsin statute. Wieting Funeral Home of Chilton, Inc. v. Meridian Mutual Ins. Co., 2004 WI.App. 218; 2004 Wisc.App.LEXIS 816 (Wis.Ct.App. 2004).

Waiver of right.

An insurer did not waive its right to appraisal by denying coverage or answering insured’s lawsuit. Gonzalez v. State Farm and Casualty Company, 805 So.2d 814 (Fla. 3d DCA 2000).

An insurer ordered to appraisal despite denying coverage. Opar v. Allstate Ins. Co., 751 So.2d 758 (Fla. 1st District Court of Appeal, 2000).

An insurer did not waive right to seek appraisal or arbitration by asserting coverage defense. Florida Select Insurance Company v. Keelean, (1999) 727 So.2d 1131.

An insurer did not waive right to demand appraisal following hurricane loss by initially denying claim on basis of suspected fraud, loss being below deductible, and by reserving rights to deny claim after appraisal. This decision reversed the same court’s previous decision in the case of American Reliance Insurance Company v. Village Homes at Country Walk, 632 So.2d 106 (Fla., 1994). Paradise Plaza Condominium Association, Inc. v. The Reinsurance Corporation of New York, 685 So.2d 937 (Fla. Dist. Ct. App. 1996).

Reservation of right to deny coverage despite an appraisal recognizes that insurer can contest coverage in court without eliminating right to set damages through appraisal, and did not alter appraisal’s binding effect. High Country Arts and Craft Guild v. Hartford Fire Ins. Co., 126 F.3d 629 (4th Cir. 1997). State Farm and Cas. Co., v. Licea, 685 So.2d 1285 (Fla. 1996).

New York
A court held that the appraisal clause only applied to an action with a disagreement as to the amount of loss or damage, and not where the insurer denied liability. Appraisal is not intended to resolve underlying coverage disputes. Kawa v. Nationwide Mut. Fire Ins.Co., 174 Misc. 2d 407 (Sup. Ct. 1997).

Holding an appraisal cannot be demanded unless the insurer admits liability, but nonetheless allowing insurer to invoke appraisal where liability was denied on grounds of fraud in answer to insured’s complaint. The court also found that the insurer had not waived its right to appraisal by waiting eight months after it knew of loss before requesting appraisal absent prejudice to insured. Kester v. State Farm Fire and Cas.Co., 726 F.Supp. 1015 (E.D. Pa. 1989).

Conduct inconsistent with appraisal (e.g., litigation).

Insurer could not invoke appraisal where its adjuster had previously agreed orally on amount of loss with insured’s adjuster. Bankers Sec. Ins. Co. v. Brady, 765 So.2d 870 (Fla. App. 2000).

Insurer who did not demand appraisal until years after loss and ten months after insured’s suit had acted so inconsistent with appraisal as to abandon and waive right to demand it. Lundy v. Farmers Group, Inc., 322 Ill.App.3d 214, 750 N.E.2d 314, (Ill. App. 2001).

An appraisal clause in a fire policy which provides for a determination by an umpire constitutes a common-law arbitration agreement. Michigan law requires that in the event that the parties cannot agree on the amount of the loss, either party may request an appraisal and that appraisal must occur prior to commencement of a lawsuit. Beck v. Michigan Basic Property Insurance Assoc., 2003 Mich.App.LEXIS 577 (Mich. Ct. App. 2003).

In order to show that an insured waived the appraisal provision in the insurance contract, it must show that the insurer delayed substantially in requesting appraisal so as to have waived it. In the present case, the evidence indicates that the insurer made several attempts to move forward with appraisal of the insured’s property, and the insured presented no evidence that delay was caused by anything other than by his own actions or by the actions of the appraiser he hired. Thus, the insurer did not waive the appraisal provision.

Where policy did not state time limit for demanding appraisal, insurer did not waive right to appraisal absent evidence of prejudice to the insured from delay. Also, insurer who demanded appraisal in summary judgment motion did not nullify appraisal provision by failing to name appraiser with its demand. St. Vincent de Paul v. Mt. Hawley Ins. Co., 49 F.Supp2d 1011 (E.D. Mich. 1999).

Tornado loss; court ruled that a clause in policy of insurance which purports to bind the parties to a nonjudicial determination of a future dispute concerning the amount of a loss where an insurer has admitted liability is void and unenforceable. Rawlings v. AMCO Ins. Co., 231 Neb. 874, 438 N.W.2d 769 (Neb.Sup.Ct. 1989).

New York
New York courts have long recognized the role of appraisals in resolving disputes between insurers and insureds where the disagreement is over value or amount of loss. On the question of waiver of appraisal provision, where an insurance policy does not specify a time limit for an appraisal demand, the court must determine whether the demand was exercised within a reasonable period, depending on the facts of the case. Elapsed time does not, in itself, make insurer’s demand for appraisal unreasonable. However, where delay in demanding appraisal has resulted in removal, destruction, or repair of damaged property, an appraisal is no longer practical. SR International Business Ins. Co., LTD v. World Trade Center Properties, LLC.2004 U.S.Dist.LEXIS 25642 (S.D.N.Y. 2004).

Pennsylvania law requires that appraisal provisions be included in all fire insurance policies. When insurance company admits liability and disputes only the amount of loss, appraisal is the favored method of settling the dispute. Appraisal provisions are revocable, however, and an insurer may not assert the existence of the appraisal clause as a defense to the innocent party’s action on the policy if the insurer has failed to comply with the clause. Monarch, Inc. v. St. Paul Property and Liability Ins. Co., 2004 U.S.Dist.LEXIS 14803 (E.D.Pa. 2004).

Insurer who prevented appraisal by refusing to name an appraiser could not assert the appraisal provision as a bar to suit brought by insured. Ice City Inc. v. INA, 456 Pa. 210, 314 A.2d 236 (Pa. 1974).

Absent policy provision to the contrary, insurer may not demand appraisal of loss after commencement of action by insured when insurer has failed to do so prior to lawsuit. Lynch v. American Family Mut. Ins. Co., 163 Wis.2d 1003, 473 N.W.2d 515 (Wis.App. 1991).

Appraisals after the inception of litigation.

Purported 6-week delay between alleged termination of good-faith negotiations and insurer’s request for appraisal of fire loss did not result, as a matter of law, in waiver of policy right to request appraisal prior to institution of legal proceedings where it was not shown that insurer had negotiated in bad faith. Hanby v. Maryland Cas. Co., 265 A.2d 28 (Del.Supr. 1970).

The appraisal clause can be invoked by either party; however, if invoked by the insurer, the insurer waives any coverage defense. This case is in conflict with State Farm Fire & Cas. Co. v. Licea, 685 So.2d 1285 (Fla. 1996), but has not been specifically overturned. Scottsdale Ins. Co. v. Desalvo, 666 So.2d 944 (Fla. 1st DCA 1995).

Insurer does not waive its appraisal rights under fire policy, even though good-faith negotiations ceased more than six months before insurer invoked appraisal clause; there was not evidence of prejudice resulting from delay in demanding appraisal. Monroe Gar. Ins. Co. v. Backstage Inc., 537 N.E.2d 528 (Ind.App. 1989).

The court granted the insurer’s motion for a partial stay of proceedings pending completion of the appraisal procedures pursuant to the insurance policy and denied the insured’s motion for a protective order. Terra Industries, Inc. v. Commonwealth Ins. Co. of Am., 981 F.Supp. 581 (N.D. Iowa 1997).

Resisting litigation.

“Until the amount of the loss is fixed (under the Appraisal Clause) no one is in a position to evaluate the bad faith claim.” Appalachian Ins. Co. v. Rivcon Corp., 130 Cal.App.3d 818, 182 Cal. Rptr. 11 (1982).

A great deal of judicial resources might be saved by a swift and informal decision by the appraisers as to the amount of the loss. State Farm Fire & Casualty Company v. Middleton, 648 So.2d 1200 (Fla. 995).

Policy language did not preclude insured from bringing an action under the policy even though the insurer had demanded appraisal. Hayes v. Allstate Ins. Co., 722 F.2d 1332 (7th Cir. Ind. 1983).

Where prior to initiation of action by insured, there had been no cessation of good-faith negotiations as to amount of loss, insured was not handicapped by insurers’ delay in demanding appraisal and loss was difficult to assess, insurers’ delay in demanding appraisal until after insured instituted action was not unreasonable and parties must proceed pursuant to that demand. School District No. 1 v. Globe & Republic Ins. Co., 146 Mont. 208, 404 P.2d 889 (Mont. 1965).

Insurer and insured had been negotiating with respect to fire loss and insofar as record showed that until insured filed suit, both parties welcomed additional communications and negotiations rather than confrontation, insurer’s demand for appraisal made in accordance with terms of the policy was timely notwithstanding the fact that it was not made until eight months after the receipt of proof of loss and subsequent to commencement of suit by insured and a court hearing. Keesling v. Western Fire Ins.Co., 10 Wash.App. 841, 520 P.2d 622 (Wash.App. 1974).

Part 2 of this presentation will run Monday, August 18, 2008.

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