Does an appraisal panel decide the quantity of the loss earlier than the protection points are litigated? This query is a standard challenge. The reply leads to imperfect and extended proceedings, which lead to delayed fee to the policyholder. Every state appears to have its personal reply to the query. Courts wrestle with the right way to deal with these points.
A Tennessee federal court docket wrestled with this very challenge final month.1 The court docket famous the details resulting in a dispute of what was owed:
On October 23, 2020, a storm triggered extreme hail and wind harm to the outside and inside finishes of the Premises. The plaintiff filed a declare with BHHIC… in reference to the damages brought on by the storm. Khushi employed a public adjuster to evaluate the damages and submitted written ‘Proof of Loss’ to BHHIC. According to the plaintiff, damages from wind and hail are coated by the Policy, and the defendant admitted that there was coated harm brought on by wind, however the defendant ‘significantly undervalued the claim.’ In its Amended Answer, BHHIC admits that damages from wind and hail are coated by the Policy, ‘subject to all terms, conditions, limitations, and exclusions’ set forth within the Policy…Khushi has demanded fee below the Policy from BHHIC, however BHHIC has refused to pay.
The policyholder demanded appraisal, and the insurance coverage firm refused to take part in an appraisal claiming numerous protection points, together with whether or not the hailstorm triggered the harm. The insurance coverage firm contended that the protection points needed to be determined first via litigation. The policyholder requested that the court docket order the events to appraisal first and litigate no matter protection points exist later.
The court docket particularly famous:
The actual challenge is just not whether or not to allow an appraisal, however whether or not the court docket, within the train of its discretion, ought to compel the appraisal now or wait till some later date, when the alleged protection points have been resolved.
The court docket then famous that this controversy is routinely introduced to judges all through the nation:
Courts across the nation have commonly granted motions to compel value determinations, with the caveat that, absent an specific clause on the contrary within the insurance coverage contract, ‘appraisers have no power to decide coverage or liability issues.’ Merrimack Mut. Ins. Co. v. Batts, 59 S.W.3d 142, 152-53 (Tenn. Ct. App. 2001) …. If the events have already determined legal responsibility, then the appraisal course of successfully resolves the dispute as to the quantity of the loss. However, if legal responsibility is disputed, an appraisal on the ‘amount of loss’ wouldn’t ‘vest the appraisers with the authority to decide questions of coverage and liability.’ In different phrases, questions of protection and legal responsibility are all the time questions that should be resolved by the courts, even when the quantity of the loss is determined via the appraisal course of. See, e.g., Kush Enters., LLC v. Mass. Bay Ins. Co., 2019 WL 13117568 (E.D. Tenn. Nov. 7, 2019) (noting that its choice granting a movement to compel an appraisal over the defendant’s objection ‘does not expand the scope of the appraisal process’ and confirming that appraisers can not ‘make final determinations on the causation, scope, or liability under the policy, just the amount of the loss,’ and that the defendant retained the fitting to ‘dispute those issues after the appraisal is complete,’ during which occasion the court docket would resolve them…
Of course, questions of protection, causation, and legal responsibility are sometimes intertwined with the query of the quantity of loss concerned. Accord, e.g., Hill v. Auto-Owners (Mut.) Ins. Co., No. 4:19-cv-78, 2020 U.S. Dist. LEXIS 223142, 2020 WL 7034321, (E.D. Tenn. Nov. 30, 2020) (‘[P]ractically speaking, it would be difficult to completely divorce causation and coverage findings from an appraised loss.’); State Farm Lloyds v. Johnson, 290 S.W.3d 886, 890 (Tex. 2009) (recognizing that ‘[t]he line between liability and damage questions may not always be clear.’). And courts in several jurisdictions have developed totally different technique of dealing with these conditions. In some states, the courts have concluded that, whereas ‘[t]here may be a few times when appraisal is so expensive and coverage is so unlikely that it is worth considering beforehand whether an appraisal is truly necessary,’ ‘unless the ‘amount of loss’ won’t ever be wanted (a tough prediction when litigation has but to start), value determinations ought to usually go ahead with out preemptive intervention by the courts.’
Other courts have held that, the place protection points predominate over the query of the quantity of loss, the protection points ought to be resolved first, earlier than an appraisal is required. See, e.g., SSDD, LLC v. Underwriters at Lloyd’s, London, No. 4:13-cv-258 CAS, 2013 U.S. Dist. LEXIS 77467, 2013 WL 2420676, at (E.D. Mo. June 3, 2013) (making use of Missouri legislation, discovering that the dispute earlier than it was ‘primarily one concerning coverage, as opposed to the amount of loss, and therefore enforcement of the appraisal provision is not appropriate’); Hawkinson Tread Tire Serv. Co. v. Ind. Lumbermens Mut. Ins. Co., 362 Mo. 823, 245 S.W.2nd 24, 28, (Mo. 1951) (holding that, the place ‘the amount of the loss was incidental to the actual underlying (legal) controversy between the parties as to the meaning of the insurance contract and its application to the facts,’ the authorized points ought to be resolved earlier than an appraisal was required).
And nonetheless different courts seem to have held that it’s acceptable to order an appraisal earlier than resolving protection disputes provided that the insurer has admitted that there’s a coated loss and the one challenge to be resolved is the quantity of loss. See, e.g., Williamson v. Chubb Indem. Ins. Co., No. 11-CV-6476, 2012 U.S. Dist. LEXIS 31648, 2012 WL 760838, at (E.D. Pa. Mar. 8, 2012) (‘A condition precedent to appraisal is that there be an admission of liability and a dispute only as to the dollar value of the loss.’ (citing Ice City, Inc. v. Ins. Co. of N. Am., 456 Pa. 210, 314 A.2nd 236, 240 (Pa. 1974)).
Courts across the nation appear to come back to totally different conclusions about the right way to deal with the state of affairs. This could also be nice for insurance coverage protection legal professionals as they invoice away on briefs and authorized arguments. The insurers get to carry onto the float of potential monies owed. But the policyholder is having the declare fee delayed and successfully denied, ready for the authorized challenge to be decided. One objective of appraisal as a fast decision course of is misplaced when a case will get to this stage of authorized entanglement with no clear path.
The federal court docket choose needed to decide how Tennessee legislation would resolve the problem. That reply is something however sure:
The Tennessee courts haven’t truly been confronted with the query, although the Tennessee Court of Appeals has famous, with obvious approval, a call by a Michigan court docket ‘suggest[ing] that disputed coverage and liability issues are best submitted to the courts before any dispute regarding the amount of the loss is submitted to the appraisers.’ Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d at 153 (citing Auto-Owners Ins. Co. v. Kwaiser, 190 Mich. App. 482, 476 N.W.2nd 467, 469 (Mich. Ct. App. 1991)). The Tennessee federal district courts contemplating motions to compel value determinations have usually approached the problem with a watch towards whether or not the disputed quantity of loss predominates over protection and legal responsibility points, or vice versa, and thus whether or not ordering an appraisal early within the litigation course of or resolving disputed authorized points first could be extra prone to additional pursuits of judicial economic system and get together sources. See, e.g., Glob. Aerospace, Inc. v. Phillips & Jordan, Inc., 2015 WL 5514627, (E.D. Tenn. Sept. 17, 2015) (granting movement to compel appraisal, discovering the appraisal provision within the coverage legitimate and that compelling appraisal, apart from being in line with the coverage, would ‘potentially save both party resources and judicial resources,” increase “the likelihood of the parties reaching a settlement will increase, because each party will know where it stands upon a return to litigation,’ ‘give both of the parties a target at which to direct their arguments either in support [of]or opposition’ to the umpire’s choice, ‘potentially eliminate the need for future litigation in this Court, and at a minimum, . . . streamline any future litigation’).
In the tip, the court docket adopted the Texas strategy and despatched the matter to appraisal discovering:
It appears clear that continuing with an appraisal will expedite decision of this case, economize get together and judicial sources, and improve the chance of settlement.
The lawsuit was eliminated to federal court docket on April 13, 2022. The choice to ship the matter to appraisal first was rendered on January 13, 2023. Nine months had been misplaced simply to ship the matter again for an appraisal.
The appraisal goes to take how lengthy? Who is aware of. Following the appraisal course of, the matter could return to sq. one for extra litigation over the protection points.
The query for the policyholder is, why go to appraisal reasonably than merely show every thing in court docket and get the matter resolved? This delay defeats the aim of insurance coverage—immediate and full monetary reduction. The insurer additionally has two bites at profitable—one at appraisal and one other in reserve via subsequent authorized proceedings.
I’ll report extra on the case if additional authorized proceedings happen.
There can also be one additional warning to these invoking appraisal in Tennessee—it might not toll the necessity to file a lawsuit. Please examine the dates for a statute of limitations. Some carriers will undergo the appraisal course of and never pay the appraisal award, citing the statute of limitations.
Thought For The Day
You could delay, however time is not going to.
—Benjamin Franklin