Congratulations after Super Bowl Day!
Property insurance valuation has become the “go-to” method of resolving property adjustments. The number of cases involving insurance assessments has exploded. My computer search found over 20 property insurance cases settled since this New Year. As assessment is invoked on more claims than ever, legal issues have arisen. One carrier, State Farm, has an entire claims department that oversees its claims being evaluated.
This week I will be writing at least one blog a day from cases decided across the country focusing on adjudication. If anyone has any specific questions or comments, I̵7;ll do my best to answer them.
Policyholders simply want to be fully paid for their losses. They would rather have absolute confidence that the property insurance adjusters are motivated to find all the damage and get paid promptly. Most insurance company adjusters are not trained nor do they have the time to investigate to find all the damage.
With policyholders feeling they are not being fully paid, restoration contractors and public adjusters often advise their policyholders’ clients and customers that appraisal is the best method of resolving the differences. Many insurance companies also invoke the appraisal provisions of the policy, claiming that the amounts claimed are too high and trying to avoid lawsuits and bad faith claims proceedings.
The trend has been that the larger the award or amount in dispute, the more the insurance company analyzes the appraisal process, the award, or the people who sit on the appraisal panels. This has also contributed to further disputes over valuations.
A recent example is a case in Indiana where the insurance company adjusted a hail damage claim for approximately $8,000.1 The award was approximately $1,020,000. The insurance company refused to pay the entire judgment and litigation ensued.
The essential facts indicated that after the assessment was invoked:
Before the assessment process was complete, Motorists hired Edwin Barron, an engineer and accident reconstructionist, to “determine whether any of the roofs on the subject property were damaged by hail.” In July 2019, Barron inspected Mesco’s property and concluded: (1) the metal roof and gutter downspouts were cosmetically damaged by hail; (2) ‘[t]he modified bitumen roof coatings showed some accidental man-made damage but were not damaged by hail’; and (3) ‘[t]The EPDM roofing was not damaged by hail.’ Bilister told Mesco that, because of Barron’s findings, “EPDM and modified bitumen roofing cannot be included in the assessment process because the disagreement is not the value of the roofing; rather, whether the roofing is damaged.’
This is becoming more and more common. I find that insurers get a preliminary report from their appointed valuer. If the preliminary report is not favorable, the insurer conducts further investigations to fight a higher than expected award or to create a problem for litigation.
The court noted the award of the review panel:
Judge Myers issued his ruling about a month later, concluding: (1) the modified bitumen roofs were damaged by hail and needed to be replaced; (2) the sheet metal roofs needed to be replaced; and (3) the EPDM roofs and roof-mounted HVAC units were not damaged and did not require replacement. Judge Myers calculated estimates for each damaged section of roofing for a total replacement cost value of $1,020,490.32 and an actual cash value of $894,733.82. The award was signed by Judge Myers and Mesco’s appraiser, Nick Banks. On October 23, 2019, Motorists issued $265,296.21 to Mesco for its “covered damages awarded by appraisal,” noting that this did not include payment for interior water damage or damage to the modified bitumen and EPDM roofing.
The insurer refused to pay the full price, arguing that the panel exceeded its authority in determining the extent of the damage caused by the hail. The causation issue was used as an avoidance of payment. The federal district court disagreed, citing a federal Colorado case our company won two years ago:
For example in BonBeck Parker, LLC v. Travelers Indem. Co. of America, 14 F.4th 1169 (10th Cir. 2021), Travelers argued that the damage did not result from a “hail storm but from disclosed events such as wear and tear,” so the last sentence of the appraisal provision allowed it to deny coverage “on any basis preferably available under the policy” including “its belief that something other than the hailstorm caused the damage.” The Tenth Circuit disagreed, finding that read in the context of the appraisal provision and the entire policy, the “right to deny” clause reiterates travelers’ right to deny the claim for reasons “unrelated to the cause of the injury,” such as . failure to give ‘prompt notice of the loss or damage’. The Tenth Circuit concluded that this interpretation of the appraisal provision gave “effect both to the plain meaning of the phrase “amount of loss” in the first sentence and Travelers’ defense in the last sentence.
Finding that the panel did exactly what it was supposed to do, determine the amount of damage caused by the hailstorm, the court found the insurer in breach of contract:
Therefore, the “right to refuse” clause can be triggered for reasons that come from elsewhere in the policy, such as i Employers Mutual Casualty Co. v. Skoutaris, where the insurer refused to pay a binding valuation because the insured breached its duty to submit to an examination. Or it may be triggered by an allegation of some other “exceptional circumstance”…. But the provision cannot reasonably be read to give motorists the unfettered right to disregard an appraisal award because it disagrees with the outcome of the appraisal process.
Because the insurer lost the breach of contract action, the court is still entertaining the cause in bad faith.
Stay tuned for more on values. It is now a very dynamic subset of property insurance law.
Quality is never an accident. It is always the result of intelligent effort.
– John Ruskin
1 Mesco Mfg. v. Motorists Mut. ins. Co., no. 1:19-cv04875, 2023 US Dist. LEXIS 12490, 2023 WL 403974 (SD Ind. (Jan. 25, 2023).