In 2016, State Farm came out with a new tax provision for its homeowners insurance. 1 This new provision makes the assessment process extremely burdensome for policyholders. Although I have always felt that the new provision violates standard fire policy, a federal district court in Michigan recently reached the same conclusion.
In Hart v. State Farm Fire and Casualty Company 2 the policyholders' home was damaged by fire and smoke. State Farm accepted responsibility for the loss but did not agree on the size and extent of the loss. The policyholders demanded an assessment, but State Farm refused to participate in an assessment and ruled that a difference in the extent of the damage is a matter of coverage and not a dispute about the size of the loss. State Farm also declined to participate in an evaluation because policyholders failed to provide written, detailed documentation of the specific items they disputed in the State Farm estimate, which is a requirement under the "Evaluation" provision of Form HW-21
That insured persons and insurers fail to agree on the actual cash value or amount of the loss, either party may request in writing that the amount of the loss or the actual cash value be determined by assessment. If either makes a written request for assessment, each party shall select a competent, independent valuer and notify the other of the valuer's identity within 20 days of receipt of the written request. The two evaluators will then choose a competent, impartial judge. If the two valuers cannot agree on a judge within 15 days, the insured or insurer can ask a judge in the district court about the county where the loss occurred or where the property is located to select a judge. The valuers must then determine the size of the loss and the actual cash value of each item. If the valuers submit a written report of an agreement to the insurer, the agreed amount shall be the amount of the loss. If the values do not agree within a reasonable time, they must leave their differences to the judge. A written agreement signed by two of these three shall determine the amount of the loss. Each valuer must be paid by the party who chooses it. Other costs for the assessment and the judge's compensation shall be paid equally by the insured and the insurer. 3
The policyholders requested a summary assessment, which the district court granted. The district court concluded that nine of the ten assessment provisions in Form HW-2122 contested by policyholders violate Michigan Standard Fire Policy. These provisions are:
- "At least ten days before they require assessment, the party seeking valuation must provide the other party with written, detailed documentation of a specific dispute about the size of the loss, identifying each item disputed separately."
- “Each party chooses a competent, independent valuer…. The valuers will then jointly send each party a written report on the agreement signed by them. "
- " The valuers will then try to indicate the size of the loss for each dispute…. If the two valuers do not agree on the size of the loss within 30 days, unless the time period is extended by mutual agreement, they choose a competent, impartial judge and send their differences to the judge. "
- " The party requesting the sample [of an umpire by a judge] … must provide the other party: (a) written notice of the intention to submit, indicating the specific place and identity of the court at least 10 days before submitting the written application; .
- "To qualify as a valuer or judge …, a person must be one of the following and be licensed or certified under the applicable jurisdiction: (1) an engineer or architect with experience in training in construction, repair, appraisal or investigation of property type d amage in dispute; (2) an adjuster or public adjuster with experience and training in estimating the type of property damage in dispute; or (3) a contractor with experience and training in construction, repair and appraisal.
- " A person may not serve as a valuer or judge if that person, an employee of that person, that person's employer or any employee of their employer: (1) has performed services for any of the parties with respect to the claim in the assessment; or (2) has a financial interest in the outcome of the claim in question in the valuation. "
- " The valuation review may not be entered as a judgment in a court. "
- “A party may not demand valuation. after that party brings an action or action against the other party regarding the amount of the loss.
As stated in the opinion, the district court simply compared the assessment provision in the Michigan Standard Fire Policy with the specific assessment provision in the State Farm Form HW-2122. That comparison revealed that State Farm & # 39 ;s appraisal provisions under issued terms, requirements, and requirements not set forth in Michigan Standard Fire Policy & # 39 ;s Tax Provision. The district court concluded that the State Farm assessment provisions made the evaluation process significantly more onerous than the Michigan legislation provided. As such, they infringed MCL 500.2833 (1) (m) and were invalid contrary to public policy.
The district court also concluded that an assessment was justified, which rejected State Farm's argument that a difference in the extent of the damage is a question of coverage, not a dispute about the size of the loss. The district court held that when an insurer admits that a loss is covered by its insurance, a court has a statutory mandate to order the parties to participate in Michigan's statutory evaluation process, as the parties do not dispute liability and only dispute the amount of the loss. As the parties agreed that the insurance covered damage caused by fire and smoke, and since the parties' dispute concerned the extent of the damages and not coverage, the district court ordered the parties to assess the amount of fire and the loss of smoke. The  Hart decision is relevant to Illinois policyholders for two reasons.
First, like Michigan, Illinois is a standard fire policy state. 4 Under the powers under sections 397 and 401 of the Insurance Code, the Director of Insurance has issued certain regulations that provide a standard fire policy. 5 According to the regulations, all fire insurance policies' must comply with such a form of the standard policy [Fire] or, if another form is used, it must be considered the standard policy [Fire] for the purpose of concluding an agreement. 6 In essence, the standard form of fire insurance guarantees a minimum level of coverage where that sup deletes all attempts to limit or limit the coverage to less than the statutory minimum. In various ways, fire insurance can not provide coverage less than what is stated in the standard form. To the extent that an insurance provision omits or impairs the minimum protection provided by the standard form, the provisions of the standard form control and the non-conforming policy are enforceable as if they comply with the requirements or prohibitions of the standard form. 7 As the decision Hart establishes, in connection with an assessment of a fire loss, a valuation provision that sets conditions, requirements and requirements not specified in the Illinois Standard Fire Policy assessment provision cannot be enforced. 8
Second, like Michigan courts, federal district courts in Illinois have unanimously concluded that disputes about (a) causation (whether a covered hazard caused the damage); (b) the extent of the damage (the extent or extent of the physical damage from the covered hazard). (c) the extent of the repair or replacement of the damage. d) The cost of repairing or repairing the damage. e) matching; and (f) whether the damage is large enough to require the employment of a contractor are disputes about the size of the loss, not coverage, and thus suitable for assessment. 9
1 See pages 21 and 22 in form HW-2122.
2 Hart v. State Farm Fire and Cas. Co. 2012 WL 3709534 (ED Mich. 21 August 2021).
3 MCL 500.2833 (1) (m).
4 The New York Standard Fire Policy 1943 ("Standard Fire Policy"), or a statutory version that differs only from it, is used in many states, including Arizona, California, Georgia, Idaho, Iowa, Louisiana , Massachusetts, Michigan, Minnesota, Nebraska, New York and West Virginia. The standard fire policy, a form consisting of 165 lines, has served as the basis for most property insurances that cover the fire hazard since its inception in 1943. The Illinois standard fire policy is available on the Illinois Department of Insurance website.  5 50 Ill. Adm. Code § 2301 and 5/401 (a); 50 Ill. Adm. Code § 2301 et. sec.
6 50 Ill. Adm. Code § 2301.30.
7 215 ILCS 5/401 (a), 5/397, 5/143 (2) and 5/442; 50 Ill. Adm. Code §2301 et. seq.
8 Since no Illinois state or federal court has ruled that an insurer's valuation clause violates the standard fire policy in connection with a fire loss, it would be appropriate for a court to look at decisions by sister states interpreting their version of the Standard Fire Policy , as the Seventh Circuit Court of Appeals did in Streit v. Metropolitan Cas. Ins. Co. 863 F.3d 770 (7th Cir. 2017), ruling on an insurance policy exclusion that prevented innocent co-insurers from recovering violated the minimum level of protection provided by Standard Fire Policy.
9 See, ] e.g. Prescott Mill Condo. Ass’n v. Mid-Century Ins. Co. 2012 WL 3700742 (N.D. Ill. August 4, 2021); Adam Auto Group, Inc. v. Owners Ins. Co. 2019 WL 4934597 (N.D. Ill. October 7, 2019); Windridge and Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co. 2018 WL 1784140 (N.D. Ill. April 13, 2018); Spring Point Condo. Ass’n v. QBE Ins. Corp. 2017 WL 8209085 (N.D. Ill. December 13, 2017); Runaway Bay Condo. Ass’n v. Philadelphia Indem. Ins. Co. 262 F.Supp.3d 599 (N.D. Ill. April 25, 2017); Windridge and Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co. 2017 WL 372308 (N.D. Ill. January 26, 2017); Philadelphia Indem. Ins. Co. v. Northstar Condo. Ass’n 15 cv 10798 (N.D. Ill. 18 October 2016 (D.E. 34)).