The worst feeling is waiting for the end of your insurance claim … and then it’s not the end. I think sometimes I’d rather take a bullet to the head than go back and back and back again. But karma will show up for those insurance defense attorneys who charge by the hour and delay claims payments. When review panels make equivocal findings, insurance defense attorneys should send a case of Cristal to the review panel as a gift. When ambiguous awards are made, the only sure loser is the policyholder who signed the promise of treatment in good faith, not for the delay. These insurance company attorneys who charge by the hour do not give the client a good faith benefit of the doubt on the ambiguous award. It̵7;s about getting the best they can for their client. And to be fair and balanced, that is their ethical obligation as lawyers, even if they personally feel otherwise.
So, what happens when the valuation award is ambiguous? A federal case decided last month in Minnesota provides an example.1 The relevant facts leading to the ambiguity are:
On August 18, 2021, the parties participated in a valuation according to the insurance’s valuation provision. The Appraisal Panel wrote an award document (‘Appraisal Award’) setting out the cost to repair the garage roof… The Appraisal Award shows that 7.5% of the roof tiles were damaged.
The Lost Replacement Cost (LRC) to repair the damaged 7.5% of the roof is $20,600.00, and the Lost Actual Cash Value (LACV) is also $20,600.00.
However, the parties disagree as to whether the Appraisal Award indicates that the entire roof must be replaced and whether the Panel considered the existence or availability of matching tiles. At the bottom of the appraisal price, the panel hand wrote, ‘If matching is considered the cost of the entire roof’ $155,000.00 LRC and $31,000.00 LACV. While the Fenskes interpret this statement to mean that the adjudication panel determined that there were no equivalent roof tiles to replace the damaged ones, Integrity interprets the statement to mean that if the new tiles cannot match the color of the existing tiles, the Fenskes will be entitled to the larger award.
Based on its interpretation of the Appraisal Award, Integrity paid the Fenskes $20,600.00 to repair the 7.5% of the garage roof damaged during the storm. ….Several months later, the Fenskes responded to Integrity, claiming they were entitled to the larger award…For the first time, the Fenskes stated that they needed to replace the entire roof because matching tiles did not exist. Integrity refused.
It seems to me that the panel made an award that is dependent on whether the match will work. In my opinion, conditional awards on subjective future results never work. That’s why policyholders should hire great attorneys who treat the appraisal as final and help provide the appraisers with evidence that matching is working or not.
The court took a very academic analysis of the situation and first defined the concept of “color matching”:
“Color matching” describes the process of replacing both damaged and undamaged property to provide a comparable color match. Looks Cedar Bluff Townhome Condominium Ass’n, Inc. v. American Family Mut. ins. Co., 857 NW2d 290, 291 (Minn. 2014). Color matching often occurs when the color of the undamaged property is no longer available for purchase.
This blog has previously analyzed this matchup rule in Minnesota Recently ruled on the meaning of “comparable material and quality”.
The judge noted that the general rule is that an ambiguous adjudication award should be returned to the panel for clarification:
The Minnesota Supreme Court, the Eighth Circuit, and the US Supreme Court tend to hold that ambiguous adjudication awards should be returned to the adjudication panel for clarification. Looks United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599, 80 S. Ct. 1358, 4 L.Ed. 2d 1424 (1960) (returning an award to an arbitrator for clarification); Herll v. Auto-Owners Ins. Co.879 F.3d 293, 296 (8th Cir. 2018) (“A reviewing court is prohibited from ignoring the ambiguity and summarily affirming [appraisal] award’) (citing Menahga Educ. Ass’n v. Menahga Independent School Dist., No. 821, 568 NW2d 863, 869 (Minn. Ct. App. 1997)) (internal quotation marks omitted). See also Minn. State. § 572B.20(d)(3) (indicating that ambiguous awards may be submitted to an arbitrator to consider whether the award should be modified, corrected, or clarified); Hilltop Constr., Inc. v. Lou Park Apartments324 NW2d 236, 240 (Minn. 1982) (applying same Minnesota statute to insurance claims and noting that “the trial court has the power to compel arbitrators to clarify their awards”)…
The Eighth Circuit addressed this issue at length in Hell. There, a home was damaged in a storm, and the homeowners filed an insurance claim with their insurer… The parties conducted an appraisal, and the resulting appraisal addressed “see above” for the award amount but did not clarify which of the multiple preceding dollar values it referred to . The District of Minnesota awarded the homeowners the larger of the preceding dollar amounts. The Eighth Circuit later vacated the summary judgment and remanded the case with directions to remand the award to the adjudication panel because the adjudication award was ambiguous. The Eighth Circuit explained that the award was “reasonably susceptible to more than one interpretation, and [was] therefore ambiguous.’ (quoting Art Goebel, Inc. v. N. Suburban Agencies, Inc.567 NW2d 511, 515 (Minn. 1997)). Hell indicates that if an assessment award is ambiguous, a summary assessment is inappropriate, and the assessment award should be returned to the assessment panel for clarification.
With this, the court noted the rule of law to be followed when there is an ambiguous adjudication award in Minnesota:
In these circumstances, the proper course of action is not for the court to weigh the merits under the law, but instead to submit the award to the arbitrator’s negotiated pre-construction of facts and decisions under the contract….
The only question that remained was whether the valuation award was ambiguous. The court noted the facts and controversies in making this decision:
[T]the heart of this action is what the review panel meant by the phrase “if matching is considered.” Fenskes insists that the phrase unequivocally shows the panel considered color matching and found that no suitable match was available. If so, the parties agree that the Fenskes would be entitled to the $155,000.00 award because paint defects are a type of physical loss covered by their insurance… On the other hand, Integrity insists that “if match is considered” unequivocally conveys that the panel did not make a fact about color matching. If so, the Fenskes are not entitled to the full $155,000.00 award unless they first demonstrate that no reasonable color match is available. In the end, Fenske’s assessment price is unclear if the assessment panel even considered whether matching roof tiles are available.
Both parties’ interpretations of the statement “if matching is considered” are reasonable. On Fenske’s interpretation, it stands to reason that the panel investigated color matching and determined that no suitable color match is available. Alternatively, Integrity’s interpretation that it means the panel had not yet made any findings on the availability of color matching and simply left that inquiry to the two parties to decide on their own is also reasonable. Because the parties’ different interpretations are both reasonable, the court finds the statement of matching contemplated to be ambiguous.
Who has the burden of proof if the tiles can match, and what evidence should be considered? The court offered some advice to anyone involved in these situations:
Here, the Fenskes have failed to satisfy their burden of showing that there are no color-matching plates. The existence of matching tiles is a material fact because if matching tiles are present, the Fenskes are only entitled to $20,600.00 to replace the damaged 7.5% of their roof. If matching tiles are not found, they are entitled to the full $155,000.00 for matching purposes. But the Fenskes have not provided any evidence that matching tiles are not available. They have not submitted any certificates, brochures or other documents showing that they would not be able to purchase a comparable roof tile color. In fact, Integrity has presented evidence to the contrary: Fenskes already had faulty tiles, so replacing the injured with similarly faulty tiles might actually be comparable.
The court’s conclusion was as follows:
Because the Fenske arbitration is ambiguous as to whether the review panel determined the availability and existence of matching tiles, the court will remand the arbitration to the panel for clarification. If the panel did not determine the existence of matching tiles, the court requests that the assessment panel make such a determination. Additionally, because the panel did not decide the issue of material fact regarding the availability of color-matched tiles, and the Fenskes have not provided any other evidence regarding availability, the Court will deny the Fenskes’ motion for summary judgment and preserve any interest. is granted until the principal amount owed is settled.
I preach to our Merlin Law Group lawyers that insurance companies claim that policy makers want to be shown rather than told why they should pay more money. Evidence showing and explaining injury is critical to successful outcomes for policyholders. This applies to adjustments, settlement conferences, trials and assessment proceedings.
A gentleman would be ashamed if his deeds did not match his words.
1 Fenske v. Integrity Prop. & Cas. ins. Co., No. 22-679, 2023 US Dist. LEXIS 6394, 2023 WL 186595 (D. Minn. Jan. 13, 2023).