Appraisal in Flood Claims
A topic of much debate after Hurricane Sandy is the appropriateness of appraisal when property owners and their carrier do not agree. Can appraisal address scope (coverage) as well as price? While this area of the law is still developing, courts are unfortunately leaning to a restricted interpretation of the Standard Flood Insurance Policy (SFIP) appraisal clause, ruling that only price is appropriate for appraisal and scope is a question of coverage under the purview of the courts.
The U.S. District Court for the Northern District of Florida held “the SFIP provides that appraisal is an option only when and if the parties fail to agree on the “actual cash value” or “replacement cost” of the damaged property -- not when the parties disagree on the threshold issues of coverage and causation.”1 The U.S. District Court for the Southern District of Florida likewise stated:
This language cannot be stretched to mean that appraisal can be invoked whenever the parties dispute which items of property were damaged or whether those items were in fact damaged by flood waters. That type of dispute is a dispute over coverage, and under the terms of the SFIP such a dispute can only be resolved by a federal district court.2
The U.S. District Courts in New Jersey has not yet weighed in on this subject, but it appears likely that they will follow the trend.
While this is the current state of the law, I suggest the counterargument is the correct reading of the policy and provides a more efficient process. The appraisal clause of the SFIP reads, in pertinent part:
If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of loss, then either may demand an appraisal of the loss…. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item…
Nowhere in the policy does it state appraisal will be limited to the scope agreed to by the carrier. Rather, the plain language states “The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item.” It seems clear the appraisers should be permitted to evaluate all claimed items of the loss, regardless of the carrier’s position on scope and coverage. The carrier should then be directed to pay the appraised value of the non-disputed portions of the claim. The sole question left to litigate would be coverage, as the price for the disputed items would be set. The carrier will argue, as they did in Museum Plaza Condominium Association, Inc. v. Fidelity National Indemnity Insurance Company, that appraisal is only appropriate where the parties are in full agreement as to scope.3 This argument, however, finds no support in the SFIP. While there will continue to be ligation over the appropriateness of appraisal, a process as I have outlined here would create a much simpler process and allow litigation to be handled in an expeditious, if not summary, fashion.
1 Flaharty v. Allstate Ins. Co., 2010 WL 148226 (N.D. Fla. Jan. 11, 2010).
2 De la Cruz v. Bankers Ins. Co., 237 F.Supp.2d 1370 (S.D.Fla.2002).
3 Fidelity National Indemnity Insurance Company's Opposition to Motion to Compel Appraisal, 2012 WL 3812755 (S.D. Fla. July 17, 2012).
This position by the carriers to continue to not allow Insured's to appraise the full amount of their claim is really getting to the point that policyholders are going to need attorneys to "wipe their nose" in the near future. When I was a baby adjuster, appraisal was a seldom used tool and there were no debates about what or who could appraise. As Chip refers to it often, it was the wild west. But it worked and it worked well. It now seems to be accepted by these courts that anything related to "scoping the loss" is now a coverage issue and it must be decided by the courts. In my opinion, this is not necessary and is counter productive. If we accept this premise, adjusters are no longer able to discuss whether a base board should be replaced when sheetrock comes off the wall (coverage decision) or that a countertop that isn't damaged needs to be included in the scope because the base cabinet is damaged. At what point does this stop? Before too long, there will be no such thing as appraisal and adjusters will be extinct. This is crazy!!!
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