Question: Who decides whether a claim involves a total loss?
A. The policyholder
B. The insurance company
C. An appraisal panel
D. The court
E. None of the above
If you answered "D," you are correct.
Recently, the Supreme Court of Minnesota addressed this very question. In the case of Auto-Owners Ins. Co. v. Second Chance Investments, LLC, the insurer and the policyholder disputed whether the fire damaged building was a total loss.1 Unable to resolve the dispute, the insurer filed a complaint, seeking to compel the policyholder to submit the issue to an appraisal panel for a determination. The insurer's motion to compel appraisal was denied at the lower levels. The Supreme Court affirmed the lower court decisions, holding that a party to a fire insurance policy does not have the right to have an appraisal panel decide whether a claim involves a total loss.
The Minnesota Supreme Court’s decision is consistent with California law. In California, the function of appraisers "is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions of the policy."2 Moreover, "California courts have consistently held than an appraisal panel exceeds its authority when it does anything beyond deciding the worth of the property in question."3
The takeaway is that if an insurance company demands the total loss issue be submitted to an appraisal panel, the policyholder should not be forced to acquiesce. If the insurance company continues this tactic and ultimately files an action in court, the policyholder may want to seek legal advice to figure out how best to respond.
1 Auto-Owners Insurance Co. v. Second Chance Investments, LLC, Minn. Supreme Court, A11-1145 (March 20, 2013).
2 Jefferson Insurance Co. v. Superior Court (1970) 3 Cal. 3d. 398, 403.
3 Kirkwood v. Calif. State Auto Ass'n Inter-Insurance (2011) 193 Cal. App. 4th 49, 62.