The appraisal clause in a typical residential and commercial property insurance policy provides for an appraisal if the parties disagree as to “the amount of loss.”1 That phrase has been the subject of extensive legal debate between insureds and insurers in terms of its meaning and scope. While most courts have concluded that ascertaining the amount of loss does not include interpreting the policy or making coverage determinations, little guidance has been provided as to what coverage means and whether an appraisal can still proceed even if coverage issues exist.
In Runaway Bay Condominium Association v. Philadelphia Indemnity Insurance Companies,2 a federal district court in Illinois recently addressed the scope of appraisal. There, storms caused damage to the insured’s condominium complex. The Association demanded an appraisal to resolve a dispute as to the amount of storm damage to its buildings. Philadelphia refused to appoint an appraiser or otherwise participate in the appraisal process, prompting the Association to sue. The Association later moved to compel appraisal. Philadelphia opposed the motion, arguing the claim raised coverage issues under the policy. According to Philadelphia, such questions can be resolved only by the court. It maintained that the appraisal process is strictly limited to determining the value of an insured’s loss. In granting the Association’s motion and compelling appraisal, the district court addressed each of the five coverage issues Philadelphia believed required denial of the motion, concluding:
A dispute as to whether and to what extent the damage to the Association’s buildings was caused by the storms, or causation, is appropriate for appraisal.3
A dispute whether undamaged siding on the buildings must be replaced along with the damaged siding so that the material will appear consistent, or matching, will require an interpretation of the phrase “comparable material and quality” in the loss payment provision of the policy, and is not part of the appraisal process.
Like causation, a dispute over the extent of the “physical loss or damage” to the buildings from the storms is suitable for appraisal.
General Contractor Overhead and Profit
Whether the damage is extensive enough to require employing a general contractor is a question proper for appraisal.4
Although the issue whether the insured provided prompt notice of the losses is a legal question for the court, not one for appraisers, the district court found that the Association’s 12-week delay in giving notice was not deficient, given Philadelphia’s failure to demonstrate it was prejudiced by the delay.
In conclusion, there is little case law in Illinois regarding the scope of appraisal. The Runaway Bay decision provides guidance to policyholder attorneys and public adjusters when confronted with an insurer who refuses to participate in appraisal because of purported coverage issues. Even if some issues in a claim relate to coverage, the parties still can proceed with appraisal; the coverage issues simply will not be part of the appraisal.
1 See generally, ISO Form HO 00 03 05 11, and ISO Form CP 00 10 10 12.
2 Runaway Bay Condominium Ass’n v. Philadelphia Indem. Ins. Co., No. 16-9551, 2017 WL 1478114 (N.D. Ill. April 25, 2017).
3 Philadelphia lost this same argument in Philadelphia Indem. Ins. Co. v. Northstar Condo. Ass’n, No. 15 C 10798 (N.D. Ill. Oct. 18, 2016) (ECF No. 34 at p.5) (“[I]t seems inherent to an appraiser’s duty when assessing damage to assess what caused the damage.”).
4 Philadelphia lost this same argument in Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., No. 16-3860, 2017 WL 372308 (N.D. Ill. Jan. 26, 2017), the subject of one of my recent blog posts.