Let’s assume that your home suffered damage caused by a windstorm and the insurer initially denied coverage. You invoke the appraisal provision and the parties move forward with appraisal. In the end, the appraisal results in an award for damage caused by the windstorm. Some of you might think that the appraisal award is sufficient evidence to prove the insurer initially wrongfully denied coverage and violated its obligations to act in good faith. However, the Fifth Circuit dealt with this very issue, and ruled otherwise.
In JM Walker LLC v. Acadia Ins. Co., 356 Fed. Appx. 744 (5th Cir. 2009), the insured’s buildings were damaged by hail, and the insured promptly submitted a claim to the insurer. The insurer conducted two separate inspections of the property, and both inspectors found that the roofs were not damaged in excess of the deductible. Relying on its experts’ opinions, the insurer denied the insured’s claim. The insured then filed suit. After suit was filed, the parties submitted to the appraisal process. The appraisers concluded that the roofs were substantially damaged and needed to be replaced, and the insurer paid the appraisal award.
After paying the appraisal award, the insurer moved for summary judgment on the insured’s claims, which the trial court granted. On appeal, the insured argued that the insurer’s initial denial of coverage based on the inspections of the roof violated the duty of good faith and fair dealing because a finding of no hail damage was unreasonable, given the later appraisers’ agreement that the roofs needed to be replaced. The Fifth Circuit Court of Appeal rejected this argument because the insured presented no evidence that the insurer’s reliance on the initial inspections was unreasonable or that the inspectors were biased. The Fifth Circuit concluded that there was a bona fide dispute over whether the roofs required replacement, and the appraisers’ conclusion that replacement was necessary did not demonstrate that the insurer’s initial denial was in bad faith.
As the Fifth Circuit noted, if there is a bona fide dispute over liability, a court is unlikely to find that an insurer acted in bad faith. For better or for worse, expert opinions are presumed to be reliable until proven otherwise. Therefore, in order to show bad faith, you have to attack the experts’ findings and/or demonstrate that the insurer’s unjustifiably relied on their experts’ findings. The mere fact that you received an appraisal award after you insurer denied coverage is not sufficient to prove a bad faith claim. In an industry filled with experts’ opinions, there is rarely a time when everyone agrees. And, as the Fifth Circuit demonstrated, disagreement does not always equate to bad faith.