A few weeks back in Insurer Post-Loss Obligations and Appraisal – The Other Side of Romay, I wrote about compliance with post-loss obligations as preconditions to a demand for appraisal under a property insurance policy in Florida. In 200 Leslie Condo. Ass’n, Inc. v. QBE Ins. Corp., No. 10-61984, 2011 WL 2470344 (S.D. Fla. June 21, 2011), a Florida federal court held that under Florida law, an insurer must investigate to determine whether it disagrees with the insured’s valuation before appraisal can be triggered. Just a few weeks later, in EDM Office Services, Inc. v. Hartford Lloyds Ins. Co., No. 10-3754, 2011 WL 2619069 (S.D. Tex. July 1, 2011), a Texas federal court held that under Texas law an insurer does not have this same requirement.
In EDM, the insured corporation suffered a loss from Hurricane Ike, and the insurer denied and underpaid the insured’s claims. The insured filed suit, and the insurer asked the court to compel appraisal under the policy. The insured objected to appraisal on the basis that the insurer had not conducted a reasonable investigation of the insured’s claims. The insured cited both policy and statutory language to support its argument that the insurer must comply with certain duties before it can compel appraisal.
The insured argued that under the policy, the insurer must: acknowledge receipt of the claim; investigate the claim; request a signed, sworn proof of loss; notify in writing if the claim would be paid, denied, if additional information was required, or if the insurer needed more time; and reach a decision within a prescribed time. The insured argued that Texas statutes required the insurer to: notify the claimant of acceptance or rejection of the claim; state statutory reasons for any rejection of the claim; notify the insurer of any need for additional time for investigation; promptly and fairly settle claims; provide reasonable explanations of the basis for a denial or settlement offer; and affirm or deny coverage within a reasonable time.
For purposes of argument, the court assumed that the insurer failed to comply with all of these conditions in the investigation of the insured’s claims. However, the court analyzed these legal duties and determined that none of them were conditions precedent to a demand for appraisal. The court reasoned:
“In order to determine whether a condition precedent exists, the intention of the parties must be ascertained; and that can be done only by looking at the entire contract.” [citation omitted]. “In order to make performance specifically conditional, a term such as ‘if’, ‘provided that’, ‘on condition that’, or some similar phrase of conditional language must normally be included.” [citation omitted]. “While there is no requirement that such phrases be utilized, their absence is probative of the parties intention that a promise be made, rather than a condition imposed.” [citation omitted]. The appraisal clause does not use conditional language and EDM has not identified any provision in the contract showing that the parties intended that Hartford fully comply with the “Claims Handling” provisions and Texas Insurance Code before seeking appraisal. [citation omitted]. Compliance with the “Claims Handling” provisions and the Texas Insurance Code is not a condition precedent to compelling appraisal.
The Texas court found there were no express conditions precedent, or conditions that are actually stated in the policy or statutes. As I have previously written on this blog, Florida courts have taken a slightly different approach by creating a constructive conditions precedent to appraisal. Constructive conditions are those that do not exist in the contract itself, but are read into the contract by the courts. Florida courts have created a constructive condition precedent to appraisal by interpreting the “disagreement” requirement found in most appraisal clauses as requiring the insured to comply with post-loss obligations and the insurer to conduct a reasonable investigation before a “disagreement” will trigger appraisal.
The end result is that requirements to compel appraisal differ in different jurisdictions. As always, if you have a dispute over the amount of loss on an insurance claim, please contact competent counsel to advise you on your rights and obligations in your jurisdiction.