My September 23, 2011 post, Is Scope of Damage or Scope of Repair Subject to Appraisal? examined several recent opinions from around the country which discussed whether insurers may deny policyholders their right to appraisal by simply claiming that scope of damage is not subject to appraisal. Since September, two different Colorado district courts have ruled that scope of damage is indeed subject to appraisal. Hopefully, the holdings discussed below will go up on appeal and become binding law in 2012.
Scope of appraisal has become a hot button issue in Colorado because so many insurers—especially larger homeowners’ insurers—are refusing appraisal for Colorado residential property losses. Homeowners’ insurers, in particular, now regularly take the position that scope of damage is not subject to appraisal and force their insureds to file suit and incur attorney’s fees and costs in order to obtain the benefits of the policy purchased. By framing every disagreement on extent of damage as a causation, coverage or liability issue, the insurance companies have been able to defeat policyholder requests for an appraisal by labeling a disagreement as a coverage dispute.
The Good News:
A few public adjusters have had some success with compelling appraisal—even where the insurer claimed the scope of loss was a coverage dispute. Phil Coutu, a public adjuster with Power Adjusters, Inc., won the battles discussed below at the district court level.
In Rooftop Roofing, Inc. v. Fire Insurance Exchange, Colorado’s Elbert County District Court stated as follows:
This Court finds most persuasive those decisions that concluded that in an insurance context an appraiser’s assessment of the “amount of loss” necessarily includes a determination of the cause of loss, as well as the amount it would cost to repair that which is lost. Cigna Insurance Co. v. Didimoi Property Holdings, N.V. (citation omitted.)
This conclusion is consistent with the plain meaning of the term “amount of loss” as set forth in Black’s Law Dictionary and “loss” in Webster’s Dictionary (citations omitted). The policy did not use a term such as “cost of repair” or “value of the property” but rather “amount of loss” which necessarily encompasses identifying a link between the cause and the damage sustained.
In a different case involving the same parties, Rooftop Roofing, Inc. v. Fire Insurance Exchange, the Adams County District Court reached the same conclusion. Fire Insurance Exchange (“FIE”) argued the claim involved “coverage issues which are inappropriate for appraisal . . . and questions of coverage and policy interpretation are questions for the Court, not an appraisal process.” FIE argued that appraisers must be limited in the scope of their responsibilities and stated, “Here, however, the issue to be arbitrated is beyond the scope of an appraisal provision or arbitration agreement…” FIE also stated that the “Policy does not identify issues of the cause of the loss, liability for a loss, coverage or cause of loss as items subject to appraisal.”
The Adams County District Court Judge rejected the insurer’s arguments. The court specifically noted that the insurer admitted a covered loss occurred (in this case hail damage).
[T]he Court has scoured FIE’s answer and affirmative defenses. The Court cannot find that FIE has asserted that this is not a covered loss. In Cigna Ins. Co. v. Didimoi Prop. Holdings, N.V., 110 F. Supp. 2d 259 (D. Del. 2000), the Court was faced with a practically identical appraisal provision as found in the instant case. The parties were disputing the meaning of the term “amount of loss.” The Court stated, “Specifically, the Court concludes that in the insurance context, an appraiser’s assessment of the ‘amount of loss’ necessarily includes a determination of the cause of the loss, as well as the amount it would cost to repair that which was lost. The Court’s conclusion in this regard is consistent with the plain meaning of the terms ‘amount of loss’ and ‘loss’ in the insurance context.” Id. at 264. The issue of the cause of the loss in the instant case does not appear to be contested. The argument is purely academic and rhetorical. Further, the clause in question simply asks the appraisers/umpire to determine the amount of the loss, not to interpret policy language.
These holdings are excellent for policyholders. Allowing insurers to reframe the “amount of loss” as a “coverage dispute” prevents the policyholder from using a policy appraisal provision that they bargained and paid for. If insurers are allowed to continue framing every disagreement on extent of damage as a causation, coverage or liability issue, the insurance companies will continue to force the policyholder to spend the time and money required for litigation, defeating the purpose of the appraisal provision.
Consumer advocates and the Colorado Division of Insurance should take note of these excellent rulings. Let’s hope the good news continues in 2012.