Recently, I have been getting a number of calls from homeowners and public adjusters in Arizona with questions about the appraisal process. When determining whether appraisal is the appropriate method to resolve a claim, the predominant issue usually is what actually can be appraised?
Most homeowner policies contain an appraisal provision that starts off with this:
If you and we fail to agree on the amount of loss, either may demand an appraisal of
the loss. In this event, each party will choose a competent and disinterested appraiser within 20 days after receiving a written request from the other. The two appraisers will choose a competent and disinterested umpire. . . .
“Amount of loss” is typically not defined in the policy. So, that begs the question, what does “amount of loss” really mean or include? In Arizona, appraisers “only determine the amount of damage and do not resolve questions of coverage.”1 I know the rules may differ depending on the state. Quite often though, I see insurance companies being all too quick to argue that the damages being claimed by the insured relate to “coverage issues” and avoid or attempt to avoid appraisal altogether. This comes up frequently when there is a dispute over what repairs are necessary to restore the property to its pre-loss condition. From the insured’s perspective the dispute concerns the amount whereas the insurance company will argue the dispute is about coverage.
To best illustrate how this situation arises, here are two examples of how Arizona courts have addressed the appraisal dispute:
Example 1: Insured’s home was damaged by a wind and hail storm. Insurance company determined that the home did sustain storm-related damage to the tiled roof. Insured contends that fixing the damage would require replacement of the entire roof. Insurance company argues that many of the broken tiles constitute wear and tear excluded from coverage. The two estimates differ in that the insured seeks the cost to replace the entire roof, demolition costs, overhead costs, etc. The insured demands appraisal. In this situation, the court reasoned that if it is clear that the added costs relate to replacement of tiles damaged through wear and tear, appraisal should be denied. However, here, the court could not readily determine how to classify the dispute so it sided with the insured and ordered appraisal.2
Example 2: Insured’s home sustained damage due to a fire. The fire was contained to the exterior of the home and an interior wall. Insurance company agreed to cover damage caused by fire and smoke. Insurance company obtained an estimate for cleaning and minor repairs. Insured’s estimate differed significantly in that it included the cost to drop the ceiling to remove smoke odor, repaint the home, and re-clean the carpet. Insured requested appraisal. Insurance company refused the request for appraisal asserting that “cause of loss, scope of repairs, and direct physical loss” are coverage issues not subject to appraisal and many of the insured’s requested repairs are not needed. The court determined that the parties disagreed about the repairs necessary to restore the home to its pre-fire state and concluded that this was a disagreement about the “amount of loss” subject to appraisal.3
In Arizona, courts have determined that good faith disputes over cost of necessary repairs should be resolved in favor of appraisal. Moreover, any doubts concerning the scope of the appraisable issues, should likewise be resolved in favor of appraisal.4
1 Carbonneau v. American Family Mutual Insurance Co., No. 06-1853, 2006 WL 3257724 (D. Ariz. November 9, 2006).
3 Ori v. American Family Mutual Insurance Co., No. CV–2005–697, 2005 WL 3079044 (D. Ariz. November 15, 2005).
4 Carbonneau at 2.