An important aspect of appraisal is determining what damage was caused by the covered peril and what damage was caused by poor maintenance or construction, wear and tear, or other causes generally excluded in the standard property insurance policy. I believe both advocates for insurance carriers and policyholders can agree that this separation is vital to the appraisal process.
However, in many circumstances the insurance carrier takes the position that the appraisal process should not determine which damage was caused by different perils. This seems counterintuitive to the speedy resolution of a claim through the appraisal process.
The trial court in Motorists Mutual Insurance Company v. Post,1 saw the value in having the cause of damage determined in the appraisal process. It found:
As a general matter, public policy favors alternate resolution procedures like the appraisal process.” If an appraisal is allowed under the terms of an insurance contract, the court may let the appraiser determine both the cause of the loss and the amount of loss. However, the scope of coverage – whether an event is covered under the terms of the policy – is for the court to determine as a matter of law. (Citations omitted).
Further, the court ordered:
IT IS FURTHER ORDERED that the defendant’s motion for a declaratory judgment is GRANTED. In determining the value of loss, the appraisers and umpire shall consider only damage resulting directly from the wind and ice storms in November 2002 and February 2003. Under no circumstances shall the appraisers or the umpire consider the value of loss to include damage from poor construction or from failure to save, preserve, or protect the property, or from faulty design, workmanship, or construction of the property.
The court’s decision to have appraisers, who are generally knowledgeable in the construction field, determine the value of the loss from certain perils seems to be the best way to quickly resolve a case and avoid lengthy discovery over causation with experts down the road.
To read other posts in this series on the scope of appraisal, click here.
1 Motorists Mut. Ins. Co. v. Post, 2005 WL 2674987 (E.D. Ky. Oct. 20, 2005).