We frequently field requests from public adjusters and clients concerning appraisal and scope of damages. The situation arises when appraisal is demanded by the insured and the carrier objects, arguing that appraisal is only for issues of price and cannot be invoked unless there is an agreed upon scope of damage. This notion was soundly rejected last month by a federal court in Pennsylvania.1 The court held that the insurer could not refuse appraisal where the dispute was over the extent of damage and stated that it was being “disingenuous” in arguing that the extent of damage was a coverage issue.
In Currie, the insureds’ home suffered damage when Superstorm Sandy caused a tree to strike their home State Farm estimate the damages at $56,940.54. The insureds provided an estimate for over $350,000. State Farm then conducted a re-inspection and offered a supplemental payment of $9,502.09. After the re-inspection, the insureds made a demand for appraisal. The carrier denied that request and wrote:
This claim involves certain items for which State Farm has not admitted liability. These items include, but are not necessarily limited to, sanding and refinishing of the wood floors. Since the dispute goes beyond the amount of loss, appraisal is not an appropriate method of resolution.
The insureds filed suit for breach of contract and bad faith. State Farm moved for summary judgment on the bad faith count arguing that the Curries had failed to demonstrate that it had acted in bad faith as there was a reasonable coverage dispute. In denying the motion, the court noted:
A condition precedent to appraisal is that there be an admission of liability and a dispute only as to the dollar value of the loss. . . . “A dispute of coverage, improper for appraisal, occurs when an insurance company claims an exclusion of a loss under the terms of the insurance policy… However, when the parties merely disagree over the extent of damage or whether a covered peril is the cause of certain damage, that is a dispute regarding the amount of loss and is proper for appraisal.
The court noted that “it was disingenuous of State Farm to characterize this disagreement as a coverage issue in order to avoid appraisal, especially in light of the fact that Pennsylvania law encourages the settlement of disputes regarding the amount of loss by appraisal.”
It is clear that in Pennsylvania an insurer may not improperly claim that a disagreement over scope of damage is a coverage dispute to deny appraisal. If your carrier has refused appraisal over issues of scope, I would encourage you to consult with an insurance recovery attorney as soon as possible.
1 Currie v. State Farm Fire & Cas. Co., 2014 WL 4081051, 2014 U.S. Dist. LEXIS 117970 (E.D.Pa., Aug. 19, 2014).