In my last blog post, I discussed Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Company,1 and the issue whether appraisal is appropriate to resolve a dispute over the need for a general contractor to perform repairs following a covered loss. Windridge of Naperville also involved whether appraisal is appropriate to resolve a dispute over the cost of repairing physically undamaged sides of townhome buildings to remedy a mismatch with repaired damaged sides.

In Windridge of Naperville, a hail storm physically damaged the buildings’ south and west sides, requiring their repair. The Association claimed that although the north and east sides were not physically damaged, they should be repaired as well to ensure an aesthetic match with the newly-repaired south and west sides. The Association argued this dispute presented a question for the appraisal panel, who can determine whether the aesthetic mismatch is so significant as to constitute damage and, if so, assess a loss amount. Philadelphia responded this was a question of coverage, not loss amount, and inappropriate for appraisal. The district court agreed with Philadelphia, and denied the Association’s motion to compel appraisal on the matching issue.

In my opinion, the district court’s decision was a function of how the Association argued for appraisal. The Association argued that the dispute over repair to the north and east sides involved causation—whether the aesthetic mismatch can be said to have been caused by the hail storm and causation cannot be distinguished from loss amount. The district court disagreed, reasoning there was no causation issue. The hail storm physically damaged two sides, requiring their repair and those two sides no longer matched the two other sides. The only question was coverage—whether this mismatch is a loss within the meaning of the policy. Because the only question concerned coverage, the district court concluded that the dispute was not subject to appraisal.

Instead of a causation argument, a scope of repair argument may have given the Association more traction in its effort to compel appraisal, as was the case recently in Pottenburgh v. Dryden Mutual Insurance Company.2 There, the insured dwelling was damaged by an act of vandalism—vulgarities written in black spray paint in numerous locations of the property. The insured demanded an appraisal but the insurer refused, contending that the insured was seeking payment for replacement of various components of the home that did not sustain direct physical damage in the vandalism incident: a fireplace; siding for the entire garage; a bathroom; and portions of the plumbing and electrical systems. The insurer characterized its objections as constituting issues regarding the scope of coverage that may not be determined in an appraisal.

The insured subsequently sued, seeking an order compelling appraisal. In support of its petition to compel appraisal, the insured submitted an Affidavit from its public adjuster explaining the basis for the insured’s claims. The public adjuster explained that the insured sought replacement to effect proper repairs to items that were indisputably damaged and asserted that the dispute between the parties involved one of determining the extent and amount of loss. Regarding the fireplace, the public adjuster noted that only the glass doors were damaged, but explained that she included an estimate for replacement of the fireplace because she could not locate an exact match. With respect to the garage siding, the public adjuster acknowledged that only one wall of the garage was vandalized, yet explained that she included an estimate for the garage siding on the remaining walls because it was not possible to purchase siding for installation on the vandalized wall that would match the faded color of the undamaged siding on the remaining walls. Regarding the bathroom and plumbing and electric fixtures, the public adjuster asserted that they would be affected during the repair process.

Reasoning that the scope of repairs made necessary by a covered loss and the cost of any such repairs directly bear upon the amount of the loss, the New York trial court concluded that the parties’ disputes over the extent of work required to repair damage caused by the covered vandalism loss were factual questions that fell squarely within the policy’s appraisal clause. The court ordered the parties to proceed to appraisal.

As the Pottenburgh decision illustrates, a court is more likely to compel appraisal if the parties’ dispute is framed as one over the scope of repair as opposed to one over causation.
1 Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., No. 16-3860, 2017 WL 372308 (N.D. Ill. Jan. 26, 2017).
2 Pottenburgh v. Dryden Mut. Ins. Co., EF2016-0183, 2017 NY Slip Op 27054, 2017 WL 777607 (N.Y. Sup. Ct. Feb. 28, 2017).

  • Mark Phillips

    Great article Ed – thanks for approaching such a problematic adjusting subject – one that leaves so many insureds struggling for competent guidance. So happy to see you and Chicago freinds are part of the growing MLG team.

  • James Prather

    So would fire damaged brick be a issue appropriate for appraisal especially on the directly affect line of sight elevations?
    What is the barometer for “Matching”?

  • Jim Lakes

    Ed, Great article.
    Here in Ohio, I have ran into this issue many times. As a Certified Umpire and Appraiser, we know that coverage is not an issue to be decided by appraisal. However, these two issues are brought up many times in order to deny appraisal.

    There are two issues that I bring up and in regard to the two points you made. Matching and scope of damage.

    First, Matching Issues. Ohio has an Unfair Property Claims Act OAC 3901-1-54, which clearly state the following:
    Sect. I Para 1 (b): (b) When an interior or exterior loss requires replacement of an item and the replaced item does not match the quality, color or size of the item suffering the loss, the insurer shall replace as much of the item as to result in a reasonably comparable appearance.
    Carriers often use the excuse, “we don’t owe for matching.” When the Unfair Claims Act is then pointed out to them, along with a case in Northern Ohio that addresses this exact issue, they reconsider and go to appraisal. (COURT OF APPEALS STARK COUNTY, OHIO FIFTH APPELLATE DISTRICT
    DAVID DOLECKI, et al. Plaintiffs-Appellants/Cross-Appellees -vs- NATIONWIDE MUTUAL INSURANCE
    COMPANY Case No. 2004CA00063.)

    Second, Scope of Damage. There are carriers that have attempted to deny appraisal based on the excuse, “We will not go to appraisal, due to the fact that your estimate is outside our “Scope of Damage.” At this point we ask the question, “Where in the policy language, (Appraisal Clause) is the words, “Scope of Damage” mentioned or stated. In fact, those words do not appear in any policy anywhere. The appraisal clause only states the words, “If you or we fail to agree on the amount of the loss.” At that point, we state, the scope of damage is what sets the “Amount of loss,” and therefore we disagree with your, “scope of loss,” and demand the appraisal process. At this point, most always, they go to appraisal. If they do not, we inform them that we will refer them to counsel, for what appears to be a breach of the policy contract.

    This, of course, is in Ohio and we understand that laws in other states do not have to be recognized in Ohio and not being an attorney, must rely on legal opinions. We could be wrong.

    James Lakes, CPIAA, CPIU, CPIA

  • Adam Nussbaum

    James, recently an insurer in my area sent out a notice to their customers stating that their policy had been amended and that no longer was the insurer covering uniformity or matching in their policies….company wide. If there was such a thing as “Unfair Property Claims Act” in my state…which would prevail? State Law or Company’s policy?

    • Edward Fako

      NAIC Fair Claims Requirement, MDL-902, Section 9, Number 1 I think

      Fair Claims Requirement:.

      1997 ***** Consequential Damage Stated Covered By The NAIC, Unfair
      Property/Casualty Claims Settlement Practices Model Regulation (MDL-902, 1997) Includes The Following Provision Section 9

      Section 9.

      for Prompt, Fair and Equitable Settlements Applicable to Fire and
      Extended Coverage Type Policies with Replacement Cost Coverage

      When the policy provides for the adjustment and settlement of first
      party losses based on replacement cost, the following shall apply:

      When a loss requires repair or replacement of an item or
      part, any consequential physical damage incurred in making such
      repair or replacement not otherwise excluded by the policy, shall be
      included in the loss. The insured shall not have to pay for
      betterment nor any other cost except for the applicable applicable
      deductible, if any.

      (2) When a
      loss requires replacement of items and the replaced items do not
      match in quality, color or size, the insurer. shall replace all items
      in the area so as to conform to a reasonably uniform appearance. This
      applies to interior and exterior losses. The insured shall not bear
      any cost over the applicable deductible, if any.

  • Edward Fako

    It seems as if Windridge is being Appealed

    Windridge of Naperville Condo v. Philadelphia Indemnity Insuran

    Filed: May 17, 2018 as 18-2103