Can I Litigate An Insurance Claim During An Appraisal Process In Puerto Rico?

As Hurricane Maria insurance claims continue to be litigated, we begin to see how trial courts in Puerto Rico are evaluating case by case the insurance code’s amendments such as the appraisal process. It has been a year since Puerto Rico’s Insurance Code was amended and one of the significant changes made was under law 242-2018,¹ which added an “appraisal process” as an alternative to solve insurance claims. These and other amendments were discussed in my blog published on December 5, 2018, “Puerto Rico Approves Amendments to the Insurance Code to Protect Policyholders and Improve Claim Handling Procedures.”

Recently a trial court (Caguas First Instance Court) ruled on a Hurricane Maria commercial insurance claim in which an appraisal process had already begun when a complaint was filed in court. The complaint was filed by the Board of Titleholders of a Condominium called Valle Santa Cecilia against Triple S Property.² A brief background of this case follows:

On September 19, 2019, the Board of Titleholders of Condominium Valle Santa Cecilia (Plaintiff) filed a complaint against Triple S Property, Inc (Defendant). In its complaint the Plaintiff expressed that on June 20, 2018, they sent the insurer an estimate of their damages for the amount of $2,153,366.83, that was prepared by their public adjuster (Caribbean Adjusters International). The Plaintiff alleged that the Defendant had been delaying the process to conclude this claim for the damages that are covered under the policy; has underestimated the claimed damages and excluded damages to underpay instead of paying the obligated amount per their policy. Among many other allegations including bad faith, the Plaintiff also alleged that the Defendant has been negligent by delaying the resolution process and has been violating the resolution terms under both the policy and the Insurance Code.

On November 6, 2019, Defendant filed its response to Plaintiff’s complaint and a counterclaim, denying most of the allegations and alleging that their coverage denial was due to the false representations and fraud made by the Plaintiff by preparing a new estimate for $21,834,855.55 through another company. The Defendant alleges that after an investigation and inspection of the property was made the estimated damages are for the amount of $623,349.35, and that the Plaintiff’s loss had been adjusted per the conditions and terms under their policy. The Defendant in its counterclaim requested the court to enter a Declaratory Sentence establishing that the coverage under Triple S is null in its totality due to fraud and/or false representation attributed to the Plaintiff and they also requested the court to declare the rights, limitations, confidentiality and privileges during an appraisal process.

Last, Defendant also requested the court to stay the appraisal process based on their counterclaim. The Plaintiff requested the court to dismiss the counterclaim filed by the Defendant. In the alternative, the Plaintiff also requested the court to stay the case until the appraisal process concluded and explained that they had only initiated the litigation process to preserve the Plaintiff’s right to file a complaint (statute of limitation: 2 years from the date damages occurred) and avoid the defendant later claiming the defense of prescription against the Plaintiff.

In this case, the court concluded—based on what is provided under Law 242-2018³ and Normative Letter Num. CN-2019-248-D⁴ from the Insurance Commissioner—that no controversy existed regarding the appraisal request made by the Plaintiff on August 28, 2019. The Defendant had notified its appraiser on September 13, 2019. Then, on September 16 and 26, 2019, the appraisers chosen by the Plaintiff and the Defendant signed the Umpire’s appointment and the appraisal process began.

The court, in accordance with Law Num. 242-2018 and the Normative Letter Num. CN-2019-248-D, declared that the appraisal process that had already began could not be stayed through a court order. Therefore, after evaluating the position of both parties, the court denied Defendant’s motion to stay the appraisal process. The court also denied the Motion to Dismiss pending conclusion of all administrative proceedings before the Appraisal Panel and upon the request of remedy. The court ordered the parties to initiate discovery and appointed an Initial Conference for March 5, 2020.

Although this is a case of first impression, the court’s response to the question under the facts of this case was yes, per Law Num. 242-2018, an appraisal process is independent from a litigation process and you can proceed with litigation after an appraisal process has begun in trial courts.
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¹ Puerto Rico Insurance Code, 26 L.P.R.A. Article 9.301, Duty of Impartiality and Objectivity of the Arbitrator in Evaluation Processes “Appraisal” of claims (as amended by House Bill 1645 – approved on August 20, 2018).
² Consejo de Titulares del Condominio Valle Santa Cecilia vs. Triple S Propiedad, Inc., (Case Number CG2019CV03554).
³ Puerto Rico Insurance Code, 26 L.P.R.A. Article 11.150, Additional Content (as amended by House Bill 1645 – approved on August 20, 2018). This law provides that an appraisal does not substitute or constitute a waiver of the right of the insured to initiate a judicial action in the courts. An “appraisal” is a valuation stipulation or clause contained in commercial or personal line property insurance policies, that provides that either party may request in writing to submit a dispute resolution to an impartial and competent arbitrator, regarding the assessment of damages or loss in a claim in which the insurer has accepted that it is covered.
⁴ Letter sent by the Insurance Commissioner of Puerto Rico regarding the amendment to the insurance code to add the appraisal process as a fast, economic and not contentious alternative to solve discrepancies regarding the true value of the damages or lost corresponding to the commercial and personal insurance claims. The letter explains how this amendment applies to Hurricane Maria claims and how this process will not limit the faculty of the insured to file directly in court because it does not substitute or constitute a waiver to the right to file in court.