On October 2, 2019, the U.S. District Court for the Middle District of Florida ruled that a dispute between an insurance company and its policyholder should proceed to appraisal despite insurance company’s allegations that it had discovered what it called evidence of fraud.

In 2017, Waterford Condominium Association of Collier County, Inc. (the “Insured”), suffered property damages as a result of Hurricane Irma. The Insured reported the loss to its insurance company, Empire Indemnity Insurance Company (“Empire”). Upon being notified of the loss, Empire inspected the property and found the anticipated repair cost to be $551,732.72. Empire issued payment to the Insured in the amount of $51,817.37, after subtracting depreciation and policy’s hurricane deductible.

The Insured submitted its own damage repair estimate to Empire in the amount of $2,144,858.31. Empire continued to investigate the loss and issued a second estimate for $595,098.00. A few months later, the Insured sued Empire in state court asserting a count for breach of insurance contract and a count for declaratory judgment. Empire acknowledged the damage to the Insured’s property was covered by the subject policy, however it disagreed regarding the extent and value of the damages.

The Insured moved to stay the case and compel appraisal under the policy. Empire raised the following objections: (1) a motion to compel appraisal must be supported by summary judgment evidence; (2) the Insured’s claim was not ripe for appraisal; (3) if the claim was ripe, appraisal should be limited to the amount demanded pre-suit; (4) the Insured waived its right to appraisal; (5) mediation must occur before appraisal; (6) Empire was entitled to a line-item appraisal; and (7) there was no reason to stay discovery. Over Empire’s objections, the district court granted the Insured’s motion. The district court’s rational for enforcing the policy’s appraisal provision can be found in its August 16, 2019, Opinion and Order.1

Empire then asked the district court to reconsider the Order Granting Motion to Compel Appraisal and Stay Litigation because it had allegedly discovered what Empire called evidence of fraud. Empire argued that appraisal should nevertheless be denied or stayed while Empire considered whether to assert a fraud defense, deny the claim, and seek to void the policy.

The district court concluded that:

Even if Empire decides to reverse course and deny the claim, appraisal is still appropriate to determine the amount of loss because a fraud defense would address the separate issue of coverage. In fact, the policy anticipates this situation: ‘If there is an appraisal, we still retain our right to deny the claim.’2

The sole purpose of the appraisal process is to determine the amount of the loss. It is not its function to resolve questions of coverage. Appraisers are precluded from determining whether a claim might be fraudulent or factually inaccurate.3 Simply put, the appraisal process was ordered to proceed despite Empire’s potential fraud claim against the Insured.
1 Waterford Condominium Association of Collier County v. Empire Indemnity Ins. Co., No.: 2:19-cv-81 (M.D. Fla. Aug. 16, 2019).
2 Waterford Condominium Association of Collier County v. Empire Indemnity Ins. Co., No.: 2:19-cv-81 (M.D. Fla. Oct. 2, 2019).
3 Safeco Ins. Co. v. Sharma (1984) 160 Cal. App. 3rd 1060.