Insurance claims people handling first party property insurance claim appraisals in New York may be experiencing responses from insurance carriers informing them appraisal is inappropriate because there are coverage issues involved in the claim. Some are getting this response even where partial payment has been made on the claim. If that is your case, you may find some reassurance in a trial court opinion from New York on appraisal.

In Atlas Assurance Company of America v. Newark Center Building Company,1 the policyholder filed a claim for extensive water damage due to roof cracks resulting from a period of extreme winter weather. The insurance company refused any coverage whatsoever and filed a lawsuit against its customer asking the Court to uphold the denial. Here is what the Court said about the lawsuit:

The court finds that defendant has every right to the coverage it seeks, in full, and that this lawsuit by plaintiff insurance company is without the slightest merit. Indeed, plaintiff’s position borders so closely on the frivolous as to warrant serious consideration of defendant’s charge of bad faith.

The opinion is voluminous and contains strong words that will likely be discussed in further posts, but I will focus on the comments from the Court regarding appraisal in this post. The policyholder demanded an appraisal during the claim pursuant to the policy appraisal provision, which stated:

2. Appraisal

If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:

a. Pay its chosen appraiser; and

b. Bear the other expenses of the appraisal and umpire equally.

If there is an appraisal, we will still retain our right to deny the claim.

The carrier promptly refused the request for appraisal, stating the loss was not covered. The Court stated the following about the policyholder’s request for appraisal:

Clearly, the policy contemplates appraisal whatever [the carrier’s] view on coverage; otherwise, the last sentence makes no sense whatever. [The carrier’s] refusal of appraisal was obviously made in bad faith.

Believe it or not, the Court elaborated further:

An insurance company has a responsibility to the public; it may not act as a spiteful child. The court finds that this was a fully covered loss. Indeed, it is doubtful that [the carrier] genuinely disagrees. On every issue except co-insurance [], [the carrier’s] evidence was wholly insubstantial and speculative.

The tone of this opinion indicates the Court did not take kindly to the carrier’s refusal of appraisal. The appraisal provision gave the carrier the right to deny the claim, so it should not be able to deny appraisal claiming there is a coverage issue. The purpose of appraisal, a form of alternative dispute resolution, is to resolve conflicts without going through the judicial process. The Court understood the concept; as Sandy claims progress, we will see if other courts share its view. Do not hesitate to contact us if you would like to discuss this opinion and other information related to appraisal in New York further.

1 Atlas Assurance Co. of America v. Newark Center Building Co., No. 119654/95, 1998 WL 160933 (Sup. Ct. NY Jan. 15, 1998).