The new property insurance tactic to avoid payment and thereby delay or deny appraisal is to claim that the policyholder asked for too much and the claimed amount is fraudulent. A Florida case, American Capital Assurance Corporation v Leeward Bay at Tarpon Bay Condominium Association,1 which will be reviewed by the Florida Supreme Court, will eventually decide these issues.

The background of the case is as follows:

American Capital insured Leeward Bay’s thirty-four buildings. After Hurricane Irma damaged its buildings, Leeward Bay filed a claim under the policy. American Capital agreed that approximately $76,000 of the loss was covered and issued payment. Leeward Bay subsequently submitted a proof of loss for $8,135,118 and requested an appraisal under the policy. The next month, Leeward Bay sued American Capital for breach of contract and moved to stay and compel appraisal. In response, American Capital alleged that the policy was void. It denied the claim, allegedly, because Leeward Bay overinflated its claim, thus voiding the policy because of fraud.

At the nonevidentiary hearing on the motion, American Capital reasserted its position that Leeward Bay’s claim was void because Leeward Bay ‘falsely inflated the claim well beyond its actual value which constitutes an intentional misrepresentation and/or concealment of fact.’ American Capital contended that Leeward Bay included ‘things in their estimate that shouldn’t have been included.’

The trial court found that the case was ‘a dispute as to scope of loss [or amount] not whether there is coverage,’ and granted Leeward Bay’s motion. In its written order, the trial court directed the appraiser to ‘itemize each category and component of damage appraised, the cause of damage, as well as costs thereof.’

To those of us in the property insurance claims field, every insurance company attorney argues the policyholder has items in the estimate that should not be included. Most of the time, those same attorneys argue the amounts requested by the policyholder are inflated. If those were the simple allegations that had to be made, virtually no property insurance cases would ever go to appraisal if that is what an insurer wanted to do.

The appellate court took this approach to the matter:

We now join the Third District and adopt the dual-track approach because the specific facts of this case demonstrate why it is preferable. Notably, American Capital initially conceded coverage. It then claimed fraud when it disagreed with Leeward Bay’s allegedly overstated estimate of its loss. It seems clear to us that this case necessarily involves the amount of loss; any coverage dispute is intertwined with the amount of loss. The appraisal would likely assist the trial court when it later determines whether Leeward Bay fraudulently inflated its claim. The dual-track approach is not only judicially efficient, …but it may also be necessary where the findings in the appraisal are interconnected to the trial court’s finding of liability.

The case was then certified as one with conflict of other appellate decisions holding that the case be litigated first. The Florida Supreme Court will now determine what trial court judges are to do in situations like this.

A sad antidote for the policyholder is that American Capital has recently come under receivership. Who says that appraisal followed by litigation is faster and better?

In, Appraisal Ordered Where Insurer’s Demand Found Timely—And No Appraisal if No Adjustment, I argued that having an insurance company “adjust” each item of a loss before appraisal can go forward just provides additional delay and reasons for not fully investigating a loss claim:

Nowhere in the policy does it require that the entirety of every item claimed must be ‘adjusted’ before an appraisal is demanded or a lawsuit filed. All that has to happen to trigger appraisal is a disagreement on ‘the amount of loss.’ It would seem that here, where the insurer has had notice of the loss and after five months the parties could not agree upon ‘the amount of loss,’ even after a settlement meeting and a check was issued for the undisputed amounts, everything in dispute or which could be at issue should be determined through appraisal, if timely demanded and not waived. I disagree with the second quoted portion of this decision.

This decision will certainly lead to greater delays and nitpicking of issues by insurers wishing to drag out the time when resolution of amounts of loss will be determined.

Those in the appraisal and claims world should carefully follow what the Florida Supreme Court decides. It will either make appraisal something which is quick and useful or instead require possible abandonment because proceedings get dragged out and doubly costly when two methods of dispute resolution—appraisal and litigation—become the normal way of getting disputed claim amounts finally resolved.

Thought For The Day

You may delay, but time will not.
—Benjamin Franklin
1 Am. Capital Assurance Corp. v Leeward Bay at Tarpon Bay Condo. Ass’n, 306 So.3d 1238 (Fla. 2d DCA 2020). review granted, SC20-1766 (Fla. Feb. 8, 2021).