When a dispute as to the amount of loss in an insurance claim arises, some insurance policies allow for the dispute to be resolved through appraisal. Appraisal however, is not appropriate when an insurance claim has been outright denied. Sometimes, when an insurance company finds coverage below the policy deductible, it will wrongfully characterize this coverage as a denial in order to avoid appraisal. This is what appears to have happened in Oceania I Condo Ass’n, Inc. v. QBE Ins. Corp., No. 11-20578, 2011 WL 1984483 (S.D. Fla. May 20, 2011), and the insurance company avoided a compelled appraisal by alleging that the policy was void due to fraud.

In Oceania I Condo Ass’n, the insured’s first public adjuster estimated in 2007 that its Hurricane Wilma losses were approximately $800,000, which was below the policy deductible. The insurer subsequently closed its file on the claim. In 2010, the insured, through its second public adjuster, estimated that its Hurricane Wilma losses were over $9 million, and requested appraisal of the loss. The insurance company rejected appraisal and requested a Sworn Statement in Proof of Loss. The insured signed the proof, listing over $9 million in damages, but several months later revised its proof of loss to claim just over $3 million in damages. The insurance company later denied all coverage for the claim alleging that the insured had committed fraud when it “intentionally submitted” a “grossly inflated and exaggerated claim.”

The insured argued that it submitted the Sworn Statements in Proof of Loss in good faith, and also argued that the fact that the insured revised its Sworn Statement in Proof of Loss did not establish fraud. The court reasoned that the fraud allegation did not arise from the revision of the proof of loss, but rather the initial Sworn Statement in Proof of Loss that the insurer claimed was “grossly inflated and exaggerated.”

The court appeared to have been ready to compel appraisal of the disputed amount of loss even though the insurer’s original estimate of the loss was below the policy deductible, had the allegation of fraud not arisen. With the allegation of fraud, however, the court considered the insurance company’s position to be a straight denial, so appraisal was not an appropriate procedure to resolve the claim.

The court did not address the fraud allegation at this stage in the litigation, but suggested that it would most likely be addressed in further proceedings. Regardless of the outcome of those proceedings, the mere allegation of fraud was enough for this court to find that appraisal was not an appropriate method to determine the amount of loss.