David Pettinato won a motion to have an appraisal award confirmed yesterday. His case, Nationwide Mutual Fire Insurance Company vs. John Francisco, No. 2:08-cv-277 (Fla. MD March 30, 2010), relied extensively on another case we argued and won at the trial level and Eleventh Circuit Court of Appeal, Three Palms Pointe, Inc. v. State Farm Fire and Casualty Co., 250 F. Supp. 2d 1357 (M.D. Fla. 2003), aff’d 362 F.3d 1316 (11th Cir. 2004). David’s recent case and Three Palms Pointe, which I started working on a decade ago, are instructional about many of the appraisal coverage issues which routinely arise.

There are some who claim that judges make bad umpires for appraisal. There is no empirical evidence to support that opinion and, frankly, I disagree. Umpires from the insurance industry carry their own bias and problems. I have no preference one way or another until I learn more about the case and the parties to the matter. It is always a debatable issue.

One of my Impressions Following the Alternative Dispute Resolution Roundtable was that the insurance industry does not think retired judges can be fair and are even lazy because they allegedly split the difference. I am curious if anybody actually has proof of this. In David’s case, the Honorable Guy Spicola was the umpire.

The Francisco Court noted the following in its legal analysis:

…under Florida law, “an insurer can only dispute coverage for the loss as a whole and not as individual parts.”…The leading case in the Eleventh Circuit on whether an insurer can challenge or require a delineation of an appraisal award is Three Palms Pointe, Inc. v. State Farm Fire and Casualty Co., 250 F. Supp. 2d 1357 (M.D. Fla. 2003), aff’d 362 F.3d 1316 (11th Cir. 2004).

In Three Palms Pointe, State Farm, as the insurer, had an appraisal award of $11,300,000, which included $560,000 for personal relocation expenses…After the appraisal award was issued, State Farm alleged that the “personal relocation expenses of residents were not recoverable.”… Three Palms filed suit to confirm the appraisal award, which essentially would require State Farm to pay the total appraisal award and not delineate between what it considered to be covered and non-covered losses…

The District Court held that the appraisal award should be confirmed… First, the Court confirmed the appraisal award because it was issued under valid procedures used in the Florida courts…The Court noted that once a petitioner moves to confirm an appraisal award, the insurer may assert an affirmative defense for “lack of coverage, policy limits, or a violation of policy conditions such as fraud, lack of notice, or failure to cooperate.”…Furthermore, “if the insurer fails to raise an affirmative defense or the insured defeats the defenses raised in a judicial proceeding, then a valid enforceable judgment is entered and the appraisal award is confirmed.”

The Court also specifically held that the relocation expenses that State Farm said were not covered under the policy were, in fact, recoverable in accordance with Florida law and the Court’s interpretation of the policy….Additionally, the Court found that “when an insurer admits that the loss is covered [under the policy], the appraisers can determine the cause of damage and the amount of that loss without judicial review of that decision (other than through Florida Statutes §§ 682.13, -.14). When the insurer claims that the loss is not covered, then the coverage question must be judicially determined.” …

The Eleventh Circuit Court of Appeals affirmed the decision of the district court. See Three Palms Pointe, Inc. V. State Farm Fire & Casualty, Co., 362 F.3d 1316 (11th Cir. 2004). The Eleventh Circuit further interpreted the Florida Supreme Court case of State Farm Fire & Casualty Co. v. Licea, 685 So.2d 1285 (Fla. 1996). According to the Eleventh Circuit, “the Florida Supreme Court held that if an insurer and an insured party go to appraisal, the insurer can only dispute coverage for the ‘loss as a whole.’”…In sum, the Eleventh Circuit found that Licea held that “once an award has been made, the only defenses that remain for the insurer to assert are lack of coverage for the entire claim, or violation of one of the standard policy conditions (fraud, lack of notice, failure to cooperate, etc.) . . . .

The best part of Three Palms Pointe was that State Farm could have settled for a little more than $3 million at the time we were first retained. Once we hired engineers who more fully explored the damages hidden behind the walls, even State Farm acknowledged that the damages were significantly greater. Eventually, after a very formal appraisal where evidence was taken and witnesses were examined, the award was rendered and included a unique personal relocation expense. Relocation expenses were part of the "construction cost" because they lowered the amount of total construction. Had my client done the repair with the condominium residents in their homes, the overall cost would have been far greater. State Farm never seemed to grasp the concept that I would figure a method to save it money, but the judges understood.

In Francisco, the Court noted the following:

In the present case, Nationwide specifically requested that the appraisal award delineate damage due to water from damage due to mold and other perils. The Court presumes that the reason for the delineation is for Nationwide to distinguish between covered (water) and non-covered damage (other perils). Because the Eleventh Circuit has held that in Florida, once an appraisal award has been issued, an insurer may only challenge the lack of coverage of the entire claim, this Court is bound to hold that Nationwide may not challenge part of the appraisal award….

Footnotes are not normally that important. But in this case, the court made an important point in footnote 3:

To date, neither party has filed a copy of the actual insurance policy covering Francisco’s home. Based on statements during oral arguments, the Court understands that mold is a covered peril, but coverage is limited under the policy. However, without the actual insurance policy, the Court can make no determination as to what perils are and are not covered by the insurance policy.

I suggest defense counsel learn from this footnote and file certified copies of the policy next time.

It would seem that Motions to Confirm appraisal awards are the procedure to be followed by policyholder attorneys whenever insurers fail to fully pay the awarded amount to the policyholder:

Francisco’s Motion to Confirm the Appraisal Award must be granted because Nationwide does not assert a lack of coverage defense for the entire claim or a violation of one of the standard policy conditions, such as fraud, lack of notice, or failure to cooperate. See Three Palms Pointe, 362 F.3d at 1319 (“Given that an appraisal occurred, we hold [that the insurer] may not seek to challenge coverage with respect to part of the award on appeal.”). Furthermore, the fact that Nationwide paid the appraisal award in full into the court registry after Francisco filed the Motion to Confirm does not preclude confirmation of the appraisal award. In light of Nationwide’s Motion to Strike the appraisal award, the Motion to Confirm was necessary.

Three Palms Pointe continues to be a significant insurance coverage decision regarding Florida appraisals which needs to be studied, especially by those in federal court.