Yet another Colorado District Court ruled that “amount of loss,” as that phrase is used in property insurance policy appraisal provisions, means during appraisal, the appraisers and umpire must be able to determine the scope of loss resulting from the covered cause of loss. By necessity, that means appraisers must make some determinations as to causation.

My past blog posts on this topic can be found here.

In Cochran v. Auto Owners Insurance,1 the policyholders suffered a hail loss. Auto Owners inspected one of the policyholders’ roofs and admitted hail damaged one of the roofs, and admitted coverage—since hail is a covered peril. The policyholders’ other low slope roof also experienced hail damage, so they asked Auto Owners why it hadn’t included the low slope roof in the covered loss. Hail damage on the low slope roof allowed water to enter the room underneath and resulted in mold growth.

Auto Owners refused coverage for the low slope roof. The policyholders demanded appraisal pursuant to the policy. Auto Owners determined — without inspecting the low slope roof — that the low slope roof was mostly damaged by wear and tear and only partly damaged by hail. Auto Owners refused to include the low slope roof in appraisal, claiming that the low slope roof was not covered, and Auto Owners would not appraise damaged property which it believed was not covered.

The policyholders were thereby forced to file a lawsuit against Auto Owners. Both Cochrans and Auto Owners demanded appraisal, but disputed the scope of appraisal. The Cochrans argued under the policy appraisal must include all items damaged by hail. Auto Owners argued appraisal should only include the few items which it deemed covered.

The Court determined the policy language clearly requires appraisal to include all property damaged by hail—including resulting damage. The Court stated,

Applying these principles to the appraisal section of AO [Auto Owners] homeowner’s policy, the policy describes valuation disputes which may arise between an insured and AO as: (1) the “actual cash value” of the loss or the (2) “amount of loss.” It is clear that the terms are not intended to be interpreted and should not be interpreted as being synonymous. The policy refers to them in the disjunctive (“[i]f you and we fail to agree on the actual cash value or “amount of loss” covered by this policy . . . .”). An interpretation which rendered the terms synonymous would change the ‘or’ into an ‘and’ in the sentence describing the appraisal process. Moreover, it would be unreasonable and nonsensical to conclude that the policy defined “actual cash value” but also used a different term – “amount of loss” – to mean the same thing.

The Court concludes that in using the terms “actual cash value” and “amount of loss,” the policy envisions two different categories of valuation disputes. Although undefined in the policy, the term “amount of loss” must mean something different than merely how much it will cost to replace damaged property. The Court thus rejects AO’s assertion that “amount of loss” is merely the valuation of property which both AO and the insured agree was damaged by a hail storm. If that interpretation was followed, it would render the term “amount of loss” into useless surplusage.

The Court specifically addressed AO’s improper interpretation of its own policy:

AO concedes that some damage to the roof of the Cochrans’ pool house may have occurred as a result of hail and water; AO admits that “. . .some small amount of water may at some time have entered [the pool room] through the worn out skylight curbs and the hail penetrations . . . . ” (AO’s Reply, at 7) Because AO acknowledges that there was damage to the Cochrans’ main residence from hail and may have been “some small amount of water” damage into the pool room, the determination of what damages were caused by hail – versus other unrelated or pre-existing conditions such as by the pool room roof being worn out and beyond its life expectancy or prior repairs undertaken by the Cochrans – are within the scope of the “amount of loss” to be determined in the Appraisal. Borrowing from the example in Didimoi, if the Cochrans claim that the pool roof was damaged from hail but it was actually damaged by a roof-top dance contest held years before, then the appraisers/umpire will be able to ascertain this from the evidence and exclude it from the determination. AO conflates coverage with “amount of loss.” Quite simply, because AO concedes the existence of coverage, in general, – i.e., hail damage (a covered peril) to the Cochrans’ house (an insured premise) – the issues of what particular damage(s), if any, exist on the pool room roof and pool room are properly considered as part of the “amount of loss” and should, therefore, be part of the Appraisal.

This is good news for policyholders. Courts are holding insurers to the language in their own policies and are refusing to allow insurers to “defeat the other party’s request for an appraisal by labeling a disagreement as a coverage dispute.”

1 Cochran v. Auto Owners Insurance, 11CV8434 (Colo. Dist. Ct. – Denver October 22, 2012).