Michigan appraisal law was recently discussed in a business personal property dispute where the insurer argued that certain items were not covered by the policy. The insurer argued the coverage issue prevented appraisal. The Michigan court disagreed, with a lengthy discussion of Michigan Insurance Bulletins and appraisal law worthy of examination.1

The appellate court first noted that Michigan has a statute mandating appraisal in fire policies:

Michigan’s statutory appraisal process, on which the appraisal provisions of the policy are based, is set forth in MCL 500.2833(1)(m). The statute states that every contract for fire insurance in Michigan must include a provision indicating:

(m) That if the insured and insurer fail to agree on the actual cash value or amount of the loss, either party may make a written demand that the amount of the loss or the actual cash value be set by appraisal.  If either makes a written demand for appraisal, each party shall select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days after receipt of the written demand. The 2 appraisers shall then select a competent, impartial umpire. If the 2 appraisers are unable to agree upon an umpire within 15 days, the insured or insurer may ask a judge of the circuit court for the county in which the loss occurred or in which the property is located to select an umpire. The appraisers shall then set the amount of the loss and actual cash value as to each item. If the appraisers submit a written report of an agreement to the insurer, the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any 2 of these 3 shall set the amount of the loss.  Each appraiser shall be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire shall be paid equally by the insured and the insurer.

Ed Eshoo wrote an excellent blog about the Michigan statutory appraisal process: State Farm’s Appraisal Provision Violates the Standard Fire Policy. I highlighted Ed’s analysis in Michigan Appraisals and Standard Fire Policies.

The Michigan court then noted general Michigan appraisal law:

This process has been characterized as a ‘substitute for judicial determination of a dispute concerning the amount of a loss,’ and ‘a simple and inexpensive method for the prompt adjustment and settlement of claims.’ Auto-Owners Ins. Co. v. Kwaiser, 190 Mich App 482, 486, 476 N.W.2d 467 (1991)… Its purpose is to resolve the amount of loss in insurance disputes where liability has been admitted….

‘[W]here the parties cannot agree on coverage, a court is to determine coverage in a declaratory action before an appraisal of the damage to the property.’…  ‘Once an insurer admits that a loss is covered under its policy, a court is statutorily mandated to order the parties to participate in Michigan’s statutory appraisal process, as the parties do not dispute liability and only are at odds about the amount of loss.’ The D Boys, LLC v. Mid-Century Ins. Co., 644 Fed Appx 574, 578 (6th Cir. 2016). ‘However, if liability is not admitted by an insurer, the trial court must first determine the issue of ‘coverage’ before ordering appraisal.’

The court then noted a history of Michigan insurance bulletins on the topic of appraisal:

Disputes over coverage versus scope-of-loss came to the attention of the Michigan Department of Labor and Economic Growth Office of Financial and Insurance Services (OFIS) in 2006. At that time, the OFIS issued Bulletin No. 2006-07-INS, which states:

The Office of Financial and Insurance Services has learned that some property and casualty insurance companies wrongfully refuse to submit disputes regarding the amount of the loss to appraisal, as mandated by MCL 500.2833(1)(m). Such insurers take the position that, in claims involving repair or replacement cost policies, disagreements concerning the extent of the damages from the covered loss, the ‘scope of the repair or replacements’ made necessary by the covered loss, are ‘coverage issues’ and not subject to appraisal. Indeed, some insurance companies have refused to participate in appraisal unless the policyholder agrees in advance of appraisal to the scope of repairs calculated by the insurance company.

Such conduct is contrary to MCL 500.2833(1)(m), and is also prohibited by the Uniform Trade Practices Act…Once an insurer determines that a loss is covered under the subject policy of insurance, and there is a demand for appraisal by the policyholder or insurer, disagreements between policyholders and insurers over factual issues of whether some of the damages claimed by the policyholder are part of the amount of loss caused by the coverage event are part of the appraisal process. These issues do not constitute a ‘coverage question’ for the Courts, and are manifestly included with the mandatory legislative requirements that disputes over the ‘amount of the loss’ be subject to appraisal.

It is expected that insurance companies will not delay or refuse appraisal and will promptly and properly submit disputes concerning amounts of loss to appraisal. The Commissioner may commence administrative action proceedings against the certificate of authority of an insurance company that fails to comply with the statutory appraisal requirements as cited above.

The court noted that this Bulletin was rescinded, and a memorandum clarifying the intent of the rescission was eventually issued:

Bulletin No. 2006-07-INS was rescinded on June 20, 2017… But concerns later arose regarding the effect of the rescission, and insurers again began refusing to submit to appraisal even when coverage was not in dispute…

On December 20, 2017, OFIS issued a new memorandum superseding the rescission of Bulletin 2006-07-INS, to clarify its intent in rescinding the Bulletin. Id. In the memorandum, OFIS explained:

There appears to be uncertainty among some insurers and policyholders as to the proper forum for claim resolution in circumstances where an insurer acknowledges that there is liability under the policy for some damages claimed by a policyholder, but there is disagreement concerning the amount of loss because the insurer believes that some of the damages claimed by the policyholder are not covered by the policy of insurance.

Under these circumstances, Michigan courts have held:

Under Michigan law, the court is to determine what is covered and what is not covered under the policy, and the appraisers then determine whether a particular item meets the definition provided by the Court. As the Michigan Court of Appeals explained, the appraisers are to decide ‘what particular articles or items of property are embraced within the general description of the property they are to appraise for damages. The Court in Kwaiser further noted that the determination by appraisers of whether a particular item falls within the general description of the property they are to appraise ‘reflects the method of determining the loss rather than a matter of coverage.’

Smith v. State Farm, 737 F Supp 2d 702 at 710 (ED Mich 2010)…

In rescinding Bulletin 2006-07-INS, the Director was not opining that insurers may refuse to submit to appraisal when liability under the insurance policy is not in dispute. On the contrary, the Director continues to consider participation in the appraisal process under Section 2833(1)(m) to be mandatory in those situations.

This Memorandum, therefore, serves as clarification that, when coverage is not in dispute, the issue of ‘actual cash value or amount of the loss’ can be determined via the appraisal process as described in Section 2833(1)(m). Further, when a party demands an appraisal in accordance with Section 2833(1)(m), an insurer’s participation in the appraisal process is mandatory….

The court ruled that appraisal was appropriate:

Defendant admitted that the damages at issue here are generally covered by plaintiff’s insurance policy; thus, this is not a coverage dispute. Instead, the dispute concerns the scope of plaintiff’s loss, and whether plaintiff is entitled to reimbursement for every item it has identified as eligible under the policy’s terms. In other words, this is merely a factual dispute about whether plaintiff has proved the loss, and only changes plaintiff’s damages award. As stated by our Supreme Court in Dupree… as well as the federal courts in Smith…and The D Boys… the determination here is best reserved for an appraiser. Additionally, our holding is consistent with Kwaiser… Defendant admitted that the fire is covered under the policy by making payments on the claim, and plaintiff made a demand for appraisal once the parties reached an impasse about the amount of money owed to plaintiff for the loss. An appraiser should thus be the arbiter for disagreements about what damages and their value are included in ‘Business Personal Property,’ on the basis of the proof of loss plaintiff provided. Accordingly, we conclude that the trial court properly granted summary disposition in favor of plaintiff. Plaintiff is entitled to the appraisal of its insurance claim.

A key fact to the ruling was that the prior payment of benefits was an admission of coverage. The appraisal would simply resolve the remaining issues.

For those interested in Michigan appraisal law regarding appraiser impartiality, I suggest you read Michigan Court, Inspired by Florida Case, Rules in Favor of Policyholder and Approves Public Adjuster in Appraisal Matter, Part I, and Michigan Court, Inspired by Florida Case, Rules in Favor of Policyholder and Approves Public Adjuster in Appraisal Matter, Part II.

Thought For The Day

I take vitamin D, sunshine vitamin. It’s good for our health. That’s why people in Michigan are so happy and optimistic.

—Jim Harbaugh, former University of Michigan Football Coach

1 Cantina Enterprises II v. Property-Owners Ins. Co., No. 363105, — N.W.2d —, 2024 WL 202116 (Mich. App. Jan. 18, 2024).