An important aspect of appraisal is determining what damage was caused by the covered peril and what damage was caused by poor maintenance or construction, wear and tear, or other causes generally excluded in the standard property insurance policy. I believe both advocates for insurance carriers and policyholders can agree that this separation is vital to the appraisal process.
What is the proper scope of appraisal in property insurance claims? This is a common question and the answer is quite different depending on who you ask. Over fourteen years ago the District of Delaware analyzed the scope of appraisal and the opinion is still frequently sighted by parties advocating for the determination of causation in appraisal.
State Farm Lloyds v. Johnson,1 provides the controlling law on the issue of the scope of the appraisal panel’s authority. In Johnson, the claimant alleged that her roof had been damaged in a hailstorm and filed a claim. When the insurance company provided a much lower damage estimate than her claim requested, the she invoked the policy’s appraisal provision.2 The insurer, however, refused to participate in appraisal, believing appraisal should not be required because the panel would have to decide issues of causation, not “amount of loss.” Johnson then filed suit seeking a declaratory judgment compelling appraisal. The dispute eventually made its way before the Texas Supreme Court.
The Supreme Court of Georgia has held that an appraisal clause in an insurance policy can only resolve “a disputed issue of value…it cannot be invoked to resolve broader issues of liability.”1 This probably sounds familiar, because courts across the country generally hold that the “amount of loss” can be appraised, but issues of “coverage” cannot be determined in the appraisal process.
In The Scope of Appraisal: Does It Include Causation, I addressed property insurance appraisals in Florida, where the law is well established with multiple reported decisions regarding the scope of appraisal and the determination of causation in appraisal.
While the appraisal procedure is commonly used in property insurance claims, the proper scope of appraisal is often contested. Courts across the country generally agree that coverage determinations are reserved only to the courts. However, courts are divided on whether determinations of causation should be considered by the appraisal process.…
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