property insurance appraisals:  trends in the southeast

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Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com. Appraisals In Theory. Generally, the Appraisal clause provides a contractual means to resolve a dispute over the amount of a covered loss. Appraisals ideally should provide a less costly alternative to litigation.Appraisals should resolve a claim in its entirety. .

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1. Property Insurance Appraisals: Trends in the Southeast GROELLE ——— & ——— SALMON A PROFESSIONAL ASSOCIATION Roland V. Bernal, Esq. [email protected] (772) 257-0700

2. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com

3. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Appraisals in Practice Unfortunately, Appraisal often times turn in more costly endeavors resulting in exposure to litigation costs, attorneys fees, as well as a basis for supporting bad faith claims.

4. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Appraisals often result in Awards that include amounts for damages that were not previously reported Damages for which coverage was denied Unincurred amounts awarded for coverages that are not payable until incurred.

5. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com The Appraisal Provision[Appraisal provision was included in 1943 New York Standard Fire Policy!] Appraisal. If you and we fail to agree on the amount of the loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose and umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the residence premises is located. The appraisers will separately set the amount of the loss. If they fail to agree, they will submit their differences to the umpire. A decision by any two will set the amount of loss. Each party will: a) pay its own appraiser; and b) bear the other expenses of the appraisal and umpire equally.

6. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Recent Alabama Case Law Involving Appraisals Rogers v. State Farm Fire and Cas. Co., 984 So. 2d 382 (Ala. 2007). In Rogers, an insured suffered a tornado loss. Investigation revealed the damage was to the house was caused by settlement. Insured contended loss was due to tornado and resulted in a total loss. Rather than denying coverage, State Farm requested appraisal. The insureds declined and filed suit.

7. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Rogers v. State Farm Fire and Cas. Co., Complaint alleged counts for both breach of contract and for bad faith. Following 14 months of litigation, State Farm filed a Motion for appointment of an appraiser and/or umpire. Insureds opposed apprasial contending that they had been prejudiced given the amount of time that had passed while litigating the matter.

8. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Rogers v. State Farm Fire and Cas. Co., Initially the Court denied appraisal finding that State Farm had waived the right to appraisals. On subsequent hearing on the same issue, State Farm conceded that “if the appraisal resulted in a finding that damage to the building and foundation were the result of tornado, it would declare the house a total loss. The court then found that State Farm had not waived appraisal and the matter ultimately proceeded to appraisal.

9. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Rogers v. State Farm Fire and Cas. Co. Ultimately, an award was rendered finding that the damages were far less than the policy limits. The trial court then entered an order against State Farm consistent with the Appraisal Award and entered a final order adjudicating all issues. Insured appealed.

10. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Rogers v. State Farm Fire and Cas. Co. On appeal, the Alabama Supreme Court faced two issues. First, whether the insurer waived the right to invoke appraisal by litigating for 14 months. Second, whether the insurer improperly utilized the appraisal provision to adjudicate issue of coverage and causation.

11. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Rogers v. State Farm Fire and Cas. Co., First, regarding waiver, the Court stated that “under Alabama law a party may waive its right to arbitrate a dispute if it substantially invokes the litigation process and thereby substantially prejudices the party opposing arbitration. Court found that State Farm had not waived the right to invoke appraisal as the insureds were not prejudiced since they also raised a count for bad faith.

12. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Rogers v. State Farm Fire and Cas. Co., Second, the Alabama Supreme Court held that “the appraiser’s duty is limited to determining the ‘amount of loss’ – the monetary value of the property damage – and that appraisers are not vested with the authority to decide questions of coverage and liability.” Further noted that “Questions of coverage and liability should be decided only by the courts, not appraisers.”

13. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Recent Georgia Case Law involving Appraisals In Aaron v. Georgia Farm Bureau Mut. Ins. Co., 2009 Ga. App. LEXIS 439 (Ga. Ap. Ct. 2009), the court found that an insured could not demand appraisal more than one year after a loss where policy provided: “No action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss”

14. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Aaron v. Georgia Farm Bureau Mut. Ins. Co In Aaron, the insured’s home was struck and damaged by a car. During repairs the septic system was damaged. Homeowner’s insurer estimated damages and offered to pay for all but the septic system damages. Insured declined. Eventually, the insured offered to accept the amount previously offered by insurer, but not until more than a year had passed since the loss.

15. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Aaron v. Georgia Farm Bureau Mut. Ins. Co In response, the insurer rejected the offer and advised that no action can be brought unless policy provisions had been complied with and the action is started within one year of the loss, and that the claim was denied. Insured subsequently filed suit for breach of contract and specific performance seeking appraisal and the trial court granted summary judgment in favor of insurer in light of the one year limitation.

16. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Aaron v. Georgia Farm Bureau Mut. Ins. Co First, regarding the breach of contract claim, the Court found that there was no meeting of the minds sufficient to create an enforceable settlement agreement, and that the possibility of settlement before the lapse of the one year period did not relieve the insured of filing suit within the year.

17. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Aaron v. Georgia Farm Bureau Mut. Ins. Co Second, regarding the count for specific performance, the Court found that “The law is clear that ‘appraisement does not constitute either a common law or a statutory arbitration, [cannot] determine the insurer’s liability, and [cannot] alone be the basis of action or judgment . . . [A]ppraisement [is] nothing more than a contractual method of ascertaining the amount of loss, suit for which can be founded only upon the policy.” Essentially, no right to appraisal after expiration of the one year period as provided for by the policy.

18. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Recent Florida Case Law Involving Appraisal The most significant case in Florida regarding appraisals is Johnson v. Nationwide, 828 So. 2d 1021 (Fla. 2002), stated the following: “When the insurer admits that there is a covered loss, but there is a disagreement on the amount of loss, it is for the appraisers to arrive at the amount to be paid.

19. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Johnson v. Nationwide “In that circumstance, the appraisers are to inspect the property and sort out how much is to be paid on account of a covered peril. In doing so, they are to exclude payment for “a cause not covered such as normal wear and tear, dry rot, or various other designated, excluded causes.”

20. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Johnson v. Nationwide “[I]f the homeowner’s insurance policy provides coverage for windstorm damage to the roof, but does not provide coverage for dry rot, the appraisers are to inspect the roof and arrive at a fair value for the windstorm damage, while excluding payment for the repairs required by preexisting dry rot.” “Whether the claim is covered by the policy is a judicial question, not a question for the appraisers.”

21. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Johnson v. Nationwide In practice, the court’s are delegating the power to determine causation to the appraisal panel, which often times essentially results in a coverage determination. For example, if the appraisal panel determines a loss was caused by windstorm and not wear and tear, it may be difficult for an insurer to contest the award and challenge coverage.

22. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Johnson v. Nationwide Florida Federal Courts have found that once an award is issue an insurer is essentially required to pay the full award unless no coverage exists. See Three Palms Pointe, Inc. v. State Farm Fire & Cas., 250 F.Supp.2d 1357 (M.D. Fla. 2003), affirmed by the 11th Cir. 362 F.3d 1317 (11th Cir. 2004).

23. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Johnson v. Nationwide Though at least one Florida State Appellate Court has found that “the submission of the claim to appraisal does not foreclose [an insurer] from challenging an element of loss as not being covered by the policy. Only if a court determines that coverage exists for that element of loss will the amount of appraisal for that “ See Liberty American Ins. Co. v. Kennedy, 890 So. 2d 359 (Fla. 2d DCA 2005).

24. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Recent Louisiana Case Law Involving Appraisal In Farber v. American Nat. Prop. & Cas. Co., 999 So. 2d 328 (La. App. 2008), the appellate court addressed several issues, including adoption of an appraisal award, which we will discuss here. In Farber, the insureds’ home sustained damage due to Hurricane Rita. Following initial inspection of the loss, the insured was provided with an estimate of damages totaling approximately $25,000.

25. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Farber v. American Nat. Prop. & Cas. Co. The insured then provided an estimate totaling nearly $200,000 and demanded appraisal. In response the insurer advised that it would be sending an engineer to evaluate, but did not respond to the demand for appraisal. The insured then requested the court to appointed an umpire, which it did appoint.

26. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Farber v. American Nat. Prop. & Cas. Co., Interestingly, the insurer was not copied on the insureds’ request to the court for appointment of an umpire, nor the court’s letter to the insureds appointing the umpire. The insured then submitted its claim to the umpire who issued an award for $181,929.05. The insured then forwarded the award to the insurer and demanded payment.

27. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Farber v. American Nat. Prop. & Cas. Co., When payment was not issued, the insured filed suit alleging counts for breach of contract among other counts. During the litigation, the insureds filed a Motion for the court to adopt the award, and the insurer countered with a Motion to nullify the appointment of the umpire and his decision. Ultimately, the Court granted the insureds’ Motion, but denied the insurer’s Motion.

28. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Farber v. American Nat. Prop. & Cas. Co., On appeal, the Court rejected the insurer’s arguments that the trial court erred in granting summary judgment in favor of the insureds, adopting the award, and denying insurer’s motion to nullify appointment of umpire and to set aside the award. Court reasoned that the insurer at no time objected to the appraisal process going forward. Court further noted that the insurer’s Motion to set aside the award was filed untimely beyond the 3 month statutory limit.

29. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Recent Mississippi Case Law Involving Appraisal In Children’s Imagination Station v. Prime Ins. Syndicate, 2008 U.S. Dist. LEXIS 21007 (S.D. Miss. 2008), an insured daycare center sustained damage due to Hurricane Katrina. During December 2005 the insurer demanded appraisal. Insured filed suit during August 2007 asking the court to appoint an umpire or to alternatively find that the insurer had waived its right to appraisal by failing to participate in the process in good faith. The parties ultimately proceeded with the appraisal.

30. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Children’s Imagination Station v. Prime Ins. Syndicate Ultimately an appraisal award was issued with multiple categories of damages. Specifically, the award included RCV and ACV damages for three categories of property damages: (1) repairs completed by a particular contractor; (2) repairs completed by others or not yet completed; and (3) code & ordinance costs.

31. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Children’s Imagination Station v. Prime Ins. Syndicate The policy included property limits of $200,000.00, and the insurer had the right to pay either RCV or ACV. The parties were in agreement that amounts awarded for ordinance & law were not owed. The combined amounts awarded for ACV for categories 1 and 2 above exceeded the coverage limit. Insurer issued payment for one of the categories, but not the other contending that it was not clear what was included in the disputed category and it sought to depose the umpire to seek clarification.

32. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Children’s Imagination Station v. Prime Ins. Syndicate Insured moved for partial summary judgment regarding entitlement to the amounts awarded. Court noted that: “In Mississippi, as in other states, it is difficult for a [party] to succeed in impeaching an award made by disinterested appraisers. Mississippi law favors amicable settlements of controversies without court involvement.”

33. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com Children’s Imagination Station v. Prime Ins. Syndicate Court further noted that: “A court may set aside an appraisal ‘where the award is so grossly inadequate as to amount to a fraud in effect, . . . or where the appraisers were without authority, or where there is a mistake of fact or to prevent injustice.” Court was not persuaded by insurer’s argument that the category in question was “ambiguous” in that it may have included improvements, particularly because all three appraisers signed the award, the insured submitted affidavits from its appraiser and the umpire denying the inclusion of improvements in the award.

34. Wellington, FL - Tampa, FL - Destin, FL - Vero Beach, FL www.gspalaw.com THE END Thanks, you have been a great audience! GROELLE ------ & ------ Salmon A Professional Association ``

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