Texas Appraisal Allows Determination of Causation and Upholds Zero Award

Chip Merlin | Property Insurance Coverage Law Blog

Texas has a lot of insurance claims decided by appraisal. Maybe the appraiser for one insured should have gone to Steve Patrick’s appraisal class because the umpire and insurer’s appraiser came to a zero award, which was upheld on appeal.

The court quoted from,1 stated the following as Texas appraisal law:

(1) appraisals necessarily include a causation element because setting the amount of loss requires appraisers to decide between damages for which coverage is claimed from damages caused by everything else, and (2) appraisers may separate loss due to a covered event from a property’s pre-existing condition….

Federal courts have likewise interpreted Johnson as holding that appraisers act within their authority when they distinguish damage caused by pre-existing conditions from damage caused by the storm. See TMM Investments, Ltd. v. Ohio Cas. Ins. Co., 730 F.3d 466, 474–75 (5th Cir. 2013) (reversing an order setting aside the appraisal award because, under Johnson, it was entirely appropriate for the appraisers to consider whether damage was caused by pre-existing conditions, as they did); MLCSV10 v. Stateside Enterprises, Inc., 866 F. Supp. 2d 691, 705 (S.D. Tex. 2012) (The appraiser’s causation evaluation of the damage to the roof ‘involved no more than ‘separating loss due to a covered event from a property’s pre-existing condition.’ Under Texas law, such a causation determination relates to damages and is properly addressed by the appraisers.’)

Regarding the facts underlying the causation, the court noted that the Umpire and insurer’s appraiser found the following:

AllStar [LeBlanc] met with the Appraisers and inspected the roof and exterior of risk. AllStar found NSR [no storm-related] damages to the risk due to hail or wind that would warrant replacement. Note that the area damaged by water intrusion is due to the flashing that has been improperly installed. The flashing is loose and not caulked properly, allowing water intrusion when it rains. We also documented the rear slope on garage, showing damages due to tree rub. AllStar documented the interior of the risk and found damage due to water intrusion around chimney crown cap (mortar cracked due to age) and improper flashing. We also noted settlement issues within the home.

The lesson from this case is that with Texas hailstorm cases, the appraisal panel can consider what damages are from the hailstorm and what have nothing to do with the windstorm. I would strongly suggest that policyholders help their appraisers by getting experts to help clarify and explain what is hailstorm related damage so the entire panel can be educated on the causation issue.

Appraiser’s Introduction of “Matching” Evidence after Proposed Appraisal Award is Untimely

Christina Phillips | Property Insurance Coverage Law Blog | December 1, 2019

The Villas at Winding Ridge v. State Farm Fire and Casualty Company1 opinion is a good reminder to appraisers that they need to timely raise any issues related to the appraisal, or risk having those issues waived.

In relevant part, the insured’s disputes about the amount of hail damage to the 33 buildings was submitted to appraisal. The insured’s appraiser submitted an estimate for repairs including full replacement shingles on 13 of the 33 buildings. Whereas the insurer’s appraiser only estimated repairs to each of the 33 buildings and did not include full shingle replacement on any building. Following a joint inspection with the appraisers and umpire, the umpire issued a preliminary award which provided for (1) 20% repair allowance for roofing shingles on 13 buildings; (2) replacement costs for soft metal damage on all 33 buildings; and (3) replacement costs for roofing shingles around new turtle vents on all 33 buildings.

Approximately three weeks later, the insured’s appraiser asked the umpire to modify the award to cover full shingle replacement on 13 buildings and for the first time submitted a report from the shingle manufacturer that the original shingles were discontinued, and any replacement shingle would not match. Despite having this report in his possession before the proposed award was entered, the insured’s appraiser had not shared it with either the insurer’s appraiser or the umpire. Ultimately, the umpire and the insurer’s appraiser signed the award making in binding.

Disagreeing with the award, Winding Ridge filed suit. The Seventh Circuit Court of Appeals affirmed the trial court’s grant of summary judgment in favor of State Farm. The Seventh Circuit agreed that Winding Ridge’s matching argument was untimely. It specifically noted that Winding Ridge’s appraiser had the letter from the shingle manufacturer for six months but elected not to share it or advance the argument. The Seventh Circuit further noted that if the insured were to permit such “second guessing,” it would only frustrate the purpose of a binding appraisal.
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1 Villas at Winding Ridge v. State Farm Fire & Cas. Co., 2019 WL 5853547 (7th Cir. Nov. 8, 2019).

7th Circuit: Appraisal Should Have Ended Dispute Over Roof Replacement

Jim Sams | Claims Journal | November 18, 2019

When managers of the Villas at Winding Ridge in Indianapolis asked a contractor to assess the condition of the 33 roofs in the condominium complex, they learned that a hailstorm the year before had damaged soft metal parts, fascia and air-conditioning condensers on seven or eight of the buildings.

Winding Ridge filed a claim with State Farm Insurance. The insurer said the damage was minor and estimated repairs would cost $65,713.54. Winding Ridge disagreed, but while the matter was still pending, the homeowners’ association borrowed $1.5 million to replace the roofs.

Winding Ridge sued State Farm, alleging bad faith, breach of contract and promissory estoppel. The complex demanded that State Farm pay the entire amount of the loan, plus prejudgment interest in the amount of $97 per day.

On Nov. 8, the. U.S. 7th Circuit Court of Appeals affirmed a district court’s ruling that rejected Winding Ridge’s claims. After nearly five years of litigation, the appellate court found that Winding Ridge was entitled to nothing more than what State Farm had already paid because “very little if any hail damage to the shingles was observed.”

“The fact that Winding Ridge independently replaced the shingles on all 33 buildings for $1.5 million while its claim was pending does not obligate State Farm under the policy or mean State Farm breached the policy,” Circuit Judge Amy St. Eve wrote for the appellate panel.

After Winding Ridge disputed State Farm’s first assessment, the condo complex and State Farm both hired independent appraisers, as called for by the policy. Winding Ridge’s appraiser said shingles had to be replaced on 13 buildings at a total estimated cost of $676,824.07. State Farm’s appraiser said no shingles had to be replaced, but there was minor damage to all 33 buildings that would cost $79,921.80 to repair.

The parties appraisers selected an independent umpire to settle the matter. He found that that State Farm should pay 20% of the cost of replacing shingles on 13 buildings and make other repairs, with a total cost of $154,391,77. State Farm paid that amount.

Winding Ridge insisted that that the shingled needed to be replaced and filed suit in Indiana state court. State Farm removed the case to federal court and persuaded a district court judge to dismiss the claim.

The 7th Circuit affirmed. The appellate panel rejected Winding Ridge’s argument that State Farm was liable for the cost of replacing shingles on all 33 roofs because the style of shingle on the damaged buildings was no longer available. The court also said that State Farm’s initial low-ball settlement offer doesn’t mean it wasn’t acting in good faith.

“The mere fact that State Farm’s initial estimate was less than the award does not suggest culpability,” the opinion says. “At best, it may suggest that State Farm’s first inspection was inadequate. But this alone does not constitute bad faith.”

Dennis Wall, a Florida insurance attorney, summarized the court’s findings Thursday in his Claims and Bad Faith Law Blog. He reminded readers of sage advice attributed to Davey Crockett: “Be sure you’re right, then go ahead.”

“Even after all these years, it is still a good motto to follow,” Wall wrote.


Colorado Law Regarding Who Can Be An Appraiser is Still A Guess For Policyholders and the Insurance Industry – Colorado Is Looking For Guidance

Chip Merlin | Property Insurance Coverage Law Blog | November 23, 2019

The person that can qualify as an appraiser for a policyholder in Colorado is still a guess with policyholders not exactly knowing what to do about the selection of their appraiser. One Colorado insurance company law firm has their clients select very biased appraisers against their own customers and then challenges almost all policyholder appraisers as biased. This firm with their clients’ blessings, then tries to have the customer collect nothing arguing that the customer breached the policy by selecting a “biased” appraiser while having a “polecat” selected in the wings as their own appraiser.

What insurer acting in Good Faith would unleash lawyers against their own customers?

The Colorado Division of Insurance is asking for comments to a draft bulletin on this issue with the following notice:

Click on the image below to read the entire draft Bulletin and proposed language:

Merlin Law Group will certainly make a comment about the proposed draft language. I would suggest others reading this blog distribute the draft bulletin and let me know your thoughts in a legal sense. If you are a consumer advocate, I encourage you to file your own comments to the Colorado Division of Insurance.

Appraisal Award Ends Property Damage Dispute

Larry P. Schiffer | Squire Patton Boggs | November 13, 2019

Property insurance policies contain provisions to resolve disputes between the policyholder and the insurer over damage claims. These provisions provide for an independent appraisal of the alleged damaged property with the appraiser’s final award binding the parties. An appraisal award is akin to an arbitration award in many respects. In a recent case, a policyholder was dissatisfied with the appraisal award and sued the insurer for breach of contract and bad faith.

In Villas at Winding Ridge v. State Farm Fire & Casualty Co., No. 19-1731 (7th Cir. Nov. 8, 2019), a condominium complex suffered hail damage during a storm. The damage was not discovered until nearly a year later when the complex had its roofs inspected for possible replacement. A claim was filed by the policyholder with its insurer and the adjuster prepared a repair cost estimate that was not satisfactory to the complex. The carrier paid the claim as estimated, but the parties continued to spar over the costs. Essentially, the complex wanted all the roofs replaced, plus other items. The adjuster and engineer for the insurer found only very minimal hail damage on the roof shingles. When the parties reached an impasse, the policyholder demanded an appraisal under the policy’s appraisal provision.

The two independent appraisers appointed by each side came up with significantly different estimates, but the policyholder’s appraiser only sought roof replacement for 13 out of 33 buildings. Ultimately, the issue was decided by majority after a third independent appraiser was brought in and issued his own findings. The appraisal award granted only a 20% repair allowance for roofing shingles on 13 building and other damages. After the award was issued, the insurer paid the amount awarded and the policyholder sued for breach of contract, bad faith and promissory estoppel.

In affirming summary judgment for the insurance carrier, the Seventh Circuit found that the policy’s appraisal provision was unambiguous. The court disagreed with the policyholder that the appraiser mistakenly determined the scope of the loss as opposed to the value of the loss. The court held that the appraiser resolved the dispute that the parties presented, which was the amount of hail damage to the roofing shingles on 13 buildings and to other portions of the property. The court also held that the mere presence of coverage disputes (there was an issue about matching shingles and discontinued shingles) in addition to the amount of the loss dispute did not negate the appraisal award.

The court also rejected the policyholder’s claim that there were material issues of fact on the breach of contract claim. The court went through some of the detailed facts and noted that the policyholder’s own appraiser found no hail damage to roofing shingles on 20 buildings. The court noted that the policyholder’s decision to replace the shingles on all 33 buildings while its claim was pending did not obligate the insurer under the policy or result in the insurer breaching the policy. The court also held that the appraisal award resolved the entire claim, not just the damage to the 13 buildings. Finally, the court held that the matching shingles issue was untimely and did not create a genuine issue of material fact.

On the bad faith claim, the court concluded that there was no evidence that the carrier acted in bad faith by delaying payment or deceiving the policyholder or exercising unfair advantage. As the court said, insurance companies may dispute claims in good faith.