Florida Federal Court Allows Insurer To Invoke Appraisal Provision Despite Pending Lawsuit Against Insurer

Jeremy S. Macklin | Traub Lieberman Straus & Shrewsberry | September 11, 2018

In Reynolds Ventures, Inc. v. Scottsdale Ins. Co., 2018 U.S. Dist. LEXIS 150508 (M.D. Fla., Sept. 5, 2018), the U.S. District Court for the Middle District of Florida held that a surplus lines insurer who acts consistently with its rights may invoke its appraisal rights after suit has been filed.

Marram Corp. (“Marram”) secured a first party property insurance policy from Scottsdale Insurance Company (“Scottsdale”). Marram’s property suffered water damage, and Marram filed a claim with Scottsdale. Marram allowed Reynolds Ventures, Inc. (“Reynolds”), a contractor, to directly bill Scottsdale for its repair services. Reynolds and Scottsdale disputed the amount of damage sustained by Marram. Reynolds (through rights acquired by Marram) sued Scottsdale for breach of contract for underpaid services. Scottsdale brought a motion to compel appraisal and to stay legal proceedings.

Reynolds objected to the appraisal for three reasons: (1) disputes over coverage exist, (2) Scottsdale failed to invoke an appraisal, and (3) Scottsdale failed to notify Reynolds of its rights under the policy. Scottsdale argued that it sent Reynolds a demand for appraisal before Reynolds filed suit, and that Scottsdale had not acted against its appraisal rights. The demand for appraisal on which Scottsdale relied was a letter with generally accurate policy information that references “Nationwide” not “Scottsdale” as the insurer.

The court found the controversy of the letter referencing “Nationwide” instead of “Scottsdale” irrelevant. The court held that the policy’s appraisal clause was not limited by notice prior to suit. Rather, the right to an appraisal can be invoked after suit has been filed. Scottsdale could invoke its appraisal right after the suit was filed so long as it acted consistently with those rights. Because Scottsdale acted consistently with its appraisal rights, Scottsdale sufficiently invoked its appraisal right within the policy.

Reynolds next argued that Scottsdale failed to notify it of its right to participate in mediation pursuant to Florida statute Section 627.7015 (2) & (7). However, the court pointed out that Section 626.913 clearly excludes surplus lines insurers from 627.4015 (2) & (7) unless the policy specifically states otherwise. Scottsdale is a surplus line insurer and the policy did not state that Florida Statute Chapter 627 applies. Therefore, the court granted Scottsdale’s motion, mandating appraisal and staying the legal proceedings.

Partial Denial of Coverage: If They Raise It, Then You Can Appraise It

Francisco Garcia | Property Insurance Coverage Law Blog | August 8, 2018

Nearly every homeowner’s insurance policy issued in Florida provides a mechanism for resolving disputes between the insured and their carrier as to the amount of a loss: Appraisal.

The language of the appraisal clause can vary from carrier to carrier – some policies, for example, can require appraisal to be invoked within a certain period of time – so it is important to carefully review the specific policy provision any time a party demands a loss be submitted to appraisal. The process is commonly described as follows:

Appraisal. If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. Each shall notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers shall then select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, you or we can ask a judge of a court of record in the state where the residence premises is located to select an umpire. The appraisers shall then set the amount of the loss. If the appraisers submit a written report of an agreement to us, 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 two of these three 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 you and us.

When properly invoked, participation in the appraisal process is mandatory and the amount of loss determined by the panel is binding.

Florida’s Fourth District Court of Appeals recently addressed whether appraisal can be compelled by a carrier after partially denying coverage for the loss. The case, People’s Trust Insurance Company v. Tracey,1 involved a claim for damage to an insureds’ roof and their home’s interior. The homeowners reported that the loss had been caused by wind from a tornado. Although the carrier generally acknowledged coverage for the loss, it limited its payment to only the interior damages and denied coverage for roofing system portion of the claim. Specifically, People’s Trust sent the insured a letter stating:


We have completed our investigation of your claim, and based upon what we were provided and what you reported, and additionally, based upon our claim investigation, there is generally coverage for your loss as a whole. However, and more specifically, our investigation revealed that the roof leak you reported stemmed from age-related wear and tear and deterioration; general mechanical breakdown or latent defect; and/or faulty, inadequate or defective maintenance of the roofing system – none of which are covered causes of loss. Therefore, in our opinion, the scope of covered damages would not include your roofing system because those damages were caused by uncovered or excluded causes, but would provide coverage for resulting ensuing damages to the interior of your home. Therefore, we believe our obligation is to repair only those damages to the interior of the home. If you are not in agreement with that assessment, the question of whether the scope of repairs should include the roof, can be resolved in appraisal.

In response to two proofs of loss submitted by the insureds, both of which exceeded the insurer’s payment and included repairs to the roof, People’s Trust demanded. The homeowners then filed suit against their insurance carrier for breach of contract and the insurer responded by moving to compel appraisal. People’s Trust maintained that the cause of the roof damage could be resolved in appraisal because it went to the amount of the loss. The insured successfully argued that the cause of the damage to the roof was a question of coverage and, therefore, solely within the purview of the court.

The trial court agreed with the insureds and denied People’s Trust motion to compel appraisal, without prejudice. The appellate court, however, reversed and remanded the case back to the trial court to compel the appraisal. In its reasoning, the appellate court explained that “when an insurer admits coverage and disputes the amount of loss, causation is to be determined by an appraisal panel.” Regarding the insured’s argument, the court emphasized that “[c]ausation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits there is a covered loss, the amount of which is disputed.”

This case further demonstrates the nuances of first-party property actions and how particular facts surrounding a claim can change the outcome of litigation. Based on Tracey, if an insurer denies coverage for a loss in its entirety it may not be able to avoid litigation by invoking appraisal – but if it only denies coverage for a portion of the claim, then you may have no other option than to participate in the appraisal process. If you believe that an appraisal provision has been improperly demanded or have questions about whether an insurance carrier may invoke appraisal under a policy, contact an experienced insurance professional for help.
1 People’s Trust Ins. Co. v. Tracey, No. 4D17-3945, 2018 WL 3559914 (Fla. 4th DCA July 25, 2018).

Can Appraisal Take Place Over Property That Has Been Demolished?

Erin Dunnavant | Property Insurance Coverage Law Blog | August 7, 2018

Florida’s Federal Middle District believes it can.1 After Hurricane Irma struck its commercial building in Port Charlotte, Florida, building owners Etcetera, Etc, Inc., filed an insurance claim under their policy with Evanston Insurance Company (“Evanston”). Evanston began its investigation, and as that was underway Charlotte County also inspected the building and issued a “Notice of Unsafe Building” stating the building “was in danger of collapse.”

The County’s notice gave the building owners (“the insureds”) two options: they could either repair or demolish their building. If they chose repairing it, they had to secure all necessary permits and commence the work within 30 days, complying with all applicable building codes. If they opted to demolish the building, they had to secure all permits associated with demolition, including debris removal and complete the demolition within 30 days. If the insureds failed to comply with either option, the County would demolish the building after the 30 days lapsed. The insureds opted to demolish the building.

After receiving a copy of the County’s Notice, Evanston Insurance Company sent a letter to its insureds stating that it did not believe the property needed to be demolished, and that in fact, the County’s notice made it clear that the property could be repaired. Evanston also hired an engineer who agreed the building could be repaired instead of demolished. Evanston further told its insureds that any decision to demolish the property would be voluntary and would not be related to a covered loss. The insureds responded to Evanston acknowledging that although there was some pre-existing damage, Hurricane Irma had caused more damage making it a “total loss.” The letter also notified Evanston that if they wanted to re-inspect the insureds’ building, they needed to do so right away, as the demolition would occur within the next few weeks.

At first, Evanston responded to its insureds by stating it would re-open the claim and schedule a re-inspection to occur. Nonetheless, less than a week before the re-inspection was scheduled, the insureds received correspondence from Evanston Insurance Company that although it acknowledged some covered damage, it was still their position that the property could be repaired (and did not need to be demolished), and for an amount that fell below the windstorm and hail deductible. Accordingly, Evanston did not make payment, but instead told its insureds to submit a repair estimate if it disagreed with Evanston’s position. Instead of awaiting an estimate or continuing to negotiate, Evanston Insurance Company filed a Complaint for Declaratory Judgment against its insureds asking the court to find that,

  • The insured property was not a total loss;
  • Florida’s Valued Policy Law did not apply to the Policy;
  • loss or damage caused by the enforcement of an ordinance or law (1) regulating the construction, use, or repair of any property; or (2) requiring the tearing down of any property, including the cost of removing its debris, was excluded; and
  • liability for the loss was limited to any covered damage caused by Hurricane Irma, subject to the Policy deductible and other terms and conditions.

The Defendant-insureds timely answered the complaint. They also sent a request for appraisal to Evanston. The policy here had an appraisal clause similar to many policies; it stated in pertinent part:


If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction.

Evanston Insurance Company never responded to Defendant-insureds request for appraisal, so the insureds filed a Motion to Compel Appraisal with the court. In determining whether to grant the motion, the court compared situations where insurance carriers deny coverage to those where they acknowledge it,

[While] a dispute regarding a policy’s coverage for a loss is exclusively a judicial question . . . . when an insurer acknowledges that there is a covered loss, any dispute regarding the amount of such loss is appropriate for appraisal. Notably, in evaluating the amount of the loss, an appraiser is necessarily tasked with determining both the extent of covered damage and the amount to be paid for repairs.2

The court found that the question of what repairs are needed to restore a property is a question relating to the amount of loss and not coverage. Evanston acknowledged coverage for the damages relating to Irma, but believed they fell under the deductible, while the insureds believed the damages amounted to a “total loss.” The court found that because both parties agreed there was at least some damage due to a covered cause of loss, the remaining dispute over the scope of damage was appropriate for appraisal.

Evanston Insurance Company argued that the Defendant-insureds waived their right to go to appraisal by demolishing the building, making appraisal impossible. Although there is not much in the way of authority on this issue under Florida law (as the court acknowledged), the court did not find waiver here. The court noted these facts to supports its position:

  • Evanston had inspected the condition of the [insureds’] building 30 days prior to Hurricane Irma;
  • Evanston’s adjusters and engineers inspected again following the hurricane;
  • Evanston was given the opportunity to inspect the building prior to the demolition;

These facts outweighed Evanston’s argument that it would be impossible to appraise the property, especially when reports and estimates generated prior to demolition could be relied upon.

Although Evanston Insurance Company was unsuccessful in fighting off appraisal, the court granted its request to have the appraisal panel prepare a detailed line-itemed appraisal award that should include: 1) the actual cost value of all damages at the property prior to demolition, 2) damages resulting from the enforcement of an ordinance or law regulating construction, use, repair, tear-down or debris removal, 3) the actual cash value of covered damages that existed prior to demolition and are directly attributable to Hurricane Irma, and 4) Damages that predated the policy period, to include damages related to Hurricane Charley.

This is an important case for policyholders because it shows how important cooperating with your insurance company can be. For instance, had the insureds not permitted the initial inspection by the insurance company, the court may have come to a different conclusion, as there may have been insufficient evidence for which to conduct an appraisal without those visits. When in doubt, cooperate with your insurance company. If you aren’t sure what that entails, consult with a public adjuster or an experienced policyholder attorney.
1 Evanston Ins. Co. v. Etcetera, Etc Inc., 2:18CV103FTM99MRM, 2018 WL 3526672 (M.D. Fla. July 23, 2018).
2 Id. at *3 (citations omitted; emphasis in original).

Federal Court Ruling Vacates Hail Claim Appraisal Award, Highlights Appraiser Abuses

Denise Johnson | Claims Journal | July 26, 2018

A recent decision by a Colorado federal appeals court could have significant impact on hail claims and appraisals across the country.

Copper Oaks Master Home Owners Association v. American Family Mutual Insurance Co. involves a claim of hail damage that led to a dispute regarding damages.

According to the facts outlined within the opinion, Copper Oaks managed several residential buildings in Lakewood, Colo., at the time of the loss. On September 9, 2013, a hail storm allegedly caused property damage to the Copper Oaks complex. Due to debris scattered about the premises, the property manager, Mark Richardson, contacted Derek O’ Driscoll of Impact Claim Services, LLC, and requested he conduct a free inspection of the building roofs. At a November 2013 board meeting, O’Driscoll discussed his roofing evaluation and offered to represent Copper Oaks as public adjuster on its anticipated claim to American Family.

A month later, a separate report commissioned by Richardson found that Copper Oaks was “severely undercapitalized given the size, age and condition of the complex.” The report found that the HOA was severely underreserved – it had $70,112 in reserves, just 11 percent of the recommended amount of $625,597 to carry out extensive repairs needed. A special assessment of $1500 per unit was recommended but there was no evidence that was conveyed to the unit owners.

Copper Oaks hired Impact Claims in March 2014 as its public adjuster and agreed to pay a contingent fee of 15 percent of any insurance award.

American Family was first notified of the loss in April 2014. The insurer inspected the property damage and provided an estimate of $620,979 as the replacement cost value (RCV). The insurer issued payment of $497,765.43, the actual cash value of the loss, in July 2014.

Impact Claims determined Copper Oak’s loss to be much higher than the amount paid by American Family. Later in 2014, O’Driscoll estimated the total damage due to the hail storm at nearly $3.6 million. Upon learning of the increased damage estimate, American Family hired Madsen, Kneppers & Associates to appraise the loss. After an inspection, the firm issued a report estimating the total RCV loss at $608,398.49.

Disappointed with the amount American Family initially paid on the claim, Copper Oaks filed suit in state court. American Family had the case removed to federal court. The Amended Complaint stated four claims: 1) a request for declaratory judgment as to the appraisal process and award; 2) a request to compel an appraisal award in accordance with process specified in the Policy; 3) breach of contract in failing to pay the amounts owed under the Policy; and 4) unreasonable delay in payment in violation of C.R.S. 10-3-1115 and 1116.

Besides the dispute on damages, the parties disagreed as to whether the complex was actually damaged by hail during the storm. The court noted there wasn’t any contemporaneous evidence that hail had impacted any part of the property – “no statements of occupants, photos or the like.”

A requirement when the value of a claim is disputed is that the parties to the policy must engage in an appraisal process to determine the value of the loss.

The parties were ordered to participate in the appraisal process. The policy requires each party to appoint a “competent and impartial” appraiser. The two appraisers then jointly select a neutral umpire. Each appraiser submits an opinion as to the amount of the loss to the umpire. Upon the agreement of the umpire and at least one of the appraisers, the amount of the loss is conclusively determined.

The appraisal process, according to Steven Badger, a Dallas attorney with Zelle LLP, “was intended to be an amicable and expeditious approach to resolving disputed insurance claims. Appraisal clauses have been found in insurance policies for over 100 years, with the process serving as a valuable way to bring disputed claims to closure without the need for lawyers or lawsuits.”

Copper Oaks selected George Keys of Keys Claims Consultants, Inc. to act as its appraiser. American Family selected James Whipple. Keys and Whipple selected Robert Norton as the umpire.

Keys’ appraisal, submitted on February 29, 2016, found that “every roof, every elevation, every chimney, and virtually all of the siding on every building at the Copper Oaks’ property had either been damaged by hail or, if undamaged, would nevertheless have to be replaced in order to fully repair the hail damage.”

His initial loss estimate was $4,968,115.62 and was later revised to $5,066,238.99.

Whipple’s damage appraisal came in at $406,234.29.

Norton, as the umpire, concluded that there was some hail damage, but not nearly as much as Keys claimed. In July 2016, Norton proposed an appraisal award of $3,061,201.44. Neither appraiser agreed with the umpire’s proposed amount leading to Norton’s advisement that if they couldn’t agree, he would circulate a proposed final award of $2,943,919.72.

According to the opinion, Keys submitted his bill to Copper Oaks a week after the appraisal award of $2,873,085.35 was announced. The bill reflected 666.40 hours of work, all charged at a rate of $350 per hour, totaling $233,240. Of importance was that there wasn’t any differentiation in hourly rates based on the tasks performed or by the person performing the tasks.

In January 2017, the parties announced a dispute over the validity of the appraisal award. Copper Oaks sought to enforce the appraisal award, while American Family filed a motion to vacate the appraisal award.

During a hearing, the court bifurcated the allegations within the complaint into claims that concerned the appraisal process (Claims 1 and 2) and claims that concerned breach of contract and statutory bad faith breach of contract (Claims 3 and 4).

American Family contended that the appraisal award should be invalidated because the appraiser selected by Copper Oaks and the umpire were not impartial. Copper Oaks responded that American Family i) waived any objection to Keys and Norton, ii) was estopped from challenging them, and iii) its request is barred by the doctrine of laches.

Prior to and during this case, there were several judicial opinions in unrelated cases involving Keys that disqualified him as an appraiser and vacated associated appraisal awards.

Analysis of records and testimony by the appraisers led the court to determine that It was essential that the appraisal award be high enough to allow Copper Oaks to pay the bills of Keys, O’Driscoll, and related vendors as well as sufficient enough to allow Copper Oaks to make the repairs. The court noted that “Copper Oaks was required to obtain an appraisal award of nearly 128 percent of actual repair costs, simply to break even.”

After a bench trial to determine the sufficiency of the appraisal award, the court stated it intended to grant American Family’s motion to vacate the appraisal award. The Court reasoned that Keys was not “fair and competent”, because he had a “direct material interest in the amounts determined by the appraisal process” and because he did not disclose “facts that a reasonable person would consider likely to affect the appraisers interest in the amounts determined by the appraisal process.”

The court’s decision disqualified Keys and invalidated the appraisal award. The court stated, “Mr. Keys’ appraisal was so bereft of methodology and supporting evidence as to be completely implausible.”

The court deemed Norton as also not, “fair, competent and impartial.” This, too, invalidated the appraisal award.

According to the federal court, judgment was entered in favor of American Family on the first and second claims in Copper Oaks’ Amended Complaint. As a result, the court stated, “Because the vacatur of the appraisal award nullifies any determination as to amount that existed at the time of filing this action, Copper Oaks had no standing to bring its third claim, sounding in breach of contract for failure to pay.”

Thus, Copper Oaks third claim was dismissed.

Copper Oaks’ fourth claim for relief, based on the allegation of an unreasonable delay, was scheduled for determination by trial.

The decision highlights changes in the appraisal process over the past decade, said Badger.

“A cottage industry has emerged comprised of individuals who inject themselves into the appraisal process for their own financial gain. Since the appraisal process is not governed by any formal procedural rules or ethical guidelines, the process is now ripe for abuse, manipulation and outright fraud,” said Badger. “With this cottage industry, no longer is the objective to achieve a prompt and fair resolution of the claims, but to extort the highest possible payment from the insurance company to maximize profits to the contractors, public adjusters, appraisers and lawyers who are all part of these schemes.”

Badger is the author of several articles on fraud abuse in hail claims published by Claims Journal, including The Emerging Hail Risk: What the Hail Is Going On?

“The Copper Oaks matter is a prime example of the abuses that have sadly become commonplace in the insurance claim appraisal process, particularly in Texas and Colorado,” said Badger. “Sadly, it took federal court litigation to remedy the clear abuses that took place during this appraisal process. ”

Badger described the common abuses seen in the appraisal process.

“These abuses include significant and unsubstantiated increases in the alleged damages once the matter is in appraisal, appraisers motivated to jack-up claim values based on having a financial interest in the outcome, undisclosed friendly relationships between appraisers and umpires, and literal extortion by umpires when the insurance company appraiser refuses to sign their excessive proposed awards,” he said. “All of these schemes were present in the Copper Oaks matter.”

New schemes pop up every frequently, he added, describing a recent one where a policyholder appraiser charged $2,500 per hour, up to 20 percent of the appraisal award.

“It’s outrageous,” Badger said. “The clear intent with that fee is for the appraiser to receive a 20 percent contingency fee on the appraisal award, which is absolutely forbidden in both Texas and Colorado.”

Though the federal court decision in this case should aid in bringing awareness to the issue, Badger said fighting the schemes is an ongoing battle.

“All the insurance company wants is a level playing field – where both sides pick impartial appraisers and work fairly to achieve a prompt and fair resolution of the claim,” Badger explained. “Regardless of who prevails, if the process is fair then it achieves its intended purpose. But there was absolutely nothing fair about the process in the Copper Oaks case. And the federal judge exposed it. Hopefully this well-written decision will serve as a much-needed warning to the entire cottage industry engaged in these appraisal schemes.”

May an Appraiser Advocate for the Party that Appointed the Appraiser?

Lawrence Moon | Property Insurance Coverage Law Blog | July 18, 2018

A Missouri Court of Appeals recently held that an appraiser may advocate for the party that appointed the appraiser as long as the appraiser has no financial interest in the outcome of the appraisal.

In Allstate Indemnity Company v. Gaworski,1 Allstate petitioned the trial court to disqualify the insureds’ selected appraiser, contending that the appraiser was not “disinterested” because the appraiser:

  1. Had an ongoing relationship with the company hired by the insureds to make the subject repairs and to which the insureds had assigned their contractual interest in their claims against Allstate, and
  2. acted unprofessionally and aggressively in his communications directed to Allstate.

In denying Allstate’s petition to disqualify the insureds’ appraiser, the trial court reasoned:

[A]lthough there was evidence of [the appraiser’s] ‘unprofessional conduct, aggressive rhetoric, and ominous emails,’ there was insufficient evidence of a disqualifying financial interest on his part.2

On appeal, the court agreed with the trial court, but expanded upon its reasoning, stating:

Although there is evidence in the record that [the insureds’ assignee] hired [the appraiser] for previous jobs, this does not constitute sufficient evidence of frequent or habitual employment rising to the level of a disqualifying bias.3

The appellate court also found:

An appraiser is not required to be entirely impartial. Instead, they may act as advocates for their respective parties without violating their commitments. Here, while [the appraiser’s] communications are certainly ‘aggressive,’ as noted by the trial court, they do not evidence a disqualifying bias against Allstate. Instead, [the appraiser’s] emails evidence his advocacy on behalf of the [insureds]….

These rulings help clarify the line between acceptable advocacy by an appraiser and improper bias or prejudice.
1 Allstate Indem. Co. v. Gaworski, No. ED106079, 2018 WL 3028851 (June 19, 2018).
2 Id. at *1.
3 Id. at *2 (citations omitted).