Insurance Appraisal and Umpire Association – State of Appraisal

J. Ryan Fowler | Property Insurance Coverage Law Blog | October 3, 2019

I spent October 1st and 2nd in San Antonio at the Insurance Appraisal and Umpire Association (IAUA) meeting. The IAUA is made up of appraisers and umpires from both the policy holder and insurer sides.

One of the presentations was a titled a “Global Perspective on Appraisal” and one of the speakers stated that appraisal has been around for over 110 years in Texas. He then pointed out that in the first 100 years prior to 2009 there were 18 reported cases dealing with appraisal but that in the 10 years starting in 2009 there are now over 200 reported cases. I have never taken the time to count the cases, but I assume the numbers are correct and the trend is clear to anyone that practices in the area of first party insurance claims – appraisals have become much more prevalent and led to more litigation than ever before.

Another of the presentations dealt specifically with recent developments in Texas on appraisal and focused on recent Texas Supreme Court and 5th Circuit Court of Appeals opinions. Both presentations allowed the attendees to ask questions and it became abundantly clear that while everyone agrees appraisal is needed at times and should be about finding the proper amount of loss that in reality that is not always what is happening. Without finger-pointing and blaming the other side the questions dealt with delays, umpire selection, causation issues, changes in policies, legal effects of appraisal, who can be an appraiser/umpire, and how to deal with inherent bias for one party. The take-away was often both sides (even both attorneys from different sides) agree conceptually on what should happen in a perfect world but that in reality the courts will still have issues to sort out and much of the growing pains in appraisal are taking place right here in Texas.

Ultimately the ability to discuss the issues with experts from the other side of the claim allows everyone to learn new ideas and understand some of the problems and maybe some solutions (personally I have had discussions with an appraiser who represents the other side on a couple of my cases and two umpires that I have seen on my cases). One of them said maybe the most important thing to remember, “we all represent the insured ultimately… the insurance company and the policy holder advocates…we all should have the goal of making sure the policyholder gets paid properly after the disaster that damages their property.” With that being said I highly recommend IAUA to anyone that wants to learn more about the appraisal process.

It doesn’t look like appraisal is going away anytime soon. If you have a question about the current state of appraisal law in a specific venue feel free to contact a Merlin Law Group attorney.

Insured’s Prejudgment Interest Award Runs From Date Appraisal Was Demanded

Christina Phillips | Property Insurance Coverage Law Blog | September 3, 2019

Dewey Hill owned eight townhome buildings in Minnesota insured by Auto-Owners.1 On August 16, 2013, a hail and windstorm damaged the buildings. Three days later, Dewey Hill notified Auto-Owners of the loss and submitted written property loss notices ten days later. Auto-Owners investigated the claim and approximately nine months later issued its first payment to Dewey Hill. A second payment was made by Auto-Owners approximately four months after that.

Dewey Hill disputed the sufficiency of the payments and ultimately the parties proceeded to appraisal. An award was entered, and Auto-Owners issued payment, representing the full and final amount of the appraisal award.

Dewey Hill sued Auto-Owners claiming interest under Minn. Stat. § 549.09. After the trial court awarded Dewey Hill pre-judgment interest, Auto-Owners appealed.

In relevant part, Minn. Stat. § 549.09 provides:

Except as otherwise provided by contract or allowed by law, preverdict, preaward, or prereport interest on pecuniary damages shall be computed…from the time of the commencement of the action or demand for arbitration, or the time of a written notice of claim, whichever occurs first, expect as provided herein. The action must be commenced within two years of a written notice of claim for interest to being to accrue from the time of the notice of claim.

Ultimately, the appellate court concluded there was no err in determining that Dewey Hill was entitled to preaward interest. It further concluded that Dewey Hill was not entitled to interest from the date it filed its claim, but rather interest began to run from the date appraisal was demanded.

Section 549.09 unambiguously provides for preaward interest on an appraisal award. However, here, because the insured had not filed suit within two years of the date of loss, the appellate court affirmed the trial court’s determination that interest would not be awarded from the date of notice of the claim. Rather, interest would begin to accrue from the date of the demand for appraisal.

While unpublished, this case serves as a good reminder of that even if in the appraisal process, suit needs to be filed within two-years of the written notice of the claim. It is important to note, however, this two-year timeframe will extend no other limitation period within a policy. Therefore, it may become necessary to diary multiple deadlines including the deadline to commence suit under the policy and the two-year deadline from the date the claim was made to recover prejudgment interest.
1 Dewey Hill III Townhomes Association, Inc. v. Auto-Owners Ins. Co., No. A18-1562, 2019 WL 3000691 (Ct. App. Mn. July 1, 2019).

The Seventh Circuit Court of Appeals Weighs In On “Matching”

Edward Eshoo | Property Insurance Coverage Law Blog | August 10, 2019

Last year in one of my blogposts, I wrote about Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Company,1 and the issue whether appraisal is appropriate to resolve a dispute over the cost of repairing physically undamaged siding of townhome buildings to remedy a mismatch with repaired damaged siding. There, a federal district court in Illinois denied the Association’s motion to compel appraisal on the “matching” issue, reasoning it was a question of coverage, not loss amount, and thus inappropriate for appraisal. This coverage issue was subsequently resolved in favor of the Association, the district court concluding that Philadelphia must replace or pay to replace the siding on all four of the townhome buildings’ elevations if no siding is available that matches the undamaged siding on the north and east elevations, as claimed by the Association.2

Philadelphia appealed the district court’s entry of summary judgment in favor of Windridge. The Seventh Circuit Court of Appeals recently affirmed the ruling, rejecting Philadelphia’s argument that because only the south and west elevations suffered “direct physical loss to covered property” within the meaning of the policy’s coverage grant, it need only replace the siding on those elevations.3

With respect to the phrase “direct physical loss,” the Seventh Circuit applied a common sense meaning: physical damage to tangible property causing an alteration in appearance, shape, color, or in other material dimension, which is what occurred to the siding. As to the term “covered property,” the Seventh Circuit concluded that the unit of covered property to consider under the policy (each panel of siding vs. the building as a whole) was ambiguous, meaning that the Association’s reading of the policy prevailed.

One point the Seventh Circuit made clear though was that it was deciding the case on the policy language at hand, including the valuation and loss payment provisions in the Philadelphia policy. That is why the only case it found instructive was National Presbyterian Church, Inc. v. GuideOne Mutual Insurance Company,4 in which a federal district court in the District of Columbia ordered GuideOne to pay to replace all of a church’s exterior limestone panels, including those that were undamaged by a 2011 earthquake, to ensure that all of the panels matched in color and weathering.5 While the coverage grant, valuation, and loss payment provisions in the Philadelphia policy supported the conclusion that Philadelphia must pay to return the buildings to their pre-storm status (matching siding on all sides),6 the Seventh Circuit stated that matching may not be appropriate in situations involving limited damage, such as one mismatched shingle on a roof.

So, is Illinois a “matching” state? With respect to any case filed in an Illinois federal district court under the ISO Commercial Property Building and Personal Property Coverage Form, I would submit yes, as long as matching is sought for something other than “limited” damage as the Seventh Circuit discussed in its opinion. As far as Illinois state courts, the answer likely will depend on the court considering the issue, as Illinois state courts are not bound to follow federal district court opinions, including Seventh Circuit opinions, as they are considered persuasive authority and not precedential authority.7
1 Windridge of Naperville Condominium Association v. Philadelphia Indem. Ins. Co., No. 16-3860, 2017 WL 372308 (N.D. Ill. Jan 26, 2017).
2 Windridge of Naperville Condominium Association v. Philadelphia Indem. Ins. Co., No. 16-3860, 2018 WL 1784140 (N.D. Ill. April 13, 2018).
3 Windridge of Naperville Condominium Association v. Philadelphia Indem. Ins. Co., 2019 WL 3720876 (7th Cir. August 7, 2019).
4 Nat’l Presbyterian Church, Inc. v. GuideOne Mut. Ins. Co., 82 F. Supp. 3d 55 (D. D.C. 2015).
5 The policy at issue in both Windridge of Naperville Condominium Association and Nat’l Presbyterian Church, Inc. was a slightly modified version of the ISO Building and Personal Property Coverage Form (CP 00 10).
6 Philadelphia’s counsel conceded at oral argument that matching siding was not available.
7 Bridgeview Health Care Center, Ltd. v. State Farm Fire & Cas. Co., 10 N.E.3d 902 (Ill. 2014).c

The Policyholder’s Public Adjuster Cannot Be the Policyholder’s Appraiser

Chip Merlin and Etienne Font | Property Insurance Coverage Law Blog | August 3, 2019

The Florida Third District Court of Appeals recently held that the policyholder’s public adjuster cannot be the policyholder’s appraiser.1 This decision will have a major impact on appraisals because many public adjusters act as their own appraisers. It should be assumed that the insurance company’s adjusters cannot act as appraisers as well. The decision should be reviewed by all public adjusters, appraisers and umpires that handle appraisals.


The Sanders were represented by Gian Franco Debernardi of 911 Claims Corporation. He wrote an estimate on behalf of the Sanders but could not reach an agreement with State Farm to the satisfaction of the Sanders. The Sanders then filed suit for breach of contract. State Farm then invoked the appraisal clause and the parties entered into an agreed order granting State Farm’s motion to invoke appraisal.

State Farm alleged that Mr. Debernardi could not be considered “disinterested” because of his agent/principal relationship with the Sanders, his contingency fee and his prior estimate of damages. The court felt compelled to opine on all three reasons even though a finding on one would make the others moot.

The Agent/Principal relationship

This court defined the public adjuster policyholder relationship. It concluded that since an insured gives public adjusters the power to represent the insured, the relationship is a fiduciary one. The Sanders court noted Florida Insurance Guarantee v. Ass’n v Branco,2 which involved an attorney in the underlying case naming himself as the appraiser in the claim. The court in Brancostated that if an appraiser owes his nominating party a “fiduciary duty of loyalty” or a “confidential relationship” then the “existence of such relationship between a litigant and an appraiser creates too great a likelihood that the appraiser will be incapable of rendering a fair judgment.” The Branco decision was only ever to apply to attorneys, but the Sanders court has now decided this distinction is too narrow and applies the same line of argument to public adjusters as fiduciaries which then prevents them from ever being designated as a “disinterested appraiser.”

Fiduciary status is a very high status for public adjusters. A fiduciary has many more duties than a regular agent. This should be a topic of discussion for public adjusters in the future.

A Contingency Fee

Unlike other terms such as “qualified,” “competent,” or “independent,” the term “disinterested” has seldom if ever been acceptable if the appraiser had a contingency contract. The Brancodecision specifically defined “disinterested” as “free from bias, prejudice, or partiality; not having a pecuniary interest.” The other term frequently found in appraisal clauses “impartial” has been battled about in the last several years with the Southern Districts’ decision in Verneus v. Axis Surplus Insurance Company,3 finding that “To be sure, the Undersigned is not setting forth a rule that an appraiser cannot be impartial whenever his financial compensation is based on a percentage of the recovery. Rather, as is apparent, Stellar’s contingency contract is only one of several factors underlying this decision.”

But in Landmark American Insurance Company v. H. Anton Richardt, DDS, PA.,4 the Middle District of Florida cited Black’s Law Dictionary defining “impartial” as “[n]ot favoring one side more than another; unbiased and disinterested; unswayed by personal interest.” Black’s Law Dictionary (11th ed. 2019). The court then opined that “A pecuniary interest in the outcome is by definition a personal interest that favors one side over the other.” So at least for “impartial,” the pendulum is swinging towards no contingent financial interest in the outcome as a limiting factor when choosing an appraiser.

Prior estimate of damage

This argument is that anyone that writes estimates and hopes to be later named as appraiser should be prevented from doing so. The court noted:

[I]n the case before us, Mr. Debernardi has previously inspected the loss, and he was the person who prepared the written estimate of damages the insureds used to file their claim. It is hard to imagine that Mr. Debernardi is going to reach a different amount from the initial $88,56.41 estimate he already reached.

The Sanders case held that a fiduciary, such as a public adjuster, who is in a contractual agent principal relationship with the insureds, cannot be a disinterested appraiser as a matter of law. You will note that the holding did not directly cite the contingency fee or prior estimate issue. But, you can predict those issues are going to be argued in the future.

The court in Sanders also stated that “it is clear that State Farm and the insureds were free to contract for the qualifications of the appraisers. . . .” This is simply wrong. The insurance policy was a contract of adhesion. State Farm does not negotiate the terms. Indeed, the policy sold must be approved by the Office of Insurance Regulation. Customers do not negotiate the terms, and it is illegal for State Farm to do so with them. This shows a basic misunderstanding by the Sanders court of how insurance works.

It is not surprising that the policyholder’s public adjuster, who is on a contingent contract with the policyholder and made a prior estimate did not qualify as a “disinterested” appraiser in the Sanders case. Whether the same holding will be made with other policy language is certainly going to be the subject of speculation and litigation.

Thought Of The Day

Women, you have all this power…In business, you have something called an inferred fiduciary duty to yourself. Look at the other hugely successful women in industry, commerce, science and everywhere else and you’ll see women who are feminine, beautiful but also do not rely on men for their self-empowerment.
—Gene Simmons
1 State Farm Florida Ins. Co. v. Sanders, 3D19-927, 2019 WL 3309217 (3d DCA July 24, 2019).
2 Florida Ins. Guar. Ass’n v Branco, 148 So. 3d 488 (Fla. 5th DCA 2014).
3 Verneus v. Axis Surplus Ins. Co., No. 16-21863, 2018 WL 3417905, Fn. 2 (S.D. Fla. July 13, 2018).
4 Landmark Am. Ins. Co. v. Richardt, No. 2018-CV-600, 2019 WL 2462865 (M.D. Fla. June 13, 2019).

Texas Supreme Court Clarifies Bad Faith in Appraisal Process

Jim Sams | Claims Journal | July 2, 2019

An insurer’s payment of the appraisal value after disputing a claim does not establish that it was liable, nor does that payment prevent a policyholder from pursuing penalties under the Prompt Payment of Claims Act, a split Texas Supreme Court ruled in a pair of decisions released Friday.

The rulings reverse previous Court of Appeals decisions that held plaintiffs cannot sustain prompt payment claims if the insurer paid the appraisal award. The court however, did not state in what circumstances insurers can be held liable after paying an appraised value.

Of three attorneys who were asked to comment on the decision — one who represents insurers and two who represent policyholders — none were completely satisfied with the outcome.

“I feel that this was a very measured, very right down-the-middle decision,” said attorney Jeffrey L. Raizner of Houston, who represented Barbara Technologies Corp. in its suit against State Farm Lloyds.

Both claims decided on Friday involved hail damage to properties insured by State Farm Lloyds.

Barbara Tech’s commercial property in San Antonio was damaged by wind and hail in 2013. The company filed a claim with State Farm Lloyds, but the carrier denied it. State Farm said the damage was only $3,153.57, less than Barbara Tech’s $5,000 deductible.

Barbara Tech filed suit. State Farm demanded an appraisal. The appraisers agreed that the property damage was valued at $195,345.63. State Farm paid that amount — less depreciation and the deductible — a week later.

But Barbara Tech didn’t drop its lawsuit. The company amended the complaint claiming that the carrier had violated the Prompt Payment and Claims by violating to comply with statutory deadlines for acknowledging receipt of the claim, commencing an investigation and paying the claim.

Both State Farm and Barbara Tech filed motions for summary judgment. State Farm asserted that it did not violate the prompt payment statute as a matter of law because it paid the appraisal award.

Barbara Technologies asserted that State Farm was liable for prompt payment damages because payment of the appraisal award was an acknowledgment that State Farm was liable for the claim, but it had not complied with the statutory payment deadlines.

The trial court dismissed Beverly Tech’s claim and the Fourth District Court of Appeals affirmed the decision, relying on previous rulings that insurers that paid appraisal values could not be held to be in violations of the prompt payment statute.

The Supreme Court found that that decision was error. The Prompt Payment of Claims Act does not excuse an insurer from liability for damages if it delays payments beyond the statutory deadline regardless of whether it used the appraisal process, according to the majority opinion written by Justice Paul W. Green.

But the court did not find that Beverly Tech had proven that State Farm had violated the statutory deadlines. It remanded the case back to the trial court to rule on that question according to the facts of the case.

Raizner, a founding partner of the Raizner Slania law firm in Houston, said the ruling may dissuade insurers who otherwise would “weaponize the appraisal” process by using it to delay payments of reasonable claims. He said the decision also corrects a series of appellate court decisions that insurers were using to argue that they were immune from late-payment penalties because they paid the appraised value.

On the other hand, Raizner said he would have preferred that the high court rule that State Farm Lloyds was liable for violating the statutory deadlines.

San Antonio Attorney Brendan K. McBride, of counsel for the Gravely & Pearson law firm, filed an amicus curie brief on behalf of Beverly Tech. He said he would have liked to have seen a more comprehensive decision.

“I would have like for them to to more clearly stated that the appraisal process is not part of the claims adjusting process,” he said.

On the other hand, McBride said he was happy to see the Supreme Court correct a long line of cases that followed a 2004 ruling in Breshears v. State Farm Lloyds by the 13th District Court of Appeals in Corpus Christi. He said carriers have been using those ruling to delay payments by calling for appraisals when they don’t want to pay claims.

“They were so emboldened by this decision that some insurers put a unilateral appraisal process in their policies,” McBride said.

Steven J. Badger, an attorney with Zelle LLP in Dallas, said he thinks the Supreme Court’s ruling invites more litigation because it doesn’t answer essential questions.

“I think the court could have provided more description of the situations that would not subject the insurer to prompt-payment penalties,” he said.

Badger said the decision did not address whether an appraisal can be used to address what caused damage, such as a hail storm, or must stick to the narrower issue of the cost of the damage.

“The decision leaves and much open questions as it resolves open issues,” Badger said. “The court has essentially ensured that almost every appraisal is followed by litigation.”

The second hail damage suit decided by the Supreme Court on Friday involved a homeowner’s insurance claimed filed by Oscar Ortiz. The carrier had denied Ortiz’s claim, asserting that the damage was not caused by hail. Ortiz sued alleging breach of contract, bad faith and violations of the Prompt Payment of Claims Act.

The Supreme Court ruled that the Fourth District Court of Appeals properly dismissed the breach of contract and bad faith claims, but erred in dismissing the claim for prompt payment act penalties.