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.

Overcoming the Prejudice of Late Reporting

Kyle Staggs | Property Insurance Coverage Law Blog | November 25, 2019

The Florida Third District Court of Appeal recently found that when a policyholder failed to substantially comply with a post-loss obligation, the insurance company is presumed to have been prejudiced by the breach.1 The burden then shifts to the policyholder to show that the failure to comply with a post-loss obligation did not prejudice the insurance company. The question remains: What have courts found to satisfy a policyholder’s burden of showing that reporting a claim late did not prejudice the insurance company?

In the 2009 federal case, Keenan Hopkins Schmidt & Stonewell Contractors, Inc. v. Continental Casualty Company,2 the insurance company alleged that the insured breached the policy by providing notice of the underlying claim four years after the loss. However, after receiving notice of the loss, Continental investigated the claim for ten months and denied coverage. Continental’s denial of the claim was “premised not upon the late notice or any resulting detrimental effect on its ability to investigate the claim, but upon Continental’s interpretation and application of the terms of the contract itself.”3 The court found that because Continental was able to investigate the claim sufficiently to permit it to deny the claim on grounds other than reporting the claim late, Continental’s denial of the claim “effectively rebuts any presumption of prejudice arising from the late notice.”4

In De La Rosa v. Florida Peninsula Insurance Company,5 Florida Peninsula alleged that the insureds reporting a claim fifteen months following the loss constituted late reporting and barred the insureds from recovering under the policy. The court found that although “there may be disputed issues of fact as to whether the insurer was prejudiced in determining the cause of the incident, the record forecloses the insured’s ability to overcome the prejudice to the insurer in evaluating the extent of the damage because of the delay in making the claim.”6 The court relied on the insureds’ engineer’s report, which stated that the water damage from the insureds’ water backup in the master bathroom,

[W]ould increase with time when the damage was not promptly remedied. Mold, which would occur due to water intrusion, would expand over time if damaged surfaces were not replaced. Further, he noted that water escape from pipes under the slab would over time cause structural instability, the full extent of which could not be determined at this point without opening the slab to evaluate how much damage has occurred.7

The court held the engineer’s affidavit submitted by the insured showed that Florida Peninsula was “prejudiced by the passage of time in investigating the extent of the loss, and thus, the cost of repair.”8 Although the insureds may have been able to show Florida Peninsula was not prejudiced in part, they were not able to show that Florida Peninsula was not prejudiced at all from reporting the claim late.

In Stark v. State Farm Insurance Company,9 the insureds reported damages to their home as a result of Hurricane Wilma over three years after the storm. The trial court granted State Farm’s motion for summary judgment, finding that State Farm was prejudiced from the insureds’ late reporting. The insureds furnished two affidavits to the court, one from their engineer and one from their public adjuster. The engineer stated that “there was ‘a classic pattern of wind damage’ and that “[t]he only possible event that could have caused this type of damage was Hurricane Wilma.”10 The insureds’ public adjuster stated that at an inspection of the property, the insurer’s investigator told him “that there appeared to be storm damage to the [insureds’] roof.”11 The Fourth District Court of Appeal relied upon the insureds’ engineer stating that the passage of time would not interfere with the investigation of the claim and the vicarious admission of State Farm’s adjuster that there appeared to be storm damage to the insured property.12 The court reversed the trial court’s decision finding “that the insureds could convince a finder of fact that their noncompliance with the notice provision did not prejudice the insurer by depriving it “of the opportunity to investigate the facts.”13

As is evident from the cases discussed above, proving that reporting a claim late did not prejudice an insurance company is fact-specific for each claim. The insured must show specific evidence that the insurer was able to complete its investigation despite reporting the claim late.14 Generally, courts look at whether the insurance company was able to investigate the cause and scope of the damages reported. Over time, the cause and scope of the damage can become more difficult to determine. When an insured can show that the passage of time did not obstruct the insurer from fully investigating the claim, the insured can typically satisfy its burden of showing that reporting the claim late did not prejudice the insurance company. Nevertheless, policyholders should promptly report damages to their insurance company and seek guidance if they need help understanding or complying with any post-loss obligation.
1 Am. Integrity Ins. Co. v. Estrada, 276 So. 3d 905, 916 (Fla. 3d DCA 2019).
2 Keenan Hopkins Schmidt & Stowell Contractors, Inc. v. Cont’l Cas. Co., 653 F. Supp. 2d 1255(M.D. Fla. 2009).
3 Id. at 1263.
4 Id. at 1262.
5 De La Rosa v. Fla. Peninsula Ins. Co., 246 So. 3d 438 (Fla. 4th DCA 2018).
6 Id. at 441.
7 Id. at 442.
8 Id.
9 Stark v. State Farm Fla. Ins. Co., 95 So. 3d 285 (Fla. 4th DCA 2012).
10 Id. at 287.
11 Id.
12 Id. at 288.
13 Id. (citing Bankers Ins. Co. v. Macias, 475 So.2d 1216, 1218 (Fla.1985)).
14 In Hope v. Citizens Prop. Ins. Corp., 114 So. 3d 457 (Fla. 3rd DCA 2013) and 1500 Coral Towers Condo. Ass’n, Inc. v. Citizens Prop. Ins. Corp., 112 So. 3d 541, 542 (Fla. 3rd DCA 2013), the courts held that the submissions of estimates and conclusory statements that the insurer was not prejudice do not overcome the presumption of prejudice.

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.

He Who Represents Himself has a Fool for a Client

Barry Zalma | Zalma on Insurance | November 8, 2019

Release of all Claims Defeats Bad Faith Suit

First party property insurers seldom use a release of all claims to resolve a fire claim. The only time a release is used is when there is a serious dispute between the insurer and the insured and threats of extra-contractual litigation. For example if an insurer believes the insured committed fraud or attempted an arson for profit but has insufficient evidence to prove the fraud without years of serious litigation, a settlement paying more than indemnity, but less than the cost of the litigation, will be reached with a release. Similarly, if the insured is litigious, threatens a bad faith suit on first contact, a release might be required to protect the insurer from unnecessary litigation.

In Perfection, LLC D/B/A Carl Krueger Construction, Inc., Liberty Mutual Group Inc., v. Edward Cole, A/k/a Carl Cole D/b/a North Shore Station, NNS, LLC D/B/A North Shore Station, Cecole Properties, LLC, Debtor, Appeal No. 2017AP242, State of Wisconsin in Court of Appeals District II (October 23, 2019) Edward Cole appealed, acting pro se (as his own lawyer), from a judgment which held him liable to Perfection, LLC and eliminated his case against his insurer.


This case arises out of a fire loss that occurred at Cole’s laundromat business on January 12, 2013. Cole’s business had insurance coverage with Liberty Mutual. In furtherance of his insurance claim, Cole submitted expenses relating to his retention of a restoration contractor (Perfection).

After exchanging multiple emails, Cole and Liberty Mutual reached an agreement as to the final amount of the insurance claim. Liberty Mutual agreed to pay Cole a total of $298,232.99. In return, Cole signed a policy release in which he agreed to release all claims against Liberty Mutual, including any extra contractual claims.

On February 28, 2014, Perfection filed suit against Cole for breach of contract, alleging that he had withheld payment for some of its work. Cole filed counterclaims against Perfection, asserting breach of contract and breach of warranty. He also filed a cross-complaint against Liberty Mutual, alleging that it had acted in bad faith. In order to pursue this latter claim, Cole sought to rescind the policy release executed eight months earlier, claiming that he had signed it under duress.

Liberty Mutual sucessfuly moved for summary judgment, seeking dismissal of Cole’s cross-complaint.  The court refused to allow Cole to rescind the policy release because he did not, as a matter of law, show the elements necessary to establish duress.

As the new trial date approached, Cole’s new attorney also moved to withdraw, citing disagreement with Cole over strategy. Cole asked the court to reject the motion; however, he also began acting pro se, submitting numerous filings. Ultimately, the court denied counsel’s motion, noting that it had “gone through this before” and wanted to keep the case on track. Accordingly, it refused to consider Cole’s pro se filings.

The matter proceeded to trial where a jury found Cole liable to Perfection for breach of contract and punitive damages. The jury rejected Cole’s counterclaims against Perfection.


Perfection’s action was fully litigated in state court with the jury. Cole claimed that the circuit court erred when it dismissed his cross-complaint against Liberty Mutual. He accuses the court of failing to consider facts in support of his bad-faith claim.

Summary judgment is appropriate if there are no genuine issues of material fact and one party is entitled to judgment as a matter of law. The Court of Appeals was satisfied that the circuit court properly granted Liberty Mutual’s motion for summary judgment because, regardless of the merits of Cole’s bad-faith claim, the policy release barred him from bringing it.


Mr. Cole was not a very reasonable insured. He caused Liberty to enter into a negotiated settlement raising enough concern that it required – to effect the settlement for more than it believed it owed – required that Cole sign a release of all claims including extra contractual (bad faith) claims. Liberty was right about Cole. Cole’s lawyers begged to be relieved of the obligation to represent him. Even with the release Liberty was sued for bad faith and needed to make a summary judgment motion and defend that motion on appeal. The release protected Liberty but Cole still cost them a great deal of money defending against his frivolous suit and appeal.

Guessing as to your Construction Damages is not the Best Approach

David Adelstein | Florida Construction Legal Updates | August 24, 2019

Arbitrarily guessing as to your construction damages is NOT the best approach.  Sure, experts can be costly.  No doubt about it.  Having an expert versus guessing as to your construction damages caused by another party’s breach of contract is a no brainer.  Engage an expert or, at a minimum, be in a position to competently testify as to your damages caused by another party’s breach of contract.  Otherwise, the guessing is not going to get you very far as a concrete subcontractor found out in Patrick Concrete Constructors, Inc. v. Layne Christensen Co., 2018 WL 6528485 (W.D. New York 2018) where the subcontractor could not competently support its delay-related damages or change orders and, equally important, could not support that the damages were proximately caused by the general contractor’s breach of the subcontract.

In this case, the concrete subcontractor entered into a subcontract to perform concrete work for a public project. The project was delayed and the general contractor was required to pay liquidated damages to the owner.  Not surprisingly, the subcontractor disputed liability for delays and sued the general contractor for all of its delay-related damages “in the form of labor and materials escalation, loss of productivity, procurement and impact costs, field and home office overhead, idle equipment, inability to take on other work, lost profits, and interest.”  Patrick Concrete Constructors, 2018 WL at *1.

The general contractor moved for summary judgment as to the plaintiff’s delay-related damages – the subcontractor’s damages were nothing but guesses and the subcontractor could not prove the general contractor was the cause of the subcontractor’s damages.

The portion of the deposition transcript of the subcontractor’s president that may have also been its corporate representative as to damages is telling:

Q: After today’s exercise, do you believe you’re entitled to [$]681,740 under those items [regarding change orders]?

A: No.

Q: What amount [are] you entitled to?

A: I don’t know. I’d have to work it up.

Q: So as of right now, with my one chance to depose you, the person on damages, you can’t give me a figure that you’re actually entitled to?

A: No. We just ripped all these figures apart, so now I got to go back and refigure.

With regard to the amount of damages sought for “extra costs,” Bell [the President of subcontractor] testified as follows:

Q: Okay. Then you have – you total everything here, total of everything except for the Amount Due on Contract and Outstanding Change Order heading. So that [$]915[,000] basically added up everything under Extra Costs Not Submitted all the way down to Extra Equipment?

A: Yes.

Q: You’re asking for [$]915[,000] in this. Do you believe that’s actually what you’re entitled to today?

A: Well, like I said, we were – like you said, we have to do some adjustments here.

Q: Okay. Adjustments downward, correct, sir?

A: Yes.

Q: Can you tell me today what you think you’re actually entitled to?

A: No.

And, there was more.  The subcontractor could not locate its original estimate for the job, which is important for any loss of productivity or inefficiency claim – or any claim dealing with added labor and equipment usage. The subcontractor could not identify payroll records, time cards, vendor invoices, or anything to justify the damages it sought.  The subcontractor guessed as to labor hours without the back-up substantiating the labor hours and, equally important, could not establish it incurred the guesstimated labor hours caused by the general contractor.

In essence, Plaintiff [subcontractor] concedes that it cannot provide the Court with an “intelligent estimate without speculation or conjecture,” for either category of damages. Because Plaintiff has failed to make a factual showing sufficient to establish that the “extra costs” and “change orders” damages are capable of being proved with reasonable certainty, summary judgment dismissing these claims is appropriate.


Here, Plaintiff asserts that Defendant [general contractor] breached the Subcontract by delaying the Project, and that Defendant’s delay caused it to sustain damages. However, Plaintiff has admitted that Defendant was not responsible for all of the delay, and that Plaintiff and its reinforcing bar subcontractor contributed to the delay as well. Because, by Plaintiff’s own admission, it contributed to the damage-causing delays, it is required to allocate the amount of delay and resultant damages between, at a minimum, itself and Defendant.

Patrick Concrete Constructors, 2018 WL at *4.