Florida Appellate Court Determines Faulty Workmanship Exclusion in Homeowner’s Policy Is Not Ambiguous and Thus Damage Caused by Contractor’s Conduct Is Not a Covered Loss

Matthew Lewis | PropertyCasualtyFocus

The Florida Third District Court of Appeal recently ruled that an insurer did not waive its right to appraisal after choosing to cover only part of a property damage loss claimed by its insured. The case, People’s Tr. Ins. Co. v. Farua Portuondo, No. 3D20-266 (Fla. 3d DCA Oct. 7, 2020), involved a property damage claim regarding alleged damage sustained to the insured’s home following Hurricane Irma in September 2017.

In December 2018, Farua Portuondo first reported roof and interior damage to his property insurance carrier, People’s Trust Insurance Company (“People’s Trust”). Following an inspection of the purported damage, People’s Trust agreed to cover only the interior damage and not the claim for roof damage.

On July 30, 2019, Portuondo filed suit against People’s Trust based on the insurer’s denial of coverage related to the roof damage claim. On August 26, 2019, People’s Trust demanded appraisal, as allowed under its policy with Portuondo, and proceeded with the appraisal process.

On September 16, 2019, People’s Trust was served with the lawsuit filed by Portuondo. Following service of the lawsuit, People’s Trust halted the appraisal process and filed a motion to compel appraisal, along with several other motions to compel related to the claim. The trial court denied the motion to compel appraisal. As such, People’s Trust appealed the ruling to the Third District Court of Appeals.

The district court reviewed the transcript of the hearing from the trial court and determined that the motion to compel appraisal was denied by the lower court because People’s Trust only provided partial coverage to the Portuondo claim. In support of the denial of the motion to compel appraisal, Portuondo had argued that People’s Trust waived its right to appraisal by choosing to cover only part of the loss.

The district court disagreed with Portuondo’s argument, holding that a motion to compel appraisal should be granted when an insurer has agreed to repair a covered loss, but the parties disagreed as to the scope of the repairs. The district court cited to a case it decided earlier in 2020, Baptiste v. People’s Tr. Ins. Co., 299 So. 3d 1148 (Fla. 3d DCA 2020), which involved the same policy language in a similar situation where the insurer and insured disagreed on the “amount of loss” and “scope of repairs.” Because People’s Trust did not wholly deny coverage for Portuondo’s claim, the district court held that the trial court should have granted the motion to compel appraisal as allowed under the policy.

In addition, the district court rejected arguments made by Portuondo that People’s Trust waived its right to appraisal by abating the original appraisal and filing the motion to compel with the trial court. Because People’s Trust did not “actively” participate in the lawsuit or engage in conduct inconsistent with its right to appraisal, the district court held that People’s Trust did not waive its right to appraisal. Once People’s Trust received service of the lawsuit, it merely paused appraisal and sought an order from the trial court to require the parties to go through the appraisal process.

The district court reversed the order of the trial court and remanded back to the trial court with instructions to grant the motion to compel appraisal.

Federal District Court Declines Invitation to Set Scope of Appraisal

James M. Eastham | Traub Lieberman

In Mt. Hawley Ins. Co. v. Harrods Eastbelt, Ltd., No. CV H-20-2405, 2020 WL 7632250 (S.D. Tex. Dec. 22, 2020), the United States District Court for the Southern District of Texas addressed a request to set the scope of an appraisal by requiring the appraisers to use a specific format for the appraisal. At issue was a claim for damages to three insured buildings allegedly damaged during Tropical Storm Imelda. The insurer had denied coverage based on the asserted lack of wind-created openings as required for coverage under the policy. Rather, the insurer took the position that the interior leaks were caused by a number of excluded causes including long-term weathering, wear and tear, age-related deterioration, ponding, and long-term leaks.

In response to the denial of coverage, the insured invoked the appraisal provision of the policy which provided, among other things, that the “appraisers will state separately the value of the property and amount of loss.” Despite the language of the appraisal provision, the Insurer sought an order requiring the appraisers to state the amount of loss separately for each portion of the property in dispute and for each major building component including separate amounts of loss for roofs, exterior walls, windows, and interior water damage.

Referencing the Texas Supreme Court’s prior stated emphasis on the propriety of avoiding judicial involvement pre-appraisal, the Court declined the Insurer’s invitation to set the scope of the appraisal and held that the request was beyond the policy requirement that the appraisers “state separately the value of the property and amount of loss.” While the Court did not forbid the appraisers from using any form which enabled them to “state separately the value of the property and the amount of loss”, the Court refused to require any particular approach.

Property Valuations In Uncertain Times

Adam Levine | Ostrow Reisin Berk & Abrams

Valuation plays a critical role in real estate, from appraisals for residential mortgages to the sales of commercial real estate. But the COVID-19 crisis and resulting economic uncertainty pose some challenges for valuation experts across the country.

Limited physical access

Site visits have long been an integral part of the valuation process, but stay-at-home orders blocked access to many properties earlier this year throughout the country.

Fannie Mae and Freddie Mac have recognized this hurdle by temporarily permitting exterior-only and desktop appraisals for eligible mortgages. Banking regulators allowed certain commercial and residential loans to close without having an appraisal completed, though appraisals have been required within 120 days of closing.

Savvy valuators quickly turned to technologies, like Google Earth, Street View and drones, to help fill in the gaps created by the inability to physically access properties. They are also taking advantage of online databases of municipality property assessment records to obtain necessary information.

Lack of comparable sales

Under the comparable sales method, valuators look at the sales prices of similar properties in recent transactions, making adjustments for differences between those properties and the subject property. It is debatable whether pre-COVID-19 sales can be considered comparable with post-pandemic sales, though. Moreover, deal volume for certain types of properties has fallen in many areas.

Valuators are looking beyond comparable sales and considering individual circumstances on a more granular level. This approach acknowledges that generalities are of limited value when COVID-19 may have different effects on different properties in the same neighborhood.

Tumultuous conditions

Essential data inputs for valuations are shifting constantly, sometimes daily. Unemployment numbers have been at historical highs, while interest rates have been at notable lows.

Businesses that were healthy months earlier have boarded up threatening the continued vitality of neighborhoods and increasing expected vacancy rates. Struggling tenants may have fallen behind on monthly payments. Governments are not only mandating rent relief, but also providing financial support to prop up troubled companies. Plus, operating costs may be higher to comply with health and safety concerns, as well as to adapt property use and features for changes in demand.

Valuators must address all these factors in their reports. But users of those reports must understand the limitations and consider obtaining fresh appraisals when fewer uncertainties exist.

Heart of the matter

2020 has not been kind to the values of many types of properties. But it is always better to have an accurate, data-based assessment of value than rosy, speculative estimates that do not pan out.

Appraisal May Be a Viable Option for Policyholders When Damages Calculations Are Contested

Janine Stanisz | Policyholder Pulse Blog

Even if an insurance company attempts to deny its coverage obligations, there are still processes that a policyholder can explore, short of litigation, that could resolve a coverage dispute.  Appraisal is an alternative dispute resolution process designed to efficiently resolve measurement disputes between policyholders and their insurers. Appraisal can streamline a coverage lawsuit and narrow the disputed issues—it may even limit the need for expert reports and depositions. There is a strong public policy favoring appraisals throughout the country, not only because they may provide a less expensive alternative to litigation, but also because appraisal rulings are enforceable and strictly applied in court. Some states even require that form standard insurance policies include an appraisal clause requiring either party to, on demand, submit a dispute over the amount of a loss to an appraisal panel. (See Virginia Code § 38.2-2105; Cal. Ins. Code § 2071; McKinney’s Ins. Law§ 3404; N.J.S.A. § 17:36-5.20.) That panel typically consists of two appraisers, who select an umpire.

Different policies may contain different appraisal language and set forth different requirements and standards of review. In some policies, either party can invoke appraisal at any time after a disagreement arises, and the process is mandatory. Such policies often state that a decision by two members of the appraisal panel “will set the amount of loss” and “will be binding on both parties.” Importantly, appraisal provisions typically provide that where the appraisers agree, those agreements are binding, and only disagreements are submitted to an umpire, who then calculates the damage categories that remain in dispute. The umpire’s findings are also binding on the parties.

Despite clear language in many policies, insurers have nevertheless sought to skirt appraisal requirements, perhaps in the interest of delaying payments owed under the policy. For example, insurers have argued that appraisal may be premature because there are outstanding “coverage disputes,” that an insured’s request for appraisal improperly seeks a determination of “coverage issues” by the appraisal panel, or that the request for appraisal is untimely or has been waived. Such arguments are specious. As the Second Circuit Court of Appeals explained in one coverage case:

[T]he presence of a coverage dispute does not preclude an appraisal demand. Only a coverage dispute that precedes the valuation of damages will prevent such a demand. Coverage disputes that are independent of the valuation of damages can stand in abeyance pending the appraisal.

Accordingly, parties can submit their damage calculations to appraisal and still litigate the outstanding coverage issues and an insurer can still submit to appraisal even though a court may later determine that those elements of damages are not covered.

What does this mean for a policyholder as a practical matter? While appraisal may not foreclose all disputes between a policyholder and its insurer, when used effectively, it provides a process for the parties to better understand the amounts in dispute and narrow the areas of disagreement. With quantum of loss undisputed, parties are in a better position to mediate or discuss settlement because they are equipped with binding dollar amounts. Even if litigation continues, the process will be streamlined. Damage expert witnesses may no longer be necessary, and trials may be shortened because damage information need not be presented to a jury.

Review your policy to determine if it contains an appraisal provision. While only a general appraisal framework and process may be included in your policy, consider whether you may benefit from developing a written appraisal protocol, which provides specific deadlines and includes an appraisal award form that sets forth the various damage categories that the appraisers and/or umpire will quantify.

Contractual Impartiality Requires an Appraiser to be Unbiased, Disinterested, and Unswayed by Personal Interest

Frank Ingham | Colorado Construction Litigation

On June 24, 2019, the Colorado Supreme Court held that when a contract or insurance policy requires an “impartial” appraisal, the appraiser for a party cannot be an advocate for that party.[1]  In this situation, the appraiser must be unbiased, disinterested, without prejudice, and unswayed by personal interest.  Id.

Owners Insurance Company (“Owners”) issued a policy to the Dakota Station II Condominium Association, Inc. (“Association”) that represents a 49-building multifamily residential property in Jefferson County, Colorado.  Concerning loss conditions, the policy includes an appraisal provision requiring that, in the event of property appraisal, “each party will select a competent and impartial appraiser.”  The parties would then select an umpire or have one appointed by the court.  Any agreement as to the values reached by two of the three would bind them all.

On May 24, 2012, the Association made a storm-damage roofing claim to Owners for $1.33 million.  The parties could not agree on the amount of the loss and the Association invoked the policy’s appraisal process.  The Association retained Scott Benglen as its contingent-fee cap appraiser.  Mr. Benglen retained Laura Haber as a policy and damage expert, who appraised the roof loss at $2.55 million and the total replacement at $4.3 million.[2]  Owners’ appraiser, Mark Burns, submitted the loss at $1.86 million with the replacement cost award of $2.3 million.  The umpire, Honorable James Miller, adopted Owners’ estimates in four of the six categories, awarding just over $3 million to the Association.  Id.

On June 15, 2019, Owners filed a Petition to Vacate Appraisal Award, arguing the Association’s appraiser acted improperly by entering into a contract with the public adjuster that capped her fees at five percent of the insurance award, giving her a financial interest in the outcome.  Id. at p.3.  The District Court rejected Owners’ argument that appraisers must act as impartially as an umpire or arbitrator in every instance.  The Court of Appeals affirmed the decision, noting any ambiguity in the definition of “impartial” is construed against Owners, but agreed with the District Court that the impartial appraiser requirement meant “that an impartial appraiser in rendering his or her valuation opinion applies appraisal principles with fairness, good faith, and lack of bias.”[3] The Court of Appeals reasoned that the policy contemplated that the appraisers would put forth a value to the umpire on behalf of the party that selects them and so long as the appraiser acts fairly, without bias, and in good faith, he or she meets the policy requirement of an impartial appraiser.  Id. 

The Colorado Supreme Court reviewed and held that word “impartial,” when required in a contract, requires appraisers to be “unbiased, disinterested, and unswayed by personal interest.”[4]  Thus, appraisers must not favor one side more than another, meaning no advocacy on behalf of either party.  Id.  The Colorado Supreme Court found that an individual acting as an advocate for one side cannot simultaneously be considered impartial and remanded the case to the District Court to determine if the Association’s appraiser’s conduct conformed to the impartiality requirement set forth by the Supreme Court.  Id.

District Court Judge Laura A. Tighe held a hearing upon remand and issued her Findings of Fact.  Judged Tighe found that Mr. Benglen had retained Ms. Haber for her expertise on insurance policies and how best to maximize damage estimates.[5]  Mr. Benglen retained Ms. Haber once he understood her assessment would be favorable to the Association.  Id.  Ms. Haber worked as Mr. Benglen’s partner for three months before being appointed as appraiser.  Id. at p. 7.  Mr. Benglen “prodded” Ms. Haber to “go in at $4.5 million” to get the judge to award $2-2.5 million, which would be a “huge win” for the Association.  Id.  Judge Tighe noted Ms. Haber’s eventual loss estimate of nearly $2.5 million and total replacement loss of nearly $4.4 million was in Mr. Benglen’s targeted range.  Id.

Judge Tighe noted Ms. Haber’s lack of credibility and found her testimony, “obstinate, off-putting, and defensive in nature.”  Id. at. p. 8.  Judge Tighe wrote that Ms. Haber demonstrated that she lacked impartiality required by the policy and her conduct constituted bias, bad faith, or dishonesty in formulating her appraisal.  Id.  She found multiple examples of Ms. Haber’s advocacy and overall failure to act in an unbiased, disinterested, and unswayed by personal interests.  Id. at p. 9.  Judge Tighe found Ms. Haber’s conduct in estimating this loss “smacks of unabashed advocacy, lacking any sense of a moral barometer to meet the standard” of impartiality as defined by the Colorado Supreme Court.[6]

Judge Tighe found that Owners proved by a preponderance of the evidence that the appraiser, Ms. Haber, did not perform the duties required of her in the Owner’s policy because she failed to meet the impartiality standard set forth by the Colorado Supreme Court, and therefore misconduct resulted.”  Id. at p. 15.  The Association argued Owners, nonetheless, failed to meet its burden under Andres Trucking Co. v. United Fire & Cas. Co., 2018 COA 144, P49, 2018.  In Andres Trucking, “as a general matter, an appraisal award entered by an umpire may be disregarded only if the award was made without authority or was made as a result of fraud, accident, or mistake.”  Id.  Judge Tighe found Ms. Haber’s “troubling misconduct” necessitated setting aside the award.[7]

Conclusion

Consistent with general principles of contractual interpretation, the Colorado Supreme Court gave effect to the intent and reasonable expectations of the parties by enforcing the plain language of the Owners’ policy.[8]  When a contract or policy requires an “impartial” appraisal, the appraiser can no longer be an advocate for the party that retained the appraiser.  That means the appraiser must be unbiased, disinterested, without prejudice, and unswayed by personal interest.  Id.

Attorneys, on the other hand, must advocate for their clients.  In this situation, attorneys cannot influence their retained appraiser as their opinions cannot be put forth “on behalf of a party…”  Id.  Therefore, where an impartial appraisal is required by contract, attorneys must do their research on a potential appraiser to know how that appraiser evaluates the claim and the probable final valuation.

While the Colorado Supreme Court’s decision has been cited only five times nationally since its recent decision, it remains unknown whether this standard will apply to all expert opinions where an impartial expert is required by contract.  The Colorado Supreme Court relied on the Black’s Law Dictionary (10th ed. 2014) definition of “Impartial” as “not favoring one side more than another; unbiased and disinterested; unswayed by personal interest.”  Id.  Where expert opinions are contractually required to be impartial, the courts will look to Dakota Station to determine the standard of care for these experts.


[1] Owners Ins. Co. v. Dakota Station II Condominium Assoc., Inc., 443 P.3d 47, 52 (Colo. 2019).

[2] Jefferson County District Court Order, 2015CV21037, p. 2, January 10, 2020.

[3] Id. at p. 3 (citing Owners Ins. Co. v. Dakota Station II Condo. Ass’n Inc., 444 P.3d 784 (Colo. App. 2017)).

[4] Dakota Station II, 443 P.3d 47, 52.

[5] Jefferson County District Court Order, supra, at p. 6.

[6] Id. at p. 14 (citing Dakota Station II, 443 P.3d 47, 52).

[7] Jefferson County District Court Order, supra, at p. 15.

[8] Dakota Station, 443 P.3d 47, 53.