When insurers dispute coverage, rather than the amount of loss, a court is the appropriate decision maker to resolve the coverage issue.  However, when an insurer finds coverage, but disputes the amount of loss, appraisal is the appropriate venue to determine a fair value of the covered damage.  Arvat Corporation v. Scottsdale Insurance Company, 2015 WL 6504587 (S.D. Fla. Oct. 28, 2015), a recent decision from the United States District Court for the Southern District of Florida, reinforced this holding from the Florida Supreme Court in Johnson v. Nationwide Mutual Insurance Company, 828. So. 2d 1021 (Fla. 2002) andState Farm Fire and Casualty Company v. Licea, 685 So. 2d 1285 (Fla. 1996).

In Arvat, Plaintiff Arvat Corporation reported damages resulting from a water pipe leak to its insurer Scottsdale Insurance Company.  Scottsdale rendered a claim decision, finding that some damages were not covered by the policy, and paid $24,356.51, representing its adjuster’s estimate of “the necessary repairs of all covered damages.”  Arvat filed a Petition for Declaratory Relief and/or to Compel Appraisal.  Scottsdale moved for Summary Judgment, arguing that Plaintiff cannot compel appraisal when coverage has been denied.

The court granted Arvat’s Motion for Declaratory Relief and/or to Compel Appraisal and denied Scottsdale’s Motion for Summary Judgment.  The court found that Scottsdale admitted coverage at least as to a portion of the damage and paid Arvat for those damages.  The parties disagreed as to the amount of loss attributable to water damage (which was a covered loss) and that attributable to wear, tear, and/or deterioration (which was an excluded loss).  The court cited to Johnson and Licea, finding this case akin toLicea:

Very simply, the Licea court was saying that when the insurer admits that there is a covered loss, but there is a disagreement on the amount of loss, it is for the appraisers to arrive at the amount to be paid. In that circumstance, the appraisers are to inspect the property and sort out how much is to be paid on account of a covered peril. In doing so, they are to exclude payment for “a cause not covered, such as normal wear and tear, dry rot, or various other designated, excluded causes.”

Thus, in the Licea situation, if the homeowner's insurance policy provides coverage for windstorm damage to the roof, but does not provide coverage for dry rot, the appraisers are to inspect the roof and arrive at a fair value for the windstorm damage, while excluding payment for the repairs required by preexisting dry rot.

In the present case (unlike Licea ) State Farm says that there is no coverage for the claim whatsoever, while the homeowners say that the claim falls within an applicable coverage. Whether the claim is covered by the policy is a judicial question, not a question for the appraisers.

Johnson, 828. So. 2d  at 1025 (citing Gonzalez v. State Farm Fire and Casualty Company., 805 So. 2d 814, 816-17 (Fla. 3d DCA 2000)(emphasis added).

Here, Scottsdale admitted that water damage, a covered peril, caused part of the damage to the property, but disputed the amount caused by the covered peril as opposed to wear, tear, and/or deterioration, an excluded cause of loss.  The court held that an appraiser can resolve the dispute as to the amount of loss, and, in the event necessary, the court may resolve any coverage dispute resulting from the appraiser’s findings.

This case provides valuable guidance regarding an insurer’s ultimate claim decision.  Even if an insurer denies a portion of the claim for lack of coverage, it can still compel appraisal or be forced into appraisal by the insured.  Notwithstanding appraisal, an insurer may still find itself in court over a coverage issue regarding an appraiser’s ultimate decision as to the amount and causes of loss.