It seems that every few years the appraisal process becomes a hot topic across the country. While there are a number of disputes that can arise, the scope of what is determined in the appraisal process is often at the forefront of the argument.
As I noted in What Is The Role of An Appraiser, the standard appraisal provision states that appraisers will determine “the value of the property or the amount of loss.” Although this seems fairly straight forward, carriers and policyholders seem to regularly dispute what the “amount of loss” encompasses. Does it relate to the value of damages agreed to have been caused by a covered peril such as wind or hail? Or does it involve determining the amount or extent of damages caused by that covered peril? This may seem like a distinction without a difference to the uninitiated, such a determination is crucial to determining when, if ever, appraisal is appropriate to resolve a dispute.
The vast majority of jurisdictions have found that determining the “amount of loss” is not simply an exercise in valuation. As many courts have noted, this would limit the appraisal process solely to situations where the parties agree over the entire scope of damage (which is the very rare exception). Instead, most courts hold that the appraisal panel determines the “amount of loss” caused by a covered event. If the parties agree that hail is a covered cause of loss, but dispute whether the roofing system was damaged by the hail, then the appraisal process could resolve this dispute.
Colorado seems to be the hotbed of this dispute right now. Many carriers are reversing their longstanding positions and arguing that appraisal cannot determine causation, forcing policyholders to litigate to recover additional amounts. Some carriers are even changing their stance on a case by case basis to enforce appraisal when they believe it benefits them and prevent it when the situation does not.
While Colorado has several state trial court opinions finding that appraisal can (and should) determine the cause of disputed damages, there are no appellate decisions on point. There are also no published federal court opinions discussing the issue in any detail. This has, in part, led to the increase in disputes as of late.
An association that David Pettinato and I represent in the Denver area fought this battle in the Colorado Federal District Court. The carrier made multiple payments of over $200,000 but sued when the association would not accept that amount as a final sum. When the association invoked the appraisal process, the carrier balked claiming that appraisal was inappropriate to determine whether the damages were caused by the hail storm.
After weeks of briefing, the court issued a detailed 13-page opinion, finding that appraisal was required under the policy. The court noted that the appraisal panel could determine the amount of loss caused by the hail storm and found this determination was final and binding on the parties. While not an appellate court decision, the district court’s ruling is significant for Colorado policyholders and insurers. Given the detail and analysis in the Memorandum Order, other courts are likely to find it persuasive in future rulings.
Disputes over the scope of appraisal will likely continue, but this decision is a nice leap forward for policyholders attempting to utilize the contractual process to resolve disputes without litigation.