Appraisal Award Puts An End To Property Damage Dispute
Property insurance policies have specific provisions for handling disputes among the insurer and policyholder over claims resulting from damages. These provisions act as an individual appraisal of the damaged property with the appraisal award acting as a binder for both parties. There are lots of similarities between an appraisal award and an arbitration award. Recently, a policyholder wasn't happy with the outcome of the appraisal award and ended up suing the insurer for bad faith, as well as breach of contract.
A recent case that comes to mind is the case between Villas At Winding Ridge versus State Farm Fire & Casualty Co., in which a condo complex was at the receiving end of a horrendous hail storm. The effects of the hail storm and damages suffered were only discovered some 12 months later after a routine roof inspection on the complex. A claim was promptly filed by the policyholder with its insurer in response to the damages observed. The adjuster made a cost estimate for the repairs which was immediately turned down by the complex. The carrier made payment according to the estimates made; however the parties continued to disagree on the costs.
What the complex wanted was the replacement of all roofs along with other features. On the other hand, the adjuster of the insurer only found very minimal damages on the roof. When the parties failed to reach an agreement, the policyholder called for an appraisal under the policy's appraisal provision.
Both parties appointed separate appraisers, and each came up with its own estimate. Essentially, the policyholder's holder appraiser only wanted roof replacement for 13 out of 33 buildings. A third independent appraiser had to be called in to give his findings. An award was issued for only a 20% allowance for roof repairs on 13 buildings along with other damages. The insurer made payment in line with the award, and in response, the policyholder sued for contract breach and bad faith.
The court was quick to discredit the claim of the policyholder citing that the appraisal provision was unambiguous, and not only that, the court also said that the appraiser used the area of loss instead of the value of loss. The court also upheld the verdict of the third-party appraiser. The court went through went through the presented facts and identified that the policyholder's own appraiser found hail damages in only 13 buildings, while the other 20 buildings in the complex were unharmed.
The court also rejected the policyholder's claim for breach of contract claim. The court also concluded that there was zero evidence for bad faith claim, citing that the carrier didn't act in bad faith by withholding payment or carrying out any other disadvantageous practices. In the words of the court, insurance companies may dispute claims in good faith.