Virtually all first-party property insurance policies contain an "appraisal"
clause whereby each party, insured, and insurer appoint a "disinterested" or
"impartial" appraiser who, in turn, selects an umpire to resolve issues of the
amount of loss.
Florida Appraisal Clause Example |
"If you and we disagree on the amount
of loss, either may make written demand for an appraisal of the loss.
In this event, each party will select a competent and impartial appraiser.
The two appraisers will select an umpire. If they cannot agree, either
may request that selection be made by a judge of a court having jurisdiction.
The appraisers will state separately the amount of loss. If they fail
to agree, they will submit their differences to an umpire. A decision
agreed to by any two will be binding. Each party will: (a.) Pay its
chosen appraiser; and (b.) Bear the other expenses of the appraisal
and umpire equally. If there is an appraisal, we will still retain our
right to deny the claim." Appraisal clause, Johnson v Nationwide Mutual
Ins. Co., 828 S2d 1021 (Fla 2002). |
Since shortly after Hurricane Andrew in 1992, Florida's intermediate appellate
courts have wrestled repeatedly with the scope of, and procedure to be applied
in, an appraisal. Not surprisingly, they have reached contrary results. Recently,
the Supreme Court of Florida clarified at least two of these issues. The approach
of hurricane season, and the vigilance afforded these decisions in other jurisdictions,
provide reason to review them.
Application of Appraisal Clause When Insurer Denies Coverage
While other issues remained, there was never doubt that the appraisal clause
would apply when the insurer acknowledged coverage for the claim and the only
issue was the amount of loss. However, the issue remained, "What if the insurer
denied the damage was caused by a covered cause of loss?" This question stemmed
from State Farm Fire & Cas. Co. v Licea, 685
S2d 1285 (Fla 1996), the last time the Supreme Court had examined the appraisal
clause, when it stated:
We interpret the appraisal clause to require an assessment of the amount
of loss. This necessarily includes determinations as to the cost of repair
or replacement and whether or not the requirement for a repair or replacement
was caused by a covered peril or a cause not covered, such as normal wear
and tear, dry rot, or various other designated, excluded causes. [685 S2d
at 1288.]
In Johnson v Nationwide Mutual Ins. Co., 828
S2d 1021 (Fla 2002), the insureds made a claim for damage due to sinkhole (an
exception to the earth movement exclusion, coverage for which is mandated by
Florida Statute). Following investigation, Nationwide could find no evidence
of sinkhole and denied the claim.
Relying on the dicta found in Licea and subsequent,
intermediate appellate decisions, such as Florida Select
Ins. Co. v Keelean, 727 S2d 758 (Fla 2nd DCA 1999), and Opar v Allstate Ins. Co., 751 S2d 758 (Fla 1st
DCA 2000), upon receipt of the lawsuit, Nationwide sought to invoke the appraisal
clause and moved to dismiss the complaint. Nationwide's theory was that, under
the facts of the claim, there was no coverage and, therefore, it viewed the
amount of loss as "zero" for purposes of the appraisal clause. The facts of
the loss, i.e., was it a covered cause of loss, were to be resolved in appraisal,
which Nationwide believed would be conducted as an arbitration under the Florida
Arbitration Code. (See discussion of Allstate Ins. Co.
v Suarez, 833 S2d 762 (Fla 2002), supra.)
The trial judge denied the motion to dismiss in favor of appraisal; upon
interlocutory appeal, the Second District Court of Appeal reversed and ordered
appraisal and the Supreme Court accepted jurisdiction based on conflicting decisions
among the intermediate appellate courts.
Johnson was consolidated before the Supreme
Court with State Farm Fire & Casualty Co. v Gonzalez.
In the latter case, the insureds made a claim to State Farm asserting that blasting
in the vicinity of their home caused cracks in the walls and tiles. State Farm
denied coverage following an investigation which attributed the cracking to
minor settlement of the foundation, not blasting. As in Johnson, the homeowners filed suit, and State
Farm moved to dismiss in favor of appraisal.
The appraisal panel determined the entire damage was caused by settlement
of the foundation and entered an award of zero. State Farm's motion to confirm
the appraisal award (pursuant to the Florida Arbitration Code) was opposed by
the policyholders on the basis that an appraisal cannot determine coverage.
The trial court confirmed the award but the intermediate appellate court reversed
and remanded, concluding "that the appraisers impermissibly decided whether
the entire claim was within the coverage of the insurance policy." [828 S2d
at 1024.]
After explaining the Licea decision, which
the parties to Johnson and Gonzalez, as well as several other courts, had
sought to apply, the Supreme Court restated the issue and provided the answer:
In both Johnson and Gonzalez, the insurers denied that there
was a covered loss under the respective policies.... Therefore, the issue
in Johnson and Gonzalez was not appraising the amount of loss which the
insurer admitted was covered. Rather, the issue was one of whether the policies
covered the losses for the claims that were made.
In accord with our decision in Licea, these
coverage issues were to be judicially determined by the court and were not subject
to a determination by appraisers. Therefore, in Johnson,
the determination as to whether the loss was covered by a sinkhole or earth
movement is an issue of coverage for the whole loss and is an issue for judicial
determination by a court. [828 S2d at 1025.]
Thus in instances where, under the facts of the loss, the insurer disputes
any coverage, the claim is inappropriate for appraisal. Issues of forfeiture
of coverage, such as fraud, lack of compliance with post-loss conditions, etc.,
were never subject to determination in appraisal and remain unaffected. See Paradise Plaza Condo. Assoc. v The Reinsurance Corp.
of New York, 685 S2d 937 (Fla 3rd DCA 1996).
Application of the Arbitration Code
Shortly after its decision in Johnson, the
Supreme Court announced its opinion in Allstate Ins.
Co. v Suarez, 833 S2d 762 (Fla 2002). Following the decision of the First
District Court of Appeal in Florida Farm Bureau Casualty
Ins. Co. v Sheaffer, 687 S2d 1331 (Fla 1st DCA 1997), which held an appraisal
clause was an agreement to arbitrate and the proceedings were subject to the
Florida Arbitration Code, Chap. 682, Fla. Stats., insurers ran the risk an insured
dissatisfied with the result of an appraisal could have it overturned if the
insured was not afforded the rights and procedures established by the arbitration
code. Thus, proceeding under the arbitration code became the norm unless the
insured made an informed waiver of those rights before the proceedings commenced.
In Suarez, however, the Supreme Court stated
the appraisal clause was not ambiguous and "[i]t is clear from a plain reading
of the clause that an informal appraisal proceeding, not a formal arbitration
hearing pursuant to section 682.06, Florida Statutes (1999), was intended and
agreed upon by the parties in agreeing to the appraisal provisions of the policy".
Accordingly, the Sheaffer decision and that of
a second intermediate court of appeal which followed Sheaffer (a third had reversed itself after adhering to Sheaffer for several years) were disapproved.
Conclusion
Much of the confusion in the appraisal cases stemmed from the courts' use
of the word "coverage" to describe both the facts giving rise to the cause of
loss and whether or not there had been compliance with post-loss conditions
on the part of the policyholder. While the latter situation was never part of
the appraisal process, loose judicial language allowed both insurers and insureds
to be confused for several years as to the scope of an appraisal proceeding.
When either party believed it had the due process protections of the arbitration
code, an alternative to judicial resolution of the facts in the forum of appraisal
was more palatable. Since appraisal is no longer "arbitration" in Florida, it
only makes sense that fundamental decisions such as whether or not the facts
of the loss give rise to coverage under the policy be made in the judicial process.