Is Appraisal Mandatory to Resolve a Policy Dispute?

Is Appraisal Mandatory to Resolve a Policy Dispute?

The Devil Is In The Details

By: Ian T. Kravitz, Esquire

Citizens Property Insurance Corporation ("Citizens") issued a policy of insurance ("the Policy") to the property owners, the Casars (Owners"). Owners filed a claim for water damage alleged to have been caused by a refrigerator line leak. Citizens inspected the alleged damage and concluded that some of the damaged items were caused by the leak and so were covered under the policy. Citizens, however, denied that other damaged property was caused by such leak, and rejected coverage of those items. Owners disagreed with Citizens that all items were not covered by the Policy, and also disagreed with the valuation of the damages agreed to be covered under the Policy.

The Policy included the following provision regarding appraisal:

Appraisal. If you and we fail to agree on the amount of loss, either may request an appraisal of the loss by presenting the other party with a written request for appraisal of the amount of the loss. If the other party agrees in writing to participate in appraisal, then the appraisal shall proceed pursuant to the terms of the written agreement between the parties.

Subject to the appraisal provision in the Policy, Owners requested appraisal to take place of the entire loss claim. In response, Citizens forwarded to Owners a proposed appraisal agreement wherein Citizens listed for appraisal only those items that the parties agreed were caused by the covered loss. The proposed appraisal agreement excluded any consideration of any items that Citizens determined were not covered by the Policy. Owners refused to execute the Citizen's appraisal agreement, and Citizens therefore refused to proceed to appraisal.

Owners then asked the Circuit Court to compel Citizens to appraisal pursuant to the Policy. The Circuit Court sided with Owners and entered an order compelling Citizens to appraisal. This appeal ensued. On appeal, the Appellate Court determined that the appraisal provision of the Policy, unless and until the parties agreed to submit to appraisal, and agreed on the terms of such an appraisal, appraisal was not required under the Policy. The Appellate Court pointed out that appraisals are creatures of contract, and a party can only be compelled to appraisal as required by the appraisal provisions of the Policy.

Based on these findings, the Appellate Court held that since the parties could not agree on the terms of the appraisal agreement in writing, appraisal could not be ordered under the Policy. The Appellate Court reversed the Circuit Court and remanded the case to the Circuit Court to proceed with litigation on whether Citizens breached the Policy.

In every insurance dispute, whether or not appraisal is required, or even possible, depends on the particular language of your policy. It is never to early to have your policy language reviewed to determine your right and obligation to appraisal, as well as all of your rights and obligations under your policy. The last thing you want to do is wait until there is a dispute under your policy to make such determinations. Your Construction Law FirmTM is always available to assist you.