If we and you disagree on the value of the property or 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 the court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding.
American refused to proceed to appraisal, and Plaintiff filed suit alleging breach of contract and statutory bad faith.
During the lawsuit, Plaintiff maintained its interest to move forward with appraisal. Accordingly, Defendant filed a motion requesting that the Court appoint an appraiser for American. American argued that its failure to pay the amount demanded by the Plaintiff does not trigger the policy’s appraisal provision. Further, American argued that Plaintiff had failed to provide requested documentation, the receipt of which was necessary for American to determine whether a disagreement over the amount of loss actually exists. For its part, Plaintiff claimed it provided information to American’s counsel and, as a result, the parties should proceed with appraisal.
The Court granted Plaintiff’s motion, finding the parties essentially disagreed on the amount of the loss, thereby triggering the policy’s appraisal clause. In arriving at its decision, the Court referenced several general points of law regarding appraisal provisions relevant to its analysis, chief among them being that in order for a case to be appropriate for appraisal, two conditions must be met: (1) the defendant has admitted liability for the loss; and (2) there must be a dispute only as to the dollar amount of the loss. Here, the Court found that American never raised an issue of coverage, and indeed admitted the loss occurred and the policy applied. Significantly, in stressing that appraisal is an inappropriate forum for coverage disputes, the Court adopted a rather narrow view of what constitutes a coverage dispute: “[a] dispute of coverage, improper for appraisal, occurs when an insurance company claims an exclusion of a loss under the terms of the insurance policy.” Accordingly, the Court rebuffed American’s argument related to its failure to receive relevant documents. “American’s contention that it needs additional documentation to decide the extent of the loss is just another way of saying that there is a fundamental dispute as to the amount of loss.” Thus, the Court held that a lack of documentation was not a coverage dispute, but rather a dispute over the extent of the fire damage, which was appropriately resolved via appraisal.