January 20, 2022

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Why Go To Appraisal If You Cannot Determine The Loss?

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The title to this post was my reaction after reading a Virginia trial court opinion sent to me from Karl Dennison of Goodman, Gable & Gould (aka The Three G’s.) Insurance companies always have disputes about what is damaged and not damaged from a hailstorm. They always cite exclusions of pre-existing damage, pre-existing wear and tear, and various other reasons for not paying all the damages claimed from a hailstorm. If the appraisers are not allowed to sort out these controversies, almost no hailstorm loss would ever resolve via an appraisal that is usually, but not always, faster and less expensive than litigation.

The trial judge set out the facts:

On or about March 13, 2020, Craun sustained damage during a hailstorm…. Craun submitted a claim to its insurance company, Erie Insurance.

Craun claims the amount covered under the policy to be $408,929.94. Erie maintains the amount covered under the policy to be $154,775.16. Craun seeks to submit the entire dispute to appraisers under the standard appraiser language of the policy required by VA Code § 38.2-2105, set forth in Section X, page 68 of 73 of the policy, which provides that if the parties cannot agree as to the actual cash value or the amount of loss, either party may make a written demand for an appraisal. Each side then names an appraiser, and the appraisers select an umpire to make a binding decision.

Erie concedes that a portion of the disputed amount is a disagreement as to the actual cash value or the amount of loss and should be submitted to appraisal. However, Erie maintains that a substantial portion of the amount Craun claims is excluded from coverage under the terms of the policy as not attributable to the March 13, 2020 hailstorm. Such excluded items include wear and tear, rot, and other long term wear. As these items are exclusions under the policy, Erie maintains the items should not be submitted under the appraisal process under the terms of the policy.

The court framed the question and provided its answer in this manner:

The question for the Court’s determination is whether the appraisal mechanism applies to items determined to be excluded from coverage by the insurance company under the terms of the policy. For the reasons stated herein, the Court concludes that the appraisal mechanism does not apply to items determined to be excluded from coverage by the insurance company under the terms of the policy.

Essentially, the appraisal will determine only part of the controversy which is a big waste of time and money since it leaves open items of coverage and damage which then have to be resolved later in a lawsuit. The Virginia trial court noted that there no Virginia appellate case precedent, but cited to Texas precedent from the Johnson case which we discussed in Texas Court Rules in Appraisal Dispute—You Can’t Have Your Cake and Eat it, Too!:

In Johnson, the Texas Supreme Court resolved the split by defining the scope of appraisals and the meaning of ‘amount of loss.’ The court determined that an appraiser could determine the amount of loss, even though the appraiser may need to decide causation. Since that ruling courts have allowed appraisers to evaluate whether damage was caused by a covered event or was the result of a non-covered cause of loss, pre-existing wear and tear.

Rather than following Johnson, the Virginia state court followed older and overruled Texas precedent. The practical implication is that the insurer and policyholder will not only have to appraise part of the loss, but they will have to then litigate the remaining issues of coverage and amount of loss for the items the insurance company objects to as a coverage issue. This seems very impractical, time consuming, and costly.

Thought For The Day

For a long time, I thought it was all down to dedication, hard work, and visualising doing well – that worked for a bit, but then it stopped. I’ve realised you have to be more practical and mature to make things actually happen.
—Katrina Johnson-Thompson

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