For someone in Grand Prairie, Arlington, Mansfield, Fort Worth, Dalworthington Gardens, Cedar Hill, Duncanville, De Soto, Crowley, or anywhere else in Texas, the issue of “appraisal clauses” in insurance contracts will occassionally come up. How these clauses in an insurance contract work can be confusing to the normal insured, to experienced Insurance Law Attorneys, insurance adjusters, and the courts.
For the most part, the appraisal clause in an insurance policy comes into play when the insured and the insurance company disagree on the value of a claim. In other words the insurance company agrees they owe money on the claim, but the amount of money they owe may be in dispute. This is common when agreeing to the value of items like, jewelry, antiques, and rare collections. But this dispute can also come up in more common claims such as hail damage claims to roofs.
The Court of Appeals in Beaumont, Texas, issued an opinion on March 10, 2011, that is controversial and is an issue that will play out further in other cases in the future if not in a further appeal in this case. The style of the case is, In Re Southern Insurance Company.
In this case, a homeowner, Michelle Neisen, contends that Southern Insurance Company waived its right under the policy’s appraisal clause by denying all liability on Neisen’s hurricane damage claim. Per this court, the amount of the loss is at issue in this case, the policy provides for an appraisal process to determine the amount of the disputed loss, and that right has not been waived.
The insurance contract says, if the parties “fail to agree on the actual cash value, amount of loss, or the cost to repair,” either party may make a written demand for appraisal. The appraisal clause does not provide for a forfeiture of that right, and the policy states that “no provision of this policy may be waived unless the terms of this policy allow the provision to be waived.”
Neisen argues Southern must agree that the loss is covered by the policy before it may “fail to agree” on the amount of the loss. And then says Southern has not agreed that the loss is covered by the policy. The court says that nothing in the plain language of the policy requires Southern to acknowledge liability before it may demand an appraisal.
This appeals court does an analysis of two cases, both Texas Supreme Court cases, one decided in 1888, styled, Scottish Union & National Insurance Company v. Clancy. The other is a 2009, case styled, State Farm Lloyds v. Johnson.
What caused the damages in this case seems to be part of the dispute. Southern contends that the damage to Neisen’s home is the result of long term repeated leakage, and Neisen contends the damage was caused by winds during Hurricane Ike.
What the court says in this case is that the appraisal would put a value on the damages sustained and then the parties can litigate whether or not the claim is something that is covered under the policy.
Citing the other case, this court said: “When an indivisible injury to property may have several causes, appraisers can assess the amount of damage and leave causation up to the courts. When divisible losses are involved, appraisers can decide the cost to repair each without deciding who must pay for it. When an insurer denies coverage, appraisers can still set the amount of loss in case the insurer turns out to be wrong. The appraisal clause ‘binds the parties to have the extent or amount of the loss determined in a particular way, leaving the question of liability for such loss to be determined, if necessary, by the courts.'”
These cases are often times hard to understand.
What this ruling is trying to say is that the insurance company can still invoke the appraisal clause even though they have denied responsibility for the claim. The purpose of this would be to set a value on the loss. Then if during the litigation process or upon a final determination by a court, it is decided that the insurance company is liable, the value of the loss has already been determined by the appraisal. Of course this does not put an end to other claims and damages that the insured may be eligible for due to wrongs the insurance company may have committed, but it does put a determination on at least one part of the claim.
Updated: