Appraisal And Insurance

Appraisal – People in Grand Prairie, Arlington, Fort Worth, Dallas, Keller, Coppell, Farmers Branch, Hurst, Euless, Bedford, and other places in the DFW area are probably not familiar with the way appraisal works in an insurance policy.
The Texas Supreme Court issued an opinion in 2009 that deals with appraisals. The style of the case is State Farm Lloyds v. Becky Ann Johnson. Here is some background.
A hailstorm moved through Plano, Texas in 2003, damaging the roof of Becky Ann Johnson’s home. She filed a claim under her homeowners insurance policy with State Farm. The inspector concluded that hail had damaged only the ridgeline of her roof, and estimated repair costs at $499.50, which was less than her deductible. Johnson’s roofing contractor concluded the entire roof needed to be repaired at a cost of more than $13,000.
To settle this difference, Johnson demanded appraisal of the “amount of loss” under the following provision in her standard-form policy:
Appraisal. If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. Each shall notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers shall then select a competent, impartial umpire …. The appraisers shall then set the amount of the loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any two of these three shall set the amount of the loss.
State Farm refused to participate, asserting that the parties’ dispute concerned causation and not “amount of loss.” Johnson then filed this suit seeking a declaratory judgment compelling appraisal. Johnson and State Farm filed motions for summary judgment.
In this case, the Court attempted to clarify the division between issues that are subject to appraisal and those that are not. At one end, questions on liability are not proper for appraisal and must be decided in court. At the other end, the amount of damage is subject to appraisal. In between, questions on causation may be decided by appraisers in determining the amount of loss. This Court rejected State Farms’ argument that every issue of causation is beyond the scope of appraisal.
The court reasoned that “any appraisal necessarily includes some causation element, because setting the ‘amount of loss’ requires appraisers to decide between damages for which coverage is claimed from damages caused by everything else.” The following causation questions would be within the scope of appraisal:
– Appraisers may properly allocate damages between covered and excluded perils;
– Appraisers may determine whether a loss is due to a covered event, as distinguished from the property’s preexisting condition.
By contrast, causation issues are improper for appraisal, “when different causes are alleged for a single injury to the property.” In those instances, causation issues are to be decided by the courts.
In sum, whether the appraisal goes “beyond the damage questions” and impermissibly answers liability questions “will depend on the nature of the damage, the possible causes, the parties’ dispute, and the structure of the appraisal award.”