Where Appraisal Does Not Apply

If someone in Grand Prairie, Arlington, Crowley, Mansfield, Benbrook, Burleson, Keene, or anywhere else the metroplex area reads their homeowners insurance policy, they will probably find an appraisal clause. This clause usually, is for the benefit of the insurance company. As a result, getting around that clause is a good thing.
The United States District Court for the Southern District of Texas, Houston Division, issued an opinion on October 13, 2011, that is insightful for understanding at least one way of beating the appraisal clause. The style of the case is, Sidney Sam, et al. v. National Lloyds Insurance Company.
Sam and others (Plaintiffs) were insured under a Standard Flood Insurance Policy (SFIP) issued by Lloyds pursuant to the National Flood Insurance Program (NFIP). Plaintiffs’ apartment building was damaged by flood waters following Hurricane Ike. Plaintiffs submitted their claim to Lloyds, which determined that the flood damage to the building and its contents would require repairs in the amount of $100,622.67. Plaintiffs submitted a request for supplemental payment in the total amount of $249,000, or an additional amount of $148,377.33 beyond the amount offered by Lloyds. The additional payment included $39,000 for the presence of a “Commercial Superintendent on the site for 3 months for commercial restoration.” On April 21, 2010, Plaintiffs demanded an appraisal. On May 3, 2010, Lloyds denied the request. Plaintiffs filed a Motion to Compel Appraisal on September 15, 2011.
As analysis, this court cited a 5th Circuit ruling in the case, Dwyer v. Fidelity Nat. Prop. and Cas. Ins. Co. saying, “Congress created the NFIP to offer flood insurance at rates that were uneconomical for private companies.” The Federal Emergency Management Agency (FEMA), which administers the program, has established the SFIP.
The SFIP includes an appraisal provision, allowing either party to demand an appraisal “of the loss” if they cannot agree “on the actual cash value or, if applicable, replacement cost of the damaged property to settle upon the amount of loss.” This appraisal clause can be invoked only to resolve disagreements between the parties regarding the actual cash value or, if applicable, replacement cost of the damaged property. “Congress expressly limited the application of the appraisal clause to matters where coverage is not at issue and the only dispute remaining between the parties is the quantum of loss ….” Where the insured requests compensation for items that the insurer asserts are not covered by the SFIP, the dispute is outside the ambit of the appraisal clause.
In a Florida case cited by the plaintiffs, the Florida court noted that the insured both challenged the extent of damage to items which were admittedly covered and requested compensation for additional items. As a result the Court in that case held that the dispute was “outside the ambit of the appraisal clause.” Similarly, in this case, there are disputes regarding how badly a covered item was damaged and whether it needed to be repaired or replaced, as well as disputes regarding whether other items – such as the presence of the commercial superintendent – are covered at all. This inclusion of a coverage dispute places the case outside the appraisal clause of the SFIP.
In another case, virtually indistinguishable from the present case, the insureds sought supplemental payment for several items, including reimbursement for packing and storing the contents of their residence. The insurer argued that packing and storing the contents of the residence were items not covered by the SFIP. The Court noted that the dispute regarding the packing and storing charges was a dispute over coverage for those charges and, as a result, held that the appraisal clause was not implicated.
This court then said that the request for packing and storing charges in that case is similar to this case. This case seeks reimbursement for the cost of having a commercial superintendent on the property for three months. As a result, Lloyds asserted that the SFIP does not cover this expense. The dispute is whether this expense is covered, not whether $39,000 is a reasonable cost for the superintendent. Because the parties do not agree about whether this item is covered, the dispute does not relate exclusively to the actual cash value of the loss or its replacement value and does not implicate the appraisal clause.
End result – the court refused to order appraisal.