Appraisers’ Decision on Causation is Binding
On July 19, the Iowa Court of Appeals held that the results of an insurance appraisal are binding and conclusive against the insurance company. In Walnut Creek Townhome Ass’n v. Depositors Ins. Co., 2017 Iowa App. LEXIS 722 (July 19, 2017), the court held that an appraisal award that determined the “amount of loss” to the roofs of a townhome complex caused by a hail storm was binding on the insurance company and the trial court and conclusively decided the question of causation of the damage.
Therefore, the insurance company could not seek to undo that award by claiming certain excluded forces (such as wear and tear, decay, deterioration, defective materials) caused the damage instead. The court recognized that the appraiser could make the initial causation determination because “causation is an integral part of the definition of loss, without consideration of which the appraisers cannot perform their assigned function.”
Virtually every property and casualty policy includes a clause that is supposed to provide a method for disputes over the “amount of loss” to be resolved on an expedited basis – called “appraisal.” If either side asks for it, then that is how disputes over “amount of loss” are to be decided. Each side appoints their own “appraiser” (typically someone who knows how to assess losses), and the two appraisers then jointly appoint the “umpire.” A decision by two of the three is meant to conclusively decide how much the insurance company owes for a loss.
Even though the appraisal clause is in the policy because the insurance company put it there, insurance companies over the last few years have aggressively sought to undermine the policyholders’ rights to have all issues relating to the amount of loss decided in the appraisal. These efforts to limit the policyholders’ appraisal rights include allowing the appraisal to go forward, only to declare the appraisal award meaningless later and therefore unenforceable because the appraisers decided that hail, wind, or some other event caused the damage rather than some excluded cause. Rather than appraisal being a method to resolve disputes on a fast and inexpensive basis, this approach by insurance companies has, unfortunately, resulted in the process of resolving disagreements on how much the insurance company owes for a loss taking much longer and at a drastically increased cost – since the question of causation then ends up being the subject of a lawsuit.
This decision is important to ensuring policyholders’ rights to have decisions on causation made using the appraisal process, a method insurance companies themselves offer to their policyholders, are binding and enforceable on the insurance companies.
Contact our Colorado insurance bad faith attorneys at Burg Simpson today by calling 303-792-5595.