Chip Merlin | Property Insurance Coverage Law Blog | July 23, 2017
Appraisals can result in losing propositions for policyholders. I often teach that policyholders need to make certain that they do their best during appraisal and not expect a bad award to get overturned. Policyholders need very hardworking, honest, and knowledgeable persons selected as their appraisers.
Now, a Florida case suggests that even if the appraisers and parties agree not to rule on a valuation issue in appraisal, a policyholder can be left with no recovery. A recent Third District Court of Appeal panel of judges seem to be unaware that parties agree not to appraise aspects of a loss for various reasons, but everybody in the property insurance law claim business should read Noa v. Florida Insurance Guaranty Association.1
The policyholder’s appellate counsel set forth their argument:
The Plaintiff’s loss is a covered loss under the terms of the Policy. The facts on the record reveal that Ordinance & Law was “not appraised” on the face of the Appraisal Award. And, it could not be appraised because it had not been “incurred.” The parties have a dispute as to the amount of loss. The trial court erred in denying Plaintiff’s Motion to Compel Appraisal and the order on appeal is properly reversed.
The appellate court did not agree at all, noting:
In order to perform competently as an appraiser for this purpose, and to be designated by a party or by other appraisers or the court (as an umpire), logic and common sense require that an appraiser must have experience in the estimation of materials and labor costs for the repair and replacement of damaged property. In the case of roof work, appraisers must consider the requirements of the applicable building codes in order to estimate the cost of repair or replacement. This is an area for professional construction industry expertise and should be “baked into” the appraisers’ and umpire’s computations, and not left open for a re-appraisal or for a determination by the court.
Whether a building code provision requires a particular standard for plywood decking, or the use of specified thicknesses of felt or shingles, or (as here) replacement of an entire roof if over 25% of the roof must be replaced, such provisions are established regulatory requirements known to, or knowable by, construction professionals and to be taken into account in computing the cost of the work when they conduct their appraisal. The appraisal provision in the present case sufficed to leave these issues to the appraisal panel, not the court.
This explains the notation on the appraisal award that “Law & Ordinance” was not appraised—the majority of the appraisal panel concluded that current building code requirements did not require replacement of the whole roof, and their estimation line items confirm an estimate of 3% of the roof area to be replaced, not 25% or more. The notation surely cannot mean that the appraisal is subject to circumvention a month later if the insured can just find a roofing contractor to sign a proposal stating that 30%, not 3%, of the roof needs replacement. If the appraisal award had concluded that the entire roof had to be replaced because the necessary re-roofing exceeded 25% of the area of the roof, then this additional cost would have been shown and the appraisal panel would have reported that ordinance and law costs were appraised and included.
Now, everybody in the business with experience has had appraisal awards where the parties and the appraisers agree not to consider or make any ruling on certain aspects of a loss. Law and Ordinance is one of the more common instances. The appellate judges made a horrible assumption and are either unfamiliar with this aspect of law, or the policyholder attorneys did a horrible job of explaining to the judges how often these instances arise in the insurance appraisal landscape.
Possibly, the Florida Supreme Court will fix this poor decision.
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1 Noa v. Fla. Ins. Guaranty Ass’n, 215 So.3d 141 (Fla. 3d DCA 2017).