Colin T. Kemp and Colin Davis | Policyholder Pulse
Policyholders, don’t lose track of the appraisal provision in your insurance policies. At least that is what the panel in 50 Exch. Terrace LLC v. Mt. Vernon Specialty Ins. Co. seemed to be saying. There, the Ninth Circuit Court of Appeals affirmed the district court’s dismissal of policyholder-plaintiff’s case for non-payment of policy benefits due to lack of ripeness and standing.
The policyholder (50 Exchange Terrace) purchased property insurance from its insurer (Mount Vernon). After frozen water pipes burst (causing water damage to the policyholder’s property), the parties disputed the costs of repairs. The insurer paid the amount it deemed appropriate and demanded appraisal. The policyholder responded by filing suit, alleging that its insurer wrongfully withheld compensation while awaiting the outcome of appraisal.
The trial court (and the Court of Appeal on review) disagreed. While it might be a creative way to suggest delay and bad faith (i.e., claiming the insurer withheld payment pending appraisal is precisely what the contract provided), the policy in question, like so many others, mandated appraisal in the event the parties disagreed about the amount of loss (which is what happened in this case). Indeed, 50 Exchange Terrace acknowledged the appraisal requirement, making it impossible for a court to determine damages.
In fact, the court made clear it was publishing the decision not because it was charting new territory but because the court was making a point: “We do not break new ground here. We have chosen to issue this decision as a precedential opinion in the hope of deterring or at least short-circuiting other similarly premature cases where the agreed insurance appraisal process has not yet been completed.”
The decision carries a multi-pronged moral. It’s not enough that you “don’t forget” about appraisal; don’t disregard it, either. Finally, think about your complaint. Have you pled only causes of action that will get caught up in appraisal? Have you asserted declaratory judgment claims that raise more fundamental questions of interpretation, which should proceed regardless of appraisal? Think it over carefully, and, even better, consult with experienced coverage counsel to avoid these pitfalls and maximize available coverage.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.