Edward Eshoo | Property Insurance Coverage Law Blog | March 10, 2017
In my last blog post, I discussed Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Company,1 and the issue whether appraisal is appropriate to resolve a dispute over the need for a general contractor to perform repairs following a covered loss. Windridge of Naperville also involved whether appraisal is appropriate to resolve a dispute over the cost of repairing physically undamaged sides of townhome buildings to remedy a mismatch with repaired damaged sides.
In Windridge of Naperville, a hail storm physically damaged the buildings’ south and west sides, requiring their repair. The Association claimed that although the north and east sides were not physically damaged, they should be repaired as well to ensure an aesthetic match with the newly-repaired south and west sides. The Association argued this dispute presented a question for the appraisal panel, who can determine whether the aesthetic mismatch is so significant as to constitute damage and, if so, assess a loss amount. Philadelphia responded this was a question of coverage, not loss amount, and inappropriate for appraisal. The district court agreed with Philadelphia, and denied the Association’s motion to compel appraisal on the matching issue.
In my opinion, the district court’s decision was a function of how the Association argued for appraisal. The Association argued that the dispute over repair to the north and east sides involved causation—whether the aesthetic mismatch can be said to have been caused by the hail storm and causation cannot be distinguished from loss amount. The district court disagreed, reasoning there was no causation issue. The hail storm physically damaged two sides, requiring their repair and those two sides no longer matched the two other sides. The only question was coverage—whether this mismatch is a loss within the meaning of the policy. Because the only question concerned coverage, the district court concluded that the dispute was not subject to appraisal.
Instead of a causation argument, a scope of repair argument may have given the Association more traction in its effort to compel appraisal, as was the case recently in Pottenburgh v. Dryden Mutual Insurance Company.2 There, the insured dwelling was damaged by an act of vandalism—vulgarities written in black spray paint in numerous locations of the property. The insured demanded an appraisal but the insurer refused, contending that the insured was seeking payment for replacement of various components of the home that did not sustain direct physical damage in the vandalism incident: a fireplace; siding for the entire garage; a bathroom; and portions of the plumbing and electrical systems. The insurer characterized its objections as constituting issues regarding the scope of coverage that may not be determined in an appraisal.
The insured subsequently sued, seeking an order compelling appraisal. In support of its petition to compel appraisal, the insured submitted an Affidavit from its public adjuster explaining the basis for the insured’s claims. The public adjuster explained that the insured sought replacement to effect proper repairs to items that were indisputably damaged and asserted that the dispute between the parties involved one of determining the extent and amount of loss. Regarding the fireplace, the public adjuster noted that only the glass doors were damaged, but explained that she included an estimate for replacement of the fireplace because she could not locate an exact match. With respect to the garage siding, the public adjuster acknowledged that only one wall of the garage was vandalized, yet explained that she included an estimate for the garage siding on the remaining walls because it was not possible to purchase siding for installation on the vandalized wall that would match the faded color of the undamaged siding on the remaining walls. Regarding the bathroom and plumbing and electric fixtures, the public adjuster asserted that they would be affected during the repair process.
Reasoning that the scope of repairs made necessary by a covered loss and the cost of any such repairs directly bear upon the amount of the loss, the New York trial court concluded that the parties’ disputes over the extent of work required to repair damage caused by the covered vandalism loss were factual questions that fell squarely within the policy’s appraisal clause. The court ordered the parties to proceed to appraisal.
As the Pottenburgh decision illustrates, a court is more likely to compel appraisal if the parties’ dispute is framed as one over the scope of repair as opposed to one over causation.
1 Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., No. 16-3860, 2017 WL 372308 (N.D. Ill. Jan. 26, 2017).
2 Pottenburgh v. Dryden Mut. Ins. Co., EF2016-0183, 2017 NY Slip Op 27054, 2017 WL 777607 (N.Y. Sup. Ct. Feb. 28, 2017).