Insurance policies have contained contractual appraisal clauses for many years. Recently, however, there have been a number of disputes over when appraisal can be invoked and when it can be rightfully rejected. Appraisal is appropriate when there is a “dispute” over the amount of loss. The problem faced by many courts has been when this “dispute” actually comes into existence.
In general courts have held that a “dispute” exists once there has been a good faith opportunity for each side to investigate the claim and no consensus has been reached. In one of the first cases on point a Florida Appellate Court ruled in U.S. Fidelity & Guarantee Company v. Romay,1 that a policyholder cannot generally invoke appraisal without there first being a meaningful exchange of information through compliance with the post loss obligations contained in the insurance contract. Courts in other states, including North Carolina and Arizona, have come to the same conclusion.2
If appraisal is appropriate, however, neither party has the right to refuse to participate in the process.3 Because the appraisal provision is a material term of the contract, an improper refusal of a valid demand can be considered a breach of the insurance contract entitling the other party to damages.4
Appraisal is sometimes a quicker, less expensive, mechanism for resolving disputed property damage claims. This is especially true with large losses suffered by condominium and homeowners associations. If you are unsure whether appraisal is right for your association’s claim, or if your insurer has refused to participate in the appraisal process, you should contact experienced counsel to discuss the best course of action. In some circumstances you may be able to have a court order compliance with the provision and order that the insurer reimburse you for any out of pocket expenses incurred as a result.
1 U.S. Fidelity & Guar. Co. v. Romay, 744 467 ( Fla. 3d DCA 1999).
2 Hailey v. Auto-Owners Insurance Company, 640 S.E.2d 849 (N.C. App. 2007);. Tavilla v. Employer Mutual Cas. Ins. Co., 2008 WL 2154800 (Ariz. Ct. App. 2008).
3 United Community Ins. Co. v. Lewis, 642 So. 2d 59 (Fla. 3rd DCA 1994).
4 Standard Fire Ins. Co. v. Fraiman, 588 S.W. 2d 681 (Tex. App. – Houston 1979).