Property insurance policies contain provisions to resolve disputes between the policyholder and the insurer over damage claims.  These provisions provide for an independent appraisal of the alleged damaged property with the appraiser’s final award binding the parties.  An appraisal award is akin to an arbitration award in many respects.  In a recent case, a policyholder was dissatisfied with the appraisal award and sued the insurer for breach of contract and bad faith.

In Villas at Winding Ridge v. State Farm Fire & Casualty Co., No. 19-1731 (7th Cir. Nov. 8, 2019), a condominium complex suffered hail damage during a storm.  The damage was not discovered until nearly a year later when the complex had its roofs inspected for possible replacement.  A claim was filed by the policyholder with its insurer and the adjuster prepared a repair cost estimate that was not satisfactory to the complex. The carrier paid the claim as estimated, but the parties continued to spar over the costs.  Essentially, the complex wanted all the roofs replaced, plus other items.  The adjuster and engineer for the insurer found only very minimal hail damage on the roof shingles. When the parties reached an impasse, the policyholder demanded an appraisal under the policy’s appraisal provision.

The two independent appraisers appointed by each side came up with significantly different estimates, but the policyholder’s appraiser only sought roof replacement for 13 out of 33 buildings.  Ultimately, the issue was decided by majority after a third independent appraiser was brought in and issued his own findings.  The appraisal award granted only a 20% repair allowance for roofing shingles on 13 building and other damages.  After the award was issued, the insurer paid the amount awarded and the policyholder sued for breach of contract, bad faith and promissory estoppel.

In affirming summary judgment for the insurance carrier, the Seventh Circuit found that the policy’s appraisal provision was unambiguous.  The court disagreed with the policyholder that the appraiser mistakenly determined the scope of the loss as opposed to the value of the loss.  The court held that the appraiser resolved the dispute that the parties presented, which was the amount of hail damage to the roofing shingles on 13 buildings and to other portions of the property.  The court also held that the mere presence of coverage disputes (there was an issue about matching shingles and discontinued shingles) in addition to the amount of the loss dispute did not negate the appraisal award.

The court also rejected the policyholder’s claim that there were material issues of fact on the breach of contract claim.  The court went through some of the detailed facts and noted that the policyholder’s own appraiser found no hail damage to roofing shingles on 20 buildings.  The court noted that the policyholder’s decision to replace the shingles on all 33 buildings while its claim was pending did not obligate the insurer under the policy or result in the insurer breaching the policy.  The court also held that the appraisal award resolved the entire claim, not just the damage to the 13 buildings.  Finally, the court held that the matching shingles issue was untimely and did not create a genuine issue of material fact.

On the bad faith claim, the court concluded that there was no evidence that the carrier acted in bad faith by delaying payment or deceiving the policyholder or exercising unfair advantage.  As the court said, insurance companies may dispute claims in good faith.