In the continuing saga of what can and cannot be assessed in a property insurance appraisal, the Tenth Circuit, unlike many other courts, has ruled that appraisers can determine coverage issues.
In Bonbeck Parker, LLC v. Travelers Indem. Company of Am., 2021 US App. LEXIS 29607 (10th Cir. October 1, 2021), a hailstorm damaged three buildings covered by a commercial property insurance policy. A dispute between the insured and the insurer arose over whether the hailstorm caused all of the damages claimed. The insurer paid part of the damages claimed, but denied coverage for the other damages claimed, claiming they were caused by uncovered causes such as normal wear and tear. The insured invoked the expertise.
The insurer said it would only participate in the assessment under certain conditions. The insurer wanted to limit the expertise to only undisputed hail damage. So the assessment committee would be limited to deciding how much the repairs would cost, but not what prompted the roofs to require repairs in the first place. The insured objected to it.
The insurer has filed an action for declaratory judgment. In a summary judgment, the district court sided with the insured and agreed that the appraisal clause allows the appraiser to determine the causal link. The parties have had other disputes, but this blog entry focuses on the issue of causation within the assessment.
The tenth circuit made a “Erie Guess “how the Colorado Supreme Court would rule on the matter. The District Court and Tenth Circuit focused on declaring the appraisal clause that, in the event of a disagreement over the â€œamount of the loss,â€ either party may require an appraisal of the loss. The Tenth Circuit observed that â€œamount of lossâ€ was not defined in the policy and looked for dictionary definitions. The Tenth Circuit cited various definitions of “loss”, such as “the amount of the financial loss of an insured by … the damage for which the insurer is responsible”. The Tenth Circuit concluded that all definitions included an element of causation. In addition, the Tenth Circuit examined case law from Minnesota, Iowa, and Delaware. Perhaps the most emphatic quote is from an Iowa Intermediate Court of Appeals which said: “Causation is an integral part of the definition of loss, without which appraisers cannot exercise judgment. function assigned to them â€.
The Tenth Circuit rejected various arguments of the insurer. For example, the insurer noted that the appraisal clause gives the insurer the right to refuse coverage even after the appraisal is complete. The insurer argued that the denial could be based on any grounds available in the policy, including the fact that the damage resulted from an excluded cause of loss. The insurer argued that the court could not give effect to the ordinary meaning of the sentence if the assessment board determines the causal link.
The Tenth Circuit held that the insurer’s argument could not be reconciled with the ordinary meaning of “amount of loss”. The Tenth Circuit held that the “amount of loss” explained the subjects on which the parties can request an assessment, while the “right to refuse” relates to the options of the insurer after an assessment on one of these subjects. .
For example, the Tenth Circuit also rejected an argument by the insurer that the term â€œappraiserâ€ reflected the intention to limit that person to pecuniary determinations, thereby excluding determinations of causation. The Tenth Circuit held that there is an element of causation in determining the value of something, because that â€œsomethingâ€ is the â€œamount of lossâ€.
In conclusion, the Tenth Circuit cited the leading case of the Texas Supreme Court, State Farm Lloyds v. Johnson, 290 SW3d 886, 892 (Tex. 2009):
As the Texas Supreme Court observed, this kind of causation problem arises “in all cases”, and if “assessors can never apportion damage between covered and excluded risks, then [they] can never assess hail damage unless a roof is brand new. Identifier. at 892-93. Such a result “would render the expert clauses largely inoperative, an interpretation that we must avoid”. Identifier. at 893. Other district court decisions have recognized this, and we find their reasoning convincing. See, for example, Self-owners Ins. Co. v. Summit Park Townhome Ass’n, 100 F. Supp. 3d 1099, 1103 (D. Colo. 2015).
Notably, the Texas Supreme Court in Johnson also voiced the following opinion in what has become an oft-cited summary:
Indeed, evaluators should always consider the causal link, at least initially. An appraisal is about the damage caused by a specific event, not all the repairs a home might need. When asked to assess hail damage, assessors only look at hail damage; they don’t consider leaky faucets or kitchen remodeling. When asked to rate the damage caused by a fender, they include dents caused by the collision but not by anything else. Any valuation necessarily includes an element of causation, because fixing the â€œamount of lossâ€ requires assessors to decide between the damages for which coverage is claimed and the damages caused by everything else.
Of course, this does not mean that evaluators can rewrite the policy. No matter what the appraisers say, State Farm does not have to pay for repairs due to wear and tear or any other excluded risk, because those risks are excluded.
Johnson, 290 SW3d to 893.
In a footnote, the Tenth Circuit cited authorities in the supreme courts of Alabama and Mississippi, believing that assessors cannot resolve causation issues. The Tenth Circuit did not go into the justifications of those other courts, but said its ruling was based on a finding about how the Colorado Supreme Court would resolve the issues.
The Tenth Circuit ruled that the district court had correctly rendered a summary judgment in favor of the insured on his claim that the insurer had violated the policy by refusing to allow the assessment.
Under Bonbeck, although appraisers may consider causation, the insurer was not wrong to worry that the appraisal process would be abused to sweep away anything that was wrong with the insured’s buildings in the valuation, which would result in an indemnity that the insurer would be forced to pay in full regardless of the coverage. It will be interesting to see how Bonbeck is applied and whether a Colorado state court adopts the reasoning and its decision.