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LAM V. ALLSTATE Indemnity Company: Appraisal Provision Does Not Apply To The Scope Of The Loss

May 02, 2014 BY Paul Burke

            In a recent decision, the Georgia Court of Appeals has ruled that an Appraisal Provision in a property insurance policy would be limited to questions of the value of a loss and not questions of coverage.  What is particularly significant here, however, is that the court determined that a question relating to the scope of a loss, was, in fact, a question of coverage.  As such, it would be outside the purview of the appraisal clause.

            In Lam v. Allstate Indemnity Company. 755 S.E.2d 544 (Ga. App. 2014), the Court had before it a claim involving damage to a homeowner’s roof.  Mr. Lam had a policy with Allstate that coved his house for “sudden and accidental” damages caused by hail or windstorm.  According to the allegations made by Mr. Lam, his roof experienced damage from high winds and hail.  Allstate investigated and agreed that there was windstorm damage to 4 shingles, which also led to some minor interior damage.  Allstate valued the claim at $783.06.  Mr. Lam disagreed, claiming that the entire roof needed to be replaced.  Mr. Lam wrote to Allstate requesting that the loss be determined pursuant to the appraisal clause of the policy.

            Allstate responded to Mr. Lam’s request explaining that:

            Coverage was not granted to replace all the shingles as there was not damage to
            warrant such. Allstate concluded that the appraisal provision was not applicable
            because the difference in estimates relates to coverage rather than pricing.

            Lam at 545.

            Mr. Lam filed suit against Allstate, seeking only to enforce the Appraisal Provision of the policy.  Allstate responded to the lawsuit by filing a Motion to Dismiss, arguing that the Appraisal Provision was not available to Mr. Lam because it could not be used to resolve a question of coverage.

            Following a hearing, the trial court granted Allstate’s Motion to Dismiss.  On appeal, the Court of Appeals reviewed the trial court’s ruling de novo.

            On Appellate Court explained that there were two independent reasons that would support a dismissal by the trial court.  The first, which the Court of Appeals found unnecessary to address, was the fact that neither Mr. Lam, nor his attorney appeared for the hearing on the Motion to Dismiss.  As such, the trial court would have been within its rights to dismiss Mr. Lam’s case for failure to prosecute it.  A dismissal for failure to prosecute would have been “without prejudice,” which would have allowed for the possibility of the case being refiled.

             The trial court, however, reached the merits of the Motion to Dismiss instead.  By ruling in Allstate’s favor on its Motion to Dismiss, the trial court entered a dismissal with prejudice.  Thus, unless reversed, the trial court’s ruling would end the case.

            Siding with Allstate, the Court of Appeals focused on the trial court’s ruling on the Motion to Dismiss and never had to reach the failure to prosecute.  The Court of Appeals appeared to accept as fact that the question of whether only 4 shingles or an entire roof was damaged was a question of coverage.  The Court of Appeals noted that the Appraisal Provision applied, by its terms to “the amount of the loss.”  The Court noted in a footnote that the policy did not define the phrase “the amount of the loss” and seemed content that this seemed to apply only to questions of value or price.  Since this dispute was not over value or price, the Court determined that Mr. Lam was seeking an appraisal of a coverage dispute.  As the Appraisal Provision did not address coverage disputes, the trial court was correct in granting Allstate’s Motion to Dismiss.

            In support of this determination, the Court turned to the Georgia Supreme Court case of McGowan v. Progressive Preferred Ins. Co., 281 Ga. 169, 637 SE2d 27 (2006).  As explained in McGowan, if a court were to expand the Appraisal Provision to include coverage matters, the Appraisal Provision would be acting as an arbitration clause.  As pointed out by the Georgia Supreme Court, however, arbitration clauses are not permitted ion insurance contracts pursuant to O.C.G.A 9-9-2 (c) (3).  Thus, having determined that Mr. Lam was seeking an appraisal of a coverage issue, the Court of Appeals affirmed the dismissal by the trial court.

            In dissent, Judge McFadden (joined by two other justices) would have taken a very different approach. Judge McFadden would have focused on the failure of Mr. Lam or his counsel to attend the hearing and would have entered an order of Dismissal Without Prejudice for the unexcused absence of the plaintiff  or his counsel from the hearing.  This would have potentially allowed the plaintiff to refile the suit.

            The dissent would not have affirmed the granting of Allstate’s Motion to Dismiss With Prejudice. The dissent did not dispute that the Appraisal Provision could not be used for a coverage dispute.  Rather, the dissent did not agree that this was a coverage dispute.

            As explained by the dissent:

            The dispute in this case does not require either a construction of the insurance policy
            or a determination of whether the insurer should pay.  The policy’s coverage provisions are clear,
            as is Allstate’s liability under them.  Allstate has agreed to ‘cover sudden and
            accidental direct physical loss to property described in Coverage of Dwelling Protection
            …except as limited in or excluded in this policy.

Lam at 547.

The dissent explained that Allstate has admitted to coverage and liability for a loss.  The only dispute remaining was how much of a loss had occurred.  As such, the dissent would have allowed the appraisal clause to address this dispute and denied Allstate’s Motion to Dismiss. 

In support of its position, the dissent relied upon State Farm Lloyds v. Johnson, 290 SW3d 886 (Tex 2009).  As explained in Johnson:

To the extent the parties disagree [about] which shingles need replacing, that
              Dispute would fall within the scope of the appraisal.

Johnson at 891.

Questions of the proper scope of an appraisal come up often in property adjustment.  This has always been particularly true in roofing cases such as this one.  The Lam case offers some much needed clarity for Georgia adjusters who are often faced with demands for an appraisal when they decide an entire roof does not need to be replaced.  While this decision is helpful, there is some concern as to how strong it is.  It is a 4-3 decision with a strongly worded dissent that may draw the attention of the Georgia Supreme Court either in this case or in future cases.  This topic will need to be closely monitored.

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

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H. Michael Bagley
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