November 03, 2014 BY Christina Jay
A hard rain's a-gonna fall: Hail damage, appraisal, and Lam V. Allstate
The appraisal process provides a mechanism by which homeowners and insurance companies may quickly and relatively inexpensively resolve disputes concerning the amount of damages in a covered loss. The appraisal provision allows the value of covered damages to be objectively determined without risks associated with trial. Appraisal provisions are valid and binding, and in Georgia such provisions are patterned after the Standard Fire Policy.
Oftentimes carriers will encounter a situation where the insured contends that the issue of whether certain damages are covered under the policy impacts the amount of loss, and thus the insured invokes appraisal in order to include those damages. However, while coverage issues will obviously affect the amount of recovery, Georgia law is clear that appraisal is not the proper vehicle for addressing coverage disputes. As the Court of Appeals has stated, appraisal in Georgia is nothing more than a contractual method of ascertaining the amount of loss. Therefore, in such situations, the insurer is within its rights to refuse appraisal as inapplicable or to insist that appraisal be limited to determining the amount of damages for the covered loss that is agreed upon.
Hail damage claims can be problematic for insurance companies for a variety of issues, from man-made/mechanical damage posing as hail damage to requests for new roofs due to damage to a handful of shingles. A recent case from the Georgia Court of Appeals offers some guidance to claims handlers in those situations where an insured or the insured’s representative is attempting to bull-rush the claim by contending the entire roof needs replacement and immediately invoking appraisal. In Lam v. Allstate Indem. Co., 327 Ga. App. 151, 755 S.E.2d 544 (2014), reconsideration denied (Apr. 14, 2014), the Court of Appeals ruled in favor of a carrier that refused appraisal when the dispute focused on whether only a few shingles or the entire roof should be replaced.
In Lam, the insured homeowner reported a claim to the carrier for roof damage due to high winds and hail. The claims representative inspected the roof and home, determined that the roof sustained wind damage to four shingles and that there was ceiling damage in the home, and provided the insured with an estimate to repair the shingles and ceiling. The insured disagreed on the amount of the loss, and wrote the carrier to request appraisal. While the insured’s estimate did not differ from the carrier’s estimate as to the cost of replacing the four shingles, the insured’s estimate sought complete replacement of all of the shingles on his roof. The carrier refused to replace the entire roof, advising that coverage was not granted to replace all the shingles, as there was not damage to warrant such replacement. The carrier also advised the insured that the policy’s appraisal provision was inapplicable because the estimates differed on coverage and not on pricing.
The insured sued the carrier, seeking enforcement of his demand for appraisal, and requesting a declaratory judgment regarding the rights of the insured and carrier under the policy as it related to appraisal of the claim. The insurer moved to dismiss, which the trial court granted following a hearing (which the insured did not attend), and the insured appealed the decision.
The Court of Appeals reviewed the policy’s appraisal provision, which contained typical policy language providing that either party may invoke appraisal if the parties fail to agree on the amount of the loss. Citing to the Supreme Court of Georgia, the court observed the established legal rule in Georgia that an appraisal clause can only resolve a disputed issue of value, and cannot be invoked to resolve broader issues of liability or coverage. Applying the law to the case at hand, the Court of Appeals held that the trial court properly granted the insurer’s motion to dismiss for failure to state a claim. The carrier conceded that the insured’s roof sustained wind damage and agreed to pay for it, and the parties’ disagreement centered on the extent of the damage; the insured contended the entire roof was damaged whereas the carrier contended that only four shingles were damaged. This dispute involved coverage, which is not a proper basis for an appraisal.
Three judges dissented, and Judge McFadden authored the dissenting opinion. The dissent took the position that the dispute did not require construction of the policy or determination of coverage, but only a determination of the amount of the loss: “[t]here is no dispute that [the insured’s] dwelling incurred some loss that is covered by the policy and that [the carrier] is therefore liable … to some degree. The dispute is the amount of that covered loss or damage—whether the covered loss or damage extends to the entire roof or only specific shingles,” and the dissent would hold that such a dispute is subject to resolution under the policy’s appraisal provision. In other words, the dissent would allow the question of which roof shingles needed replacing to be decided by the appraisers and umpire.
Lam provides reassurance for claims handlers and carriers: when the parties disagree over the amount of covered damages, appraisal is proper – however, where the parties cannot agree on the extent of the damage, then the issue is one of coverage and not a proper matter for appraisal. Under such circumstances, if the parties do not reach an agreement as to the extent of damages, the matter should not be submitted to appraisers and an umpire and instead an action on the policy will be necessary to determine the coverage and liability questions.
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.
H. Michael Bagley