Florida 2nd DCA Distinguishes Value of Loss from Questions of Coverage

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

While the appraisal process can be an effective way to resolve insurance disputes, there are only specific situations when a policyholder or an insurance carrier can assert the right to submit the claim to appraisal as defined under the policy.  Appraisal is limited to situations where the insurance company does not dispute that the peril or loss is covered by the policy.  In other words, the insurance company concedes liability but contests the scope or value of the loss.  While the distinction between coverage questions and the extent of loss might seem straightforward, this issue can be a source of contention.

The Florida Second District Appellate Court in Cincinnati Insurance Company v. Cannon Ranch Partners recently decided a case that addressed the distinction between a coverage issue and the extent or scope of loss.  Cannon Ranch Partners obtained an insurance policy from Cincinnati Insurance Company that included sinkhole coverage.  The insurer hired AMEX Environmental and Infrastructure to investigate the damage.  AMEX determined that the damage was caused by sinkhole activity and recommended that the issue be corrected by using shallow chemical grout and perimeter compaction grout.  The company estimated that cost of this remedial strategy would be approximately $220,000. 

The insured objected to the report which indicated that underpinning was not necessary.  The policyholder also contended that the investigation was biased because the company that conducted the investigation was retained by the insurer.  The insurer responded by indicating that the insured could propose a list of five experts from which the insurer would select one.  The procedure was followed; the new report prepared by C.E. Odell & Associates found that underpinning was necessary and estimated the cost of repair at approximately $495,945.

Predictably, the insurance carrier did not agree with the new report and retained a third company to conduct a “peer review” of the prior reports.  The new company not only disagreed with the recommendation for underpinning but also concluded that the C. E. Odell report did not provide evidence of a need for shallow chemical grout.

The policyholder retained RAB Foundation Repair to perform the repairs in accordance with the recommendations of C.E. Odell contingent on approval from the insurance company.  The insurer did not approve the contract for repairs and asserted its right to submit the matter to appraisal under the policy.  Paragraph 2 of the policy provided in pertinent part:

“If we and you disagree on the value of the property, the amount of net income and operating expense, or the amount of “loss”, either may make written demand for an appraisal of the loss . . . .  If there is an appraisal, we still retain our right to deny the claim.”

The insured refused to submit to the appraisal process and filed a lawsuit for breach of contract.  The insured relied on two arguments: (1) appraisal is not mandatory under the policy; and (2) the dispute was a coverage question, which is a matter for litigation.  The trial court ruled in favor of the policyholder, and the insurance company appealed.

On appeal, the court observed that the policyholder’s first argument was based on the position that the appraisal process was not mandatory because the insurance carrier reserved the right to deny the claim following appraisal.  The appellate court rejected this argument finding that the “retained rights” clause was permissible unless if violated statutory law or public policy.  Because the policyholder failed to indicate that the retained rights provision of the contract violated applicable law or public policy, the court rejected the argument that appraisal was not mandatory under the agreement.

In turning to the second issue, the court observed that the issue of coverage is exclusively a judicial issue that does not arise when the insurer admits the insured has experienced a covered loss.  The appellate court noted that the issue of determining loss includes both the amount and extent of the loss.  Based on this premise, the court ruled that identifying the repairs needed to restore the business under the commercial policy concerned the value of the loss rather than a question of coverage.

If you are a policyholder with questions about the appraisal process or your litigation rights, we can answer your questions and protect your rights.  We invite you to contact my Florida insurance claims dispute law firm.  My law firm represents policyholders in claims disputes in Miami and throughout Florida.  The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations.  No Recovery, No Lawyer Fees.  Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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