This blog has previously analyzed a series of cases considering the type and extent of litigation activity by an insured that constitutes a waiver of the right to compel the appraisal process. Generally, these cases establish that the lapse in time between an acknowledgement of coverage and demand for appraisal is relevant, but the passage of time alone is not dispositive. When a policyholder engages in litigation activity, such as extensive discovery, which is inconsistent with appraisal, this type of conduct can constitute a waiver of the appraisal process.
The Facts of FIGA v. Hunnewell
The Florida Second District Court of Appeals case of Florida Insurance Guaranty Association, Inc. (FIGA) v. Hunnewell addresses multiple issues including conduct that constitutes waiver of the right to appraisal. The policyholders discovered sinkhole damage to their home on November 14, 2008 which they reported to their insurer on August 21, 2009. The insurer hired an engineering firm which recommended subsurface repairs including deep-grout injection. The insurer retained a contractor who performed the suggested work which was completed on February 23, 2010. The insurer also acknowledged coverage and tendered payment for cosmetic repairs.
The policyholders found the repairs to be inadequate and hired their own expert to conduct a peer review of the expert report prepared by the insurance company. The insureds’ expert determined that the repairs were not sufficient and recommended a system of underpinning at an additional cost of $82,000. The insurer requested a neutral evaluation of the dispute. The evaluator concluded that settlement after the repairs of 0.3 to 0.7 inches might reflect minor additional structural movement related to the grouting. These changes were both expected and normal following the repair process according to the evaluator. He recommended some additional work but did not conclude that underpinning was necessary. After the appraisal report, the policyholders filed a notice for jury trial on May 1, 2011. The insurer went into receivership, and an automatic stay took effect. The policyholders filed an amended complaint substituting FIGA on June 8, 2012.
After both sides engaged in some discovery, the policyholders formally filed to compel appraisal on July 21, 2013. FIGA responded with two separate arguments: (1) method of repair does not constitute proper subject matter for appraisal; and (2) the insured waived the right to appraisal. While the trial court ordered appraisal, the appellate court reversed.
Method of Repair as Appraisal Issue
FIGA contended that the issue of the proper method of repair did not constitute an issue that could be addressed through the appraisal process. The insurer specifically contended that the appraisal provision in the policy only authorized appraisal of the “amount of loss” not the “method of repair.” Based on prior case law, the court observed that when an insurer admits a loss is covered, a disagreement on the value of the loss is appropriate. The court reasoned that the issue of the type of repairs that are necessary to repair the home is a question related to the value of the loss not the issue of coverage. Since the parties did not have any dispute regarding coverage, the only remaining issues were the scope and method of repair which were inextricably linked to the value of the loss.
The appellate court also ruled that the policyholders engaged in litigation activity constituting a waiver of the right to compel appraisal. The court indicated based on prior decisions, that a party seeking to compel appraisal waives the right to appraisal by engaging in conduct inconsistent with the appraisal process. When the policyholders filed their amended complaint against FIGA, there was not mention of the appraisal process. They also filed a notice to set trial and engaged in discovery after FIGA was substituted as the defendant. The insureds also waited approximately 2.5 years after filing their lawsuit to request appraisal. These acts of litigation were sufficient to constitute a waiver of the right to compel appraisal.
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