First things first
North Glenn Homeowners Association sustained hail damage as a result of the July 15, 2009 storm. Their insurance carrier paid them approximately $125,000 for the damage. The Association decided to fix a portion of the hail damage and the remaining balance of the settlement was used to make other repairs and improvements. State Farm only discovered this when they arrived to settle another claim for wind and hail that occurred on March 22, 2011. State Farm decided that their portion of the new claim was under the deductible so did not make any payment.
North Glenn wanted to activate the Appraisal Clause but State Farm refused and argued that the clause didn’t apply because damage for the covered loss did not exceed the policy deductible.
Here is how how the appellate court ruled.
North Glenn Homeowners Association was an association of property owners in Johnston, Iowa. On July 15, 2009, North Glenn submitted a claim under a policy issued by State Farm Fire & Casualty for hail damage sustained to a roof. The claim, in excess of $125,000, was paid. North Glenn did not repair all of the damage, electing instead to use some of the money to make other repairs and improvements to the property.
On March 22, 2011, a second storm hit the development. North Glenn filed an additional claim for wind and hail damage. A State Farm employee inspected the property and determined the hail damage was from the 2009 storm and was not covered. The wind damage was estimated to be less than the policy deductible. A second roofing expert agreed with State Farm’s assessment.
On November 11, 2011, North Glenn made a demand for appraisal, as provided for in the policy. State Farm agreed to an appraisal of the wind damage but refused an appraisal of the hail damage. North Glenn filed a petition for declaratory judgment on March 19, 2012, requesting a determination of coverage issues, seeking an order for appraisal, and alleging a breach of contract. On March 11, 2013, North Glenn filed a motion to compel appraisal, which the district court granted. State Farm appealed.
On appeal, State Farm claimed the district court erred in ordering an appraisal that required the appraisers to make causation determinations beyond their authority. The dispute was whether causation and coverage issues were to be determined by the appraisers or by the court. State Farm also claimed the motion to compel the appraisal should have been denied as there was no loss for the appraisers to examine.
The Iowa Court of Appeals stated: “As part of the appraisal process, appraisers must determine what the amount of ‘loss’ is, which often requires consideration of causation. Causation is an integral part of the definition of loss, without consideration of which the appraisers cannot perform their assigned function. During the appraisal process, the appraisers must consider what damage was caused by hail, and what damage was not, or damage with which they are unconcerned, such as normal wear and tear. We are convinced to hold otherwise would improperly limit the appraisal process to situations where the parties agree on all matters except the final dollar figure.”
The second question on appeal was whether the district court should have ordered the appraisal process to begin before the coverage disputes were resolved. Referring to the wording of the policy’s appraisal clause, the court held that where a party has demanded an appraisal, the process should go forward with other determinations waiting until after the process has been completed. Accordingly, the court found that the judicial determination of coverage need not be made before an appraisal was conducted. The court stated: “Having determined the appraisers must consider causation and engage in the appraisal process before coverage issues are determined by the district court, we do not address State Farm’s claim that only the wind damage should be appraised.”
The judgment of the district court was affirmed.
North Glenn Homeowners Association vs. State Farm Fire & Casualty Co.-Iowa Court of Appeals-July 16, 2014-854 N.W.2d 67.
What is an Appraisal Clause?
The appraisal condition or clause is part of most property-related coverages because it provides a process to resolve differences of opinions without involving a court. Each side selects its own competent and impartial expert and those experts then agree upon an umpire. The umpire has the final decision if the two experts cannot agree.
Below is the PF&M analysis of the ISO Homeowners Appraisal Condition and the ISO Commercial Property Appraisal Loss Condition.
If the “insured” and the insurer disagree on the amount of loss, either party can demand that the loss be appraised. In this process:
· each party chooses a competent, impartial appraiser no later than 20 days after getting the other party’s request for an appraisal,
· the two appraisers will choose an umpire
· each party has to share the cost of the judge and pay the entire expense for their own appraiser.
If the appraisers cannot agree upon an umpire within 15 days, either the insurer or the “insured” can ask that a judge be selected by a court of record in the state where the “residence premises” is located.
The appraisers have to submit separate opinions on the loss amount and an agreement (submitted to the insurer in writing) between any two persons (among the appraisers and the judge) becomes binding on both the insurer and the policyholder.
CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM ANALYSIS
E. LOSS CONDITIONS
The insurance company and the insured may occasionally disagree on the value of property or on the actual amount of loss. The appraisal condition is designed to resolve these disagreements without a court intervention. In the first step, one party decides it has reached an impasse with the other party and makes a written request for an appraisal. Each party then hires an independent appraiser. Each appraiser must be both competent and impartial.
Example: Jane is the insured and her insurance company is Bargun-Downe Property Company. They disagree on the value of the roof damaged by a lightning strike. They both agree to submit the dispute to appraisal. Jane selects an experienced appraiser who just happens to be her brother. Bargun-Downe selects a totally impartial party who does not have any appraisal credentials. Both appraisers are rejected. Jane’s selection is biased and the company’s selection is not qualified.
The appraisers then choose an umpire. If they cannot agree on one, they can request that a judge of a court that has jurisdiction select one. Once all parties are selected and are in place, each appraiser states the value of the property and the amount of loss. If both parties agree, the amount of loss is settled. Only disputed amounts are submitted to the umpire. Any decision made by any two of the three is binding on both the insurance company and the insured.
The expenses associated with this process fall outside the category of expenses the coverage form pays. The insured pays the following costs or expenses. The insurance company does not reimburse it for them:
* Its appraiser
* Its equal share of the cost of the umpire
* Its equal share of any other appraisal expenses
The insurance company pays the following costs and expenses. None of these expenses reduce the limit of insurance:
* Its appraiser
* Its equal share of the cost of the umpire
* Its equal share of any other appraisal expense
Example: A tornado seriously damages Baron’s Furniture Store. Furniture is strewn over many city blocks. Sheila is the owner and believes the value of the loss is $560,000, based on her inventory records. The Cheapskate Mutual claims representative visits the store, views both damaged and undamaged merchandise, and determines the loss to be $350,000. Each side presents its case to the other but the impasse cannot be resolved. Sheila needs to restore the inventory in order to get back in business. She sends a letter to Cheapskate and requests an appraisal. Each party selects a qualified and impartial appraiser but cannot agree on an impartial umpire. They ask a local judge to select one and he does so. Sheila’s appraiser determines the loss to be valued at $625,000 but Cheapskate’s appraiser determines a value of the loss of $450,000. The umpire reviews their figures and agrees with the insured on some items and with Cheapskate on others. The final settlement is $510,000. Each party bears its own expenses for the appraisers and umpire but the agreed value of the loss is $510,000.
Conditions – neglected but not forgotten
All policies start with a very broad insuring agreement that is narrowed considerably over the next 5 to 40 or more pages. Unfortunately, the only parts of the policy that may be read are the coverage descriptions and the exclusions. This cursory reading leads to gaps and mistakes. When a loss occurs, the most important part for an insured may be the conditions, especially the loss conditions. These spell out the responsibilities, of both parties. If either fails to meet its obligations, a breach of contract can occur. The insurance company knows their responsibilities so it is the insured that is often unfamiliar with his or her responsibilities that may breach and lose the coverage without even realizing it.
Please read the PF&M Analysis that describes and explains the ISO Homeowners and the ISO Commercial Property Duties of the Insured following a loss conditions.
C. Duties After Loss
This provision reinforces an insured’s prime obligation to strictly comply with its requirements. It mentions that if an insured fails to perform the duties, and if that failure adversely affects the insurer, the insurer is no longer obligated to provide coverage. An insured’s cooperation is critical to an insurance company’s ability to perform under the insurance contract.
Related Court Case: Uncooperative Insured Can’t Seek Arbitration.
In case of a loss to covered property, the named insured, the insured seeking coverage or a representative of either party is responsible for:
1. Giving prompt notice to the insurance company or the insurance company’s agent.
Related Court Cases:
Notice To Broker Was Not Notice To Insurance Company
Notice To Independent Agent Or Broker Held Not To Be Notice To Insurer.
2. Notifying the proper authorities in case of loss by theft.
3. Notifying the credit card or electronic fund transfer card or access device company in case of loss under credit card, electronic fund transfer card or access device, forgery and counterfeit money coverage.
Please see this analysis’s discussion of this coverage in item E.6. Additional Coverages.
4. Protecting the property from further damage.
If repairs to the property are necessary, the insured is required to do both of the following:
* Make reasonable and necessary repairs to protect the property
* Keep an accurate record of repair expenses because most are covered under the policy..
If a homeowner kept materials or supplies on hand to help protect the covered property from loss, the policy should also protect such property if it were stolen or destroyed by a listed or eligible cause of loss.
5. Cooperate with the insurance company in the investigation of a claim.
This item acts as an important reminder that the insured must be an active and willing participant in the claims process.
Example: The Stonewall Family submitted a claim for $22,000 of damaged property because of a smoke loss. The Stonewalls sent in a detailed list of very expensive electronic equipment and leather furniture. Most of the equipment and furniture was bought in the last year. However, the Stonewalls had no store receipts, or warranty information. Further, the Stonewalls said that the debris was cleared immediately and unavailable for display. Nay Eve Property and Casualty Insurance’s adjuster denied the claim because they were unable to view the damaged property or substantiate the loss.
6. Prepare an inventory of damaged personal property.
The inventory must show the quantity, description, actual cash value and amount of loss. The “insured” should also attach any bills, receipts and related documents that will justify the figures reported in the inventory. This condition is unchanged from earlier editions of the Special Form policy.
Related Article: Actual Cash Value Guide.
7. As often as is required by the insurance company, the insured must do all of the following:
a. Show the damaged property
b. Provide the insurance company with the records and documents that they request and allow them to make copies
c. Submit to and sign an examination while under oath and without being in the presence of any other “insured”
This condition may appear to be heavy-handed, but the insurer is in the vulnerable position of having to rely on the insured concerning the scope of the loss. The insurer is merely asserting its chances of getting accurate information for investigating a claim. Unfortunately, this condition often becomes a battleground between insurers and claimants. The interests of insureds may have been better served if this condition contained some wording that obligated an insurer to exercise courtesy and reasonableness when enforcing this provision.
8. The named insured must send to the insurance company, within 60 days after its request, a signed, sworn proof of loss which to the best of the named insured’s knowledge describes the following:
a. The time and cause of loss
b. The interest of all “insureds” and all others in the applicable property, including all available information on any property liens
c. Other insurance which may cover the loss
d. Information concerning any status changes affecting the property’s legal ownership (title) or occupancy that took place during the policy term.
e. Any details on the damaged buildings regarding repair estimates and specifications
f. The inventory of damaged personal property described in an earlier part of this section
g. Additional living expense receipts and other information that can document a loss involving fair rental value
h. Any evidence or affidavit necessary to document a claim under the credit card, electronic fund transfer card, or access device, forgery and counterfeit money coverage, which verifies the amount and the cause of loss.
Related Court Case: Confusion Caused By Treatment of Proofs of Loss
CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM ANALYSIS
E. LOSS CONDITIONS
3. Duties in the Event of Loss or Damage
The insured is expected to act reasonably whenever a loss occurs. If not, the company’s obligation to pay the loss may end. The named insured must:
* Notify the police or other law enforcement authorities if a law may have been broken. Even though this requirement may sound obvious, the circumstances surrounding a loss may make this issue more complicated than it appears.
Scenario 1: A theft occurs at Paul’s Camera Shop. Paul reports the loss to the insurance company. It begins to adjust the loss and discovers that Paul did not make a police report. He explains that he suspects that a relative may be involved and doesn’t want to get her in trouble.
Scenario 2: A fire destroys Jerry’s warehouse. The insurance company adjuster discovers that a local gang may have started the fire. Jerry does not fill out a police report because he fears reprisal.
In cases like these, the insurance company has the right to refuse to pay the loss. It needs this requirement to protects its interests, which include being certain that the claim is legitimate as well as making sure there is a chance that the responsible parties are found and punished. When theft of property is involved, police involvement increases the chances that the property will be recovered.
* Give prompt notice to the insurance company of loss or damage and describe the property involved. This notice is not a complete and thorough report. It provides only enough information for the insurance company to begin to process the claim and decide how to respond. Some court cases have challenged the meaning of “prompt.” As a result, the best advice is for the insured to send as much loss information to the insurance company as soon as it knows that a loss has occurred.
Related Court Case: Two-Year Limitations Period To File Claim Began To Run On Date Of Fire
* Give a description of how, when, and where a loss occurred as soon as possible after it occurs. This requirement is slightly different than the prompt notification obligation. That obligation is to inform the insurance company on a timely basis that a loss has occurred. This obligation assists the company to determine if the loss is actually covered.
+ HOW is what actually caused the loss. The answer determines if the loss is covered.
+ WHEN is the exact time the loss occurred. Because coverage applies only if the loss occurs during the policy period, this information is very important. There is coverage if the loss occurs at 12:02 a.m. on the inception date. There is no coverage if it started at 11:59 p.m. the day before the inception date. In addition, accurate information on when the loss or damage occurred may help resolve whether the loss occurred suddenly or over a period of time. This is important. There is a distinction because sudden losses tend to be fortuitous and covered while losses that take place over a period time may be maintenance issues that are not covered.
+ WHERE is important because most coverages require that the property be at a location or premises listed on the declarations. If the loss occurs elsewhere, the coverage form must be examined carefully to determine if any coverage applies at such locations.
· Take appropriate steps to protect the covered property from any further damage. The time to take that annual Florida vacation is never immediately after a loss occurs. The requirement to protect property involves taking reasonable measures, not extraordinary or unreasonable ones. Covering property with tarps to protect against moisture damage, boarding up windows, and hiring security guards are examples of reasonable measures to take after a loss. Any expenses the named insured incurs are taken into consideration in the loss adjustment and settlement but paying these expenses does not increase the limit of insurance. Finally, the named insured should separate the damaged property from undamaged property and set the damaged property aside for examination whenever possible.
Example: The front window of Haptown Appliances blows in during a violent thunderstorm. Flying glass, debris, and water badly damage the televisions on display. The police notify the owner and the owner informs his insurance agent and the insurance company. When the storm ends, the owner goes to the store and evaluates the situation. His immediate concern is that the security system no longer works. He purchases lumber, boards up the window, and contacts the alarm company. The alarm company recommends a security company that can provide extra security until the window is repaired and the alarm system is put back into operation. After these arrangements are in place, the owner examines the appliances and moves the damaged ones to the rear of the store and begins to clean-up. The insurance company includes the expenses for temporary security and boarding-up the window in the loss adjustment and settlement.
* Provide inventories of damaged and undamaged property when the insurance company requests them. This includes quantities, costs, values, and the amount of loss claimed. This detailed information is important to properly adjust the loss and offer a fair settlement. The named insured controls the inventory and is responsible for supplying the information needed.
* The insurance company has the right to verify that the information the named insured provides is accurate and correct. For this reason, it may inspect the property in order to prove the loss or damage. It may also examine the insured’s books and records that relate to the loss or damage. The insurance company can also take samples of the damaged and undamaged property and make copies of the insured’s books and records.
This condition states that the insurance company must be reasonable in its requests. Because reasonable is not a defined term, the two parties might disagree about the intent of this condition. For example, the company may state that repeat visits are necessary in order to be thorough. The insured may view the same actions as being a delaying tactic that slows down the settlement. While the essence of this condition is to prevent the insurance company from harassing the insured, it also benefits the company. Because of the way it is written, an uncooperative insured cannot claim that a single visit is sufficient for the carrier to adjust and settle a loss.
Related Court Case: Uncooperative Insured Can’t Seek Arbitration (Classic)
* Show good faith in the truth and accuracy of a claim for loss by providing the insurance company with a signed and sworn proof of loss. This must be done no later than 60 days after the company requests it, along with any other information needed. The insurance company provides the necessary forms and instructions on exactly the information it needs.
Note: If the company’s requests are not clear and the insured is confused, any delay in providing the information cannot be used as an excuse to deny coverage.
* Cooperate with the insurance company as it investigates and settles the claim.
In addition to the points outlined above, the insurance company has the right to examine any insured under oath. The examination can take place without another insured being present. The examinations can be done as often as necessary with respect to anything related to either the insurance coverage or the claim itself. They can include examinations of the insured’s books and records. In all examinations, the written document used to record the insured’s answers must be signed.
Related Court Case: Insured Fails to Produce Required Documents Following Fire Loss
Note: Loss investigation is a serious part of the insurance claims process. The insurance company must have complete access to information as necessary to investigate and settle the claim. This may include information the insured would rather not disclose. Claims adjusters want to believe their insurance customers are honest but the sheer number of incidents of fraud makes them cautious. While the insurance company cannot use intimidation or harassment, it must still be diligent in order to protect its assets and to prevent or limit fraud.