INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Sorry, you’re bound by the appraisal
Mesco Manufacturing, LLC, (Mesco) filed a claim under its business insurance policy that was issued by Motorists Mutual Insurance Company (Motorists) with a policy term of September 13, 2017, to September 13, 2018. The loss was to seek repairs to the roofing of its facilities that were damaged during a hailstorm. After disagreeing with the insurer’s offer to pay roughly $7,800, the two parties decided to resolve the matter via the policy’s appraisal provision.
A sticking point was the construction of the roofs. They were constructed of sheet metal, modified bitumen (a waterproof, asphalt membrane) and a form of polymer. The selected appraisers agreed that the metal roofing component suffered damage. However, they did not reach an agreement about damage to either the modified bitumen or polymer portions.
In the midst of the appraisal, Motorists hired an engineer to inspect the roofs. The engineer reached the conclusion that there was no damage to either the modified bitumen or polymer portions. The result was that Motorists wanted to exclude those portions from consideration in any appraisal decision.
The appraisal process was finalized when one of the appraisers and the appraisal umpire reached two award decisions. They were based on recognizing damage to the sheet metal and the bitumen roofing. The awards were for slightly over $1 million (based on replacement cost) and just under $900,000 (based on actual cash value). Motorists ignored any mention of damage beyond that involving sheet metal. Their decision resulted in issuing a payment of roughly $265,000.
Mesco filed a lawsuit based on breach of contract. It asked that Motorists honor the award amount reached by the appraisal process. Motorists filed a cross-motion. After a district court ruled in favor of Mesco, Motorists appealed.
The higher court focused on the defendant’s following arguments: One, that the appraisal umpire exceeded his authority by considering a coverage (causation) issue instead of solely making a determination of a loss amount. Two, that it still held a right to deny coverage rather than be bound by the appraisal result.
The court’s examination included analysis of several cases offered by Motorists in support of its argument as well as others that the court found pertinent. While the court agreed that appraisers are not tasked to determine causation issues, on the other hand, it reasoned that it was valid for the appraiser umpire, in this case, to consider storm vs. non-storm damage. Since some level of causation issues are a part of appraising, the court found that the appraisal umpire was acting with his authority.
Next, the court took up Motorists’ argument of its right to deny compliance with the appraisal decision. While the court recognized that the Motorists’ appraisal provision did contain language regarding a denial, it did not find justification for exercising it.
The court pointed out that appraisals are often useful as a method of claims resolution and that it, in this case, bound the participants to accept the results as the parties volunteered to do so. Further, there was no evidence that the particular appraisal decision involved inappropriate actions such as fraud, collusion or the application of another valid policy provision.
In accordance with its review, the higher court ruled in favor of Mesco, affirming the lower court decision that the insurer was obligated to honor the full appraisal award.
Mesco Manufacturing, LLC v. Motorists Mutual Insurance Company—United States Court of Appeals, Seventh Circuit—No.24-1307—July 25, 2025.
