August 30, 2018 Practice Points

Appraisal Clauses: the Policyholder’s Friend or Foe?

The appraisal clause in your property policy may be a useful tool in proving both damages and causation

by Brent W. Huber and Christine D. Astbury

Although often overlooked, the appraisal clause in your property policy may be a useful tool in proving both damages and causation. Like all policy terms, appraisal clauses vary from policy to policy, but they typically allow the insurer or the insured to demand an independent estimate of the claimed loss. Many states – not exclusively including Texas, Minnesota, and most recently, Iowa – hold that appraisers may allocate damages between covered and excluded perils, thereby weighing in on the question of causation.

In Philadephia Indem. Ins. Co. v. WE Pebble Point, 44 F. Supp. 3d 813, 818 (S.D. Ind. 2014), an Indiana district court addressed these issues. The court explained that it “would be extraordinarily difficult, if not impossible, for an appraiser to determine the amount of storm damages without addressing the demarcation between ‘storm damage’ and ‘non-storm damage.’” In that case, the cause of roof damage to an apartment complex was disputed. The policyholder contended the damage was caused by Hurricane Sandy’s inland leftovers, while the insurance company claimed the damage was caused by construction defects. The policyholder challenged the insurer’s conclusions and demanded an appraisal under the policy’s appraisal clause, which, by its explicit terms, applied where the parties “disagree[d] on the value of the property or the amount of ‘loss’…” The insurance company refused and filed suit seeking a declaration that an appraisal was not appropriate because the parties’ dispute concerned the scope of covered damages, not just the amount of the loss. In rejecting this argument, the court clarified that “[t]o hold otherwise would be to say that an appraisal is never in order unless there is only one conceivable cause of damage—for example, to insist that ‘appraisals can never assess hail damages unless a roof is brand new.’” Id.

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