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Analysis of New Case Law re: the Scope of Appraisal when Coverage is Partially Denied

Posted by Michael A. Cassel | Jul 27, 2018 | 0 Comments

Analysis and Interpretation by  Michael A. Cassel

On July 25, 2018, the Fourth District Court of Appeals released their decision in Andrea Tracey and James Tracey v. People's Trust Insurance Company, (hereinafter " Tracey").  The Tracey opinion discusses the ability for an appraisal panel to determine causation for a denied portion of a claim when the claim has not been denied in its entirety.

Background and Facts

In 2017, the insureds sustained a loss to their property as a result of a tornado.  People's Trust afforded coverages for the interior damage but denied coverage for the roof stating that said damage was the result of "age-related wear and tear and deterioration; general mechanical breakdown or latent defect; and/or faulty, inadequate or defective maintenance of the roofing system…" [1]  The insureds submitted two (2) estimates, both including roof repairs, and a sworn proof of loss evidencing a disagreement with the carrier's position.  People's Trust then demanded appraisal and sought to have the appraisal panel determine whether the roof damage was caused by the covered tornado or an uncovered cause of loss such as wear and tear.

The insureds filed an action for breach of contract with regards to the denied portion of the claim.  People's Trust moved to compel appraisal arguing that causation was an issue ripe for determination through appraisal.  The insureds countered arguing that, as the roof was denied, there was an issue of coverage to be determined by the trial court.  Ultimately, the court denied the motion to compel appraisal ruling that, because People's Trust made a predetermination that the roof was not covered, appraisal was not an appropriate measure at that time.

4th DCA Opinion

The 4th DCA found that "'causation is a coverage question for the court when an insurer  wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed.' [2] . . . In other words, when an insurer admits coverage and disputes the amount of loss, causation is to be determined by an appraisal panel." [3]  In reaching this conclusion, the court relied upon K endall Lakes Townhomes Developers v. Agric. Excess & Surplus Lines Ins. Co., a Third District Court of Appeal case, where it was determined that a dispute constituted a question as to the amount of a loss despite a partial denial of coverage. [4] Essentially, the 4th DCA found that, if any coverage is afforded, it is proper for an appraisal panel to make determinations with regards to all issues of causation.

Additionally, the 4th DCA held that the insureds' waiver argument, ostensibly due to People's Trust's partial denial of the claim, was without merit as People's Trust did not act inconsistently with their right to appraisal. [5] 

Analysis, Impact, and Effect

First, it is essential to understand the conflicting schools of thought in Florida with regards to the ability to proceed with appraisal when there are outstanding coverage issues.  In the counties governed by the 3d DCA [6] and, subsequently, the 2d DCA, [7] the courts adhere to the "dual-tack" approach to appraisal, to wit, the appraisal may go forward on a "dual track" basis while the insurer preserves their right to contest coverage as a matter of law even after the appraisal has been completed; [8] however, in the counties governed by the 4th DCA [9] the courts have specifically rejected the "dual-track" approach and held that the trial court must resolve coverage issues before sending the parties to appraisal to determine damages. [10]  Based on these conflicting viewpoints, it has been established that appraisal could always move forward in the 2d and 3d DCAs regardless of any coverage issues and appraisal would need to be stayed in the 4th DCA until such a time as coverage was determined in its entirety. 

These maxims regarding appraisal in Florida have long been governed by Johnson v. Nationwide, the same case relied upon, in part, by the Tracey court. [11]  To reiterate the language Tracey cited from Johnson, "causation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed." [12]  This language left the issue of a partial denial of coverage seemingly ambiguous as it only dealt with the extremes.  The responsibility for determining causation in a partially denied claim was not addressed.  Since then, there have been some 4th DCA cases which held that "all" issues of coverage must be resolved before appraisal is ripe; [13] however, in Tracey, the 4th DCA relied upon a 3d DCA opinion to all but resolve this potential ambiguity in finding that there can be outstanding coverage issues as long as the claim was not denied in its entirety.  Considering the obvious discrepancy between the 3d DCA and the 4th DCA regarding the manners in which appraisal is handled, it seems incongruous that the Tracey court would rely upon any persuasive opinions issued by the 3d DCA when there are binding opinions which contradict same.      

There is also a public policy argument to consider which seems lost upon the Tracey court, and most Florida courts for that matter.  The denial of coverage, partial or otherwise, may lead to presuppositions in an umpire who may be otherwise unqualified to render an opinion regarding causation.  The only people truly qualified to make determinations pertaining to causation are licensed professional engineers and, depending on their experience, licensed general contractors; however, it is quite rare to have an umpire equipped with either license.  As such, the court has placed the onus of making a technical determination regarding building and engineering principles upon a person who may lack the qualifications to make such assessments.    

The Tracey court also dealt with an argument regarding the insurer's waiver of appraisal rights.  Waiver is the "voluntary and intentional relinquishment of a known right or conduct which implies the voluntary and intentional relinquishment of a known right." [14]  As discussed above, waiver with regards to appraisal hinges on whether an insurer acted inconsistently with their right to proceed to appraisal. [15]  While the 4th DCA found that the partial denial of the roof in Tracey was not inconsistent with appraisal, there are situations where a waiver argument may be stronger.  For example, there are many circumstances where insurance carriers are simply nonresponsive to supplemental claims and attempt to invoke appraisal after a lawsuit has been properly filed.  Typically speaking, when an insurer is aware of a demand for payment and chooses not to respond until after suit was filed, the insurer's actions are tantamount to a denial of coverage; [16] however, when coverage is denied under an insurance policy, the insured no longer must comply with conditions contained within the policy of insurance. [17]  That said, there is case law holding that an insurer may invoke appraisal for the first time after a lawsuit has been filed as long as they, again, do not litigate inconsistently with their right to appraisal. [18]  The application of these principles remains unclear in a situation where a complete constructive denial of coverage has occurred.  There is an argument that this may be enough to constitute a waiver of an insurer's right to appraisal.  I am sure that this issue will come up soon considering the plethora of supplemental claims stemming from Hurricane Irma to which carriers have been unresponsive. 

It is important to remember that appraisal does not stay a claim for bad faith.  Simply because a carrier has not waived its right to appraisal does not mean that the carrier as acted in accordance with the terms of the policy or governing statutes outlining bad faith conduct.  It is well settled that there are three (3) elements which must be met in order to ripen a bad faith cause of action:  (1) the insurer raises no defense which would defeat coverage, or any such defense has been adjudicated adversely to the insurer; (2) the actual extent of the insured's loss must have been determined; and (3) the insured must be indemnified for its damages after the expiration of a properly served Civil Remedy Notice (hereinafter "CRN"). [19]   To that end, there is no requirement that the CRN be filed at any specific time so it is more than sufficient to file same upon the invocation of appraisal.  Furthermore, Florida courts have consistently held that the payment of an appraisal award after the expiration of a CRN is sufficient to satisfy the conditions precedent to a claim for statutory bad faith. [20]  This will pressure the insurer to complete the appraisal process and tender payment within 60 days or potentially expose the insurer to a bad faith cause of action.  Of course, the strength of the CRN and subsequent bad faith claim will hinge upon the facts of the claim and the actual bad faith conduct which may have occurred.  This course of action may serve to even the playing field as denials of coverage which are ultimately determined to be incorrect through the appraisal process will strengthen any argument for bad faith damages.

Should you have any questions about how this analysis may relate to your own claim,  please do not hesitate to contact us for a free consultation.

[1] Andrea Tracey and James Tracey v. People's Trust Insurance Company, No. 4D17-3945, 2018 WL 3559914, at 1 (4th DCA 2018)

[2]  Tracey  at 2 quoting  Johnson v. Nationwide Mut. Ins. Co. , 828 So. 2d 1021, 1022 (Fla. 2002).

[3]  Tracey  at 2 citing  Kendall Lakes Townhomes Developers, Inc. v. Agric. Excess & Surplus Lines Ins. Co. , 916 So. 2d 12, 15-16 (Fla. 3d DCA 2005).

[4]  Id.

[5]  Tracey  at 2 citing  Fla. Ins. Guar. Ass'n v. Branco , 148 So. 3d 488, 493 (Fla. 5th DCA 2014) ("[T]he question of waiver of appraisal is not solely about the length of time the case is pending or the number of filings the appraisal-seeking party made. Instead, the primary focus is whether the[y] acted inconsistently with their appraisal rights.").

[6] The 3d DCA governs Miami-Dade and Monroe Counties.

[7] The 2d DCA governs Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Hillsborough, Lee, Manatee, Pasco, Pinellas, Polk, and Sarasota Counties.

[8]  Sunshine State Ins. Co. v. Rawlins , 34 So. 3d 753 (Fla. 3d DCA 2010). 

[9] The 4th DCA governs Broward, Indian River, Okeechobee, Palm Beach, St. Lucie, and Martin Counties.

[10]  Citizens Prop. Ins. Corp. v. Michigan Condo. Ass'n,  46 So. 3d 177, 178 (Fla. 4th DCA 2010) (certifying conflict with this Court's decision in  Rawlins );  Sunshine State Ins. Co. v. Corridori , 28 So. 3d 129, 130 (Fla. 4th DCA 2010).

[11]  Johnson v. Nationwide Mut. Ins. Co. , 828 So. 2d 1021 (Fla. 2002).

[12]  Id.  at 1022

[13]  See  supra  note 10.

[14]  Truly Nolen of Am., Inc. v. King Cole Condo. Ass'n, Inc. , 143 So. 3d 1015, 1017 (Fla. 3d DCA 2014).

[15]  See supra  note 5.

[16]  See  Clifton v. United Cas. Ins. Co. of Am. , 31 So. 3d 826, 832 (Fla. 2d DCA 2010);  Sanchez v. Am. Ambassador Cas. Co. , 559 So. 2d 344, 346 (Fla. 2d DCA 1990).

[17]  See Castro v. Homeowners Choice Property & Casualty Insurance Company , 228 So. 3d 596 (3d DCA 2017)  Fabel v. Masterson , 951 So. 2d 934, 935 (Fla. 4th DCA 2007);  Tower Hill Select Ins. Co. v. McKeeIndian River State Bank v. Hartford Fire Ins. Co. , 46 Fla. 283, 35 So. 228, 246 (Fla. 1903);  Hartford Accident & Indem. Co. v. Phelps , 294 So. 2d 362, 365 (Fla. 1st DCA 1974).

[18]  Seee . g .,  Gonzalez v. State Farm Fire & Cas. Co.,  805 So.2d 814 (Fla. 3d DCA 2000) and  Florida Ins. Guar. Ass'n, Inc. v. Castilla , 18 So. 3d 703, 705 (Fla. 4th DCA 2009).

[19]  See   Vest v. Travelers Ins. Co . , 753 So. 2d 1270, 1275-76 (Fla. 2000);  Blanchard v. State Farm Mut. Auto. Ins. Co. v. Laforet , 658 So. 2d 55 (Fla. 1995);  Landers v. State Farm Florida Ins. Co. , 234 So. 3d 856 (Fla. 5th DCA 2018).

[20]  Cammarata v. State Farm Florida Ins. Co. , 152 So. 3d 606 (Fla. 4th DCA 2014);  Demase v. State Farm Florida Ins. Co. , 239 So. 3d 218, 223 (Fla. 5th DCA 2018)

About the Author

Michael A. Cassel

Michael A. Cassel, LL.M., is the managing partner and co-founder of Cassel & Cassel, P.A., where he represents policyholders throughout the state of Florida in first party property insurance claims.  Michael is licensed by the Florida Bar as well as in the Southern, Middle, and Northern Federal Districts of Florida, the U.S. Court of Appeals for the 11th Circuit, and has argued before the Judicial Panel for Multidistrict Litigation.  He has earned an AV Preeminent rating from Martindale Hubbell.  He has also been named a Florida Super Lawyer for the last two years by Florida Super Lawyers Magazine and a Rising Star for the prior six consecutive years, was named as one of South Florida Business Journal's 40 Under 40 for 2020, and one of the Cystic Fibrosis Foundation 40 Under 40 Outstanding Young Professionals of South Florida for 2022.  Michael regularly publishes blogs on newly released case law pertaining to first party property insurance claims and has become a regular on the lecture circuit presenting on topics such as building code compliance, ordinance and law coverage, bad faith litigation, technology in claims adjustment, and providing updates on case law and legislative changes.  He obtained his Masters of Insurance Law from the University of Connecticut in 2023.


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