By Alexa Lester
Missouri courts have consistently held the only issues appropriate for an appraisal pursuant to a provision in an insurance policy were those regarding or relating to the amount of loss. However, homeowners and insureds routinely and successfully include and interject coverage issues and disputes regarding the scope of damage into the appraisal process.
Notably, last month the Missouri Court of Appeals for the Western District found in favor of State Farm in a dispute involving an appraisal. See Brewer v. State Farm Fire & Cas. Co., WD84331 (Mo. Ct. App. W.D., March 8, 2022). In Brewer, the insureds’ home was damaged by a tree during a storm, and the insureds subsequently made a claim for property damage with State Farm. State Farm sent a contractor to the home to inspect the damage and prepare an estimated cost of repair. State Farm’s contractor estimated the value of the loss to be $66,772.77. The insureds then sent State Farm an estimate for repairs in the amount of $153,140.16. State Farm rejected the insureds’ estimate because it contained multiple items outside the scope of coverage.
The insureds then submitted a request for appraisal to State Farm. State Farm denied the insureds’ request. The company explained that the appraisal provision contained in the policy “is to resolve differences in the price of the repairs which State Farm determined are covered. Appraisal cannot be used to resolve differences about the scope of work to be performed or coverage provided by contract.” The insureds subsequently filed a motion to appoint an umpire. The company opposed the appointment of an umpire on the basis the dispute was a question of coverage and not the amount of loss, and that numerous issues about coverage needed to be resolved before an umpire was appointed. The Circuit Court appointed an umpire over State Farm’s continued objection.
On appeal, the insureds argued the appraisal provision applied because the dispute was over “the amount of the covered loss.” However, State Farm disputed the amount of damage caused to certain interior portions of the home, the extent of necessary roof repair, and the scope of necessary structural repair.
Brewer reiterates established Missouri law pertaining to appraisal. The Court noted that disputes concerning the extent of damage to covered property, and the extent of the repairs necessary to address covered damage, is a coverage issue rather than merely a dispute over the amount of the loss. The Court found State Farm’s objections to the appraisal related to the extent of the company’s liability and, therefore, constituted coverage disputes.
Importantly, Brewer goes further than prior Missouri cases analyzing appraisals pursuant to insurance contracts. In Brewer, the Court ultimately held: (1) “[u]ntil the parties determine and resolve the coverage issues…the appraisal provision is not applicable and the appointment of an umpire is not appropriate”; and (2) the insureds’ request for an umpire under the policy’s appraisal provision was premature.
Brewer makes clear that questions of coverage, including what portion and extent of the damage is considered “covered” under a policy, relate to a company’s liability or, more accurately, the extent of its liability. Thus, under Brewer, coverage issues must be resolved first and cannot be resolved using the appraisal provision of a policy.
Until now, insurance companies have been in the position where, after an appraisal, it issues a supplemental and partial payment to an insured for appraised covered damage. The companies are forced to deny payment for the entirety of an appraisal award due to remaining coverage issues. More often than not, the claim ends up in litigation because of those underlying coverage disputes. The recent decision avoids duplicity of litigation by requiring coverage issues be resolved before demanding appraisal. Companies will no longer have to incur the costs of both a premature appraisal and any subsequent litigation to resolve outstanding coverage disputes.
The recent decision includes a welcomed recitation and clarification of Missouri law relating to insurance appraisals. The decision includes additional explanation regarding the differences between a dispute as to the amount of a loss versus a dispute relating to coverage, liability, or the extent of liability. Finally, and perhaps most important, the decision unquestionably bars insureds (and insurance companies) from prematurely demanding appraisal or utilizing appraisal to resolve coverage disputes.
For a full copy of the opinion, please see Brewer v. State Farm Fire & Cas. Co., WD84331 (Mo. Ct. App. W.D., March 8, 2022).