Smith Jadin Johnson, PLLC recently won a decision in the Federal District of Minnesota compelling a reluctant insurer to participate in an appraisal of a disputed insurance claim. After the insured demanded an appraisal, the insurer commenced litigation seeking to avoid coverage for the claimed loss and refused to participate in appraisal.
The appraisal process is a statutorily mandated alternative dispute resolution procedure mandated in all fire insurance policies and hail insurance policies in the State of Minnesota. See Minn. Stat. § 65A.01, Subd. 3 and Minn. Stat. § 65A.26. In practice, the appraisal provision found in most property insurance policies applies to any covered cause of loss.
“Appraisal is a non-judicial method to resolve disputes over the amount of a loss.” Johnson v. Mutual Service Cas. Ins. Co., 732 N.W.2d 340, 342 (Minn. Ct. App. 2007). Over the course of years, Minnesota courts have sought to define and clarify the scope of an appraisal and the authority of the appraisal panel. As a general matter, the appraisal panel is the fact finder but the court determines coverage. An early case defined the scope of what an appraisal panel may decide stating:
Appraisers must determine many matters other than the mere value of specific property produced before them for examination and appraisal. They must determine the quantity of property covered by the policy and on hand at the time of the loss, the quantity destroyed, the quantity damaged, whether the damage resulted from causes covered by the policy or from other causes not covered thereby, and various other questions, both of law and fact, upon which the parties may differ.
American Cent. Ins. Co. v. District Court, Ramsey County, Dist. Court, 2nd Dist., 125 Minn. 374, 378 (1914).
The scope of an appraisal was further clarified in a much more recent case stating that a determination of the cause of loss is within the authority of an appraisal panel. Quade v. Secura Ins., 814 N.W.2d 703, 706-707 (Minn. 2012). Importantly, an appraisal should generally take place before suit is commenced. Id. at 708. Of course, any liability questions are reserved for the courts. Itasca Paper Co. v. Niagara Fire Ins. Co., 175 Minn. 73, 78 (1928).
The general requirement that an appraisal take place prior to litigation is not universal and in other jurisdictions, coverage issues are more typically resolved in the courts before an appraisal occurs. In those jurisdictions, insurers may sue their insureds to avoid coverage. Litigation is expensive and time consuming and the costs and expenses of litigation are not typically recoverable even if the insured wins in court. As a result, insureds may not be able to continue the fight for coverage in a disputed insurance claim when the costs and expenses approach or exceed the amount of the loss. This scenario may be most common in property damage claims involving single family homes and low dollar damage claims.
In this case, the attorneys at Smith Jadin Johnson, PLLC successfully argued that the Quade decision was the controlling law on the issue whether an appraisal is appropriate and that the insurer must participate in appraisal, which serves to obtain, “a plain, speedy, inexpensive and just determination of the extent of the loss.” See Kavli v. Eagle Star Ins. Co., 206 Minn. 360, 364 (1939).
If you have questions regarding your options with a denied or underpaid insurance claim, give us a call at 888-495-9140.
-Bradley Hammond, Attorney @ Smith Jadin Johnson, PLLC