Source: http://www.myconstructionexpert.com/blog/2018/07/
Timestamp: 2019-04-21 08:40:40+00:00

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July 2018 - Advise & Consult, Inc.Advise & Consult, Inc.
May an Appraiser Advocate for the Party that Appointed the Appraiser?
A Missouri Court of Appeals recently held that an appraiser may advocate for the party that appointed the appraiser as long as the appraiser has no financial interest in the outcome of the appraisal.
acted unprofessionally and aggressively in his communications directed to Allstate.
An appraiser is not required to be entirely impartial. Instead, they may act as advocates for their respective parties without violating their commitments. Here, while [the appraiser’s] communications are certainly ‘aggressive,’ as noted by the trial court, they do not evidence a disqualifying bias against Allstate. Instead, [the appraiser’s] emails evidence his advocacy on behalf of the [insureds]….
These rulings help clarify the line between acceptable advocacy by an appraiser and improper bias or prejudice.
1 Allstate Indem. Co. v. Gaworski, No. ED106079, 2018 WL 3028851 (June 19, 2018).
3 Id. at *2 (citations omitted).
A Connecticut court recently denied a motion to compel appraisal of a claim for coverage of a commercial property damage claim, holding that, where the insurance policy at issue provides for appraisal of disputes related to the value or quantum or a loss suffered—not the rights and liabilities of the parties under the policy—appraisal is premature. The decision relied on law that equates insurance appraisal to arbitration and follows a number of decisions holding that parties cannot expand the scope of appraisal clauses to resolve questions of coverage or liability where, as in this case, those issues are not supported by the applicable policy language.
Ice Cube Building (ICB) owned commercial property in Groton, Connecticut, that was covered by a property insurance policy issued by Scottsdale. Following a winter storm, the weight of the accumulated snow and ice caused the roof to leak and water to enter the building. ICB provided notice of the claim to Scottsdale, which acknowledged partial coverage for the loss. Scottsdale paid the undisputed amount of the claim, but ICB asserted that it had incurred additional, unreimbursed loss in excess of $1 million that was covered by the policy.
When Scottsdale refused to pay, ICB sued in state court for breach of contract and a declaratory judgment that the policy covered all of its unreimbursed losses. After Scottsdale removed the case to federal court and filed an answer and counterclaim, ICB moved to compel arbitration under the policy’s appraisal provision and to stay the litigation.
The parties did not dispute that the policy required appraisal of certain disputes, including appraisal as to the amount of loss, arising from the policy. They disagreed, however, on whether the policy’s appraisal clause requires arbitration of a dispute over coverage of ICB’s claim and not simply the amount of damage ICB asserts remains unpaid.
In its motion, ICB pointed to the disagreement on the “amount of loss it suffered” and its written demand for appraisal, arguing that Connecticut’s arbitration statute and the terms of the policy require the court to appoint an appraiser to assess its unreimbursed losses. Scottsdale countered by arguing that “an appraisal is premature because there are outstanding coverage issues that the Court must address as a condition predicate to the appraisal process.” The Court agreed with Scottsdale and denied the motion.
In reaching its decision, the Court noted that “the Policy unambiguously provides for arbitration of disagreements relating to the ‘value of the property’ or the ‘amount of loss’ suffered by the policyholder.” However, “[b]ecause the Policy expressly provides for the arbitration of disputes related to the value or quantum of a loss suffered—not the rights and liabilities of the parties under the Policy—and the Court may only compel the parties to arbitrate matters which they have agreed to arbitrate under the provisions of the insurance policy, the Court cannot compel the parties to arbitrate the question of coverage . . . .” The Court agreed with Scottsdale’s position that, where coverage is in dispute, those unresolved coverage issues posed antecedent questions for the court and are not appropriate for appraisal. As a result, the court denied ICB’s motion to compel appraisal as premature.
As was the case in Ice Cube Building, courts have followed such unambiguous restrictions on the scope of issues addressed in appraisals and have refused to compel appraisal where disputed issues include questions of coverage and liability. In many cases, insurers attempt to invoke appraisal clauses prematurely, seeking to resolve issues of both the extent of damage and coverage. Interestingly in Ice Cube Building the policyholder attempted to force appraisal, and the insurer correctly noted that, under the terms of the policy, unresolved coverage and liability issues posed antecedent questions for the court to decide that were inappropriate for appraisal. Policyholders should carefully review the proper scope of appraisal provisions in first-party property policies to determine the most efficient and effective way to resolve disputed claims and to ensure that coverage issues are resolved in the appropriate forum or process. The case is Ice Cube Building, LLC v. Scottsdale Insurance Co., No. 3:17-CV-00973 (VAB), 2018 WL 3025037 (D. Conn. June 18, 2018).
Certain aspects of insurance bad faith are well known, particularly to insurance coverage practitioners. For instance, it is widely understood that an insurer commits bad faith if it fails to pay upon or otherwise honor a claim without reasonable justification for its refusal. It is, conversely, generally understood that an insurer cannot be liable for bad faith failure to pay a claim if it obtains a judgment that the claim is not covered. What is less understood, and sometimes overlooked, is that a policyholder may successfully assert a bad faith claim against its insurer, even in regard to a policy claim that is determined ultimately not to be covered, if the insurer commits bad faith in its handling of the claim. In other words, there are two types of bad faith—bad faith denial and bad faith claim handling, and the latter type is actionable regardless of whether the policy claim is covered.
Underlying this dichotomy are two fundamental principles of insurance law. First, an insurer owes its policyholder a duty of good faith and fair dealing, and this duty arises from the nature of the relationship between the two. The duty exists in regard to every claim the policyholder presents, regardless of whether the claim ultimately is determined to be covered. An insurer is not obligated to honor every claim presented to it, but it is obligated to timely, adequately, and properly investigate every claim and to make and communicate a timely determination on each, regardless of whether the determination ultimately is one of acceptance or denial.
Second, bad faith is a tort. An insurer’s bad faith liability, therefore, can exist independently of any contractual liability it may have under its policy. Although a determination that an insurer has no contractual obligation to pay on a claim may, correspondingly, serve to exonerate that insurer from a claim of bad faith failure to pay, such a determination would be immaterial to a claim against the insurer for bad faith claim handling. An insurer has a duty to handle claims submitted to it in good faith, regardless of whether the claims are covered.
An insurer has a duty to act in good faith in the processing and payment of the claims of its insured. A breach of this duty will give rise to a cause of action in tort against the insurer irrespective of any liability arising from breach of contract.
The Court later echoed these concepts in Zoppo v. Homestead Ins. Co., 71 Ohio St. 3d 552, syllabus 1, (Ohio 1994): “An insurer fails to exercise good faith in the processing of a claim of its insured where its refusal to pay the claim is not predicated upon circumstances that furnish reasonable justification therefore.” In finding that the insurer engaged in bad faith, the Court focused on the insurer’s failure to adequately investigate the fire loss claim at issue. Other Ohio courts have followed suit. For instance, in Furr v. State Farm Mut. Auto Ins. Co., 128 Ohio App. 3d 607, 623-626 (Ohio Ct. App. 1998), the Court found bad faith in the handling of an uninsured motorists claim when the insurer conducted a delayed and superficial examination of the claim, and, further, found the claim handling to be sufficiently egregious to support an award of punitive damages. In addition, an insurer’s duty of good faith continues even during the pendency of coverage litigation, and insurers have been found liable for bad faith based upon their conduct in initiating litigation and following the commencement of litigation. (See, e.g., Nationwide Mut. Fire Ins. Co. v. Masseria, 1999 WL 1313637 (Ohio Ct. App. 1999); Zaychek v. Nationwide Mut. Ins. Co., 2007-Ohio-3297 (Ohio Ct. App. 2007)).
As noted above, these concepts are not limited to Ohio. In a recent decision, the Texas Supreme Court echoed many of them. In USAA Texas Lloyds Co. v. Menchaca, 2018 WL 1866041 (Texas 2018), the Court considered bad faith claims made against a homeowner’s insurer. Although it ultimately remanded the case back to the trial court for a new trial based upon irregularities in the initial trial, the Court took the opportunity to articulate various points of insurance bad faith law. It stated that bad faith is a tort that is “distinct” and “independent” from contractual claims under insurance policies. Id. at *5. It noted that bad faith may be predicated upon an insurer misrepresenting a policy’s coverage or engaging in conduct that causes a policyholder to lose policy rights that it otherwise would have had. Id. at *12. It further noted that an insurer’s violation of statutory requirements for insurer conduct, such as exist in many states, under certain circumstances can result in a recovery for the policyholder, even if the policy would not otherwise cover the claim. Id. at *14. Perhaps most generally, it stated, “[I]f an insurer’s statutory violation causes an injury independent of the loss of policy benefits, the insured may recover damages for that injury even if the policy does not grant the insured the right to benefits.” Id. at *5.
These legal principles make clear that insurers should be timely, thorough, and professional in their handling of claims. If they fail to properly fulfill their duties in this regard, they can be liable for bad faith, even in regard to claims that ultimately are not determined to be covered. Policyholders, for their part, should consider whether their insurers have fulfilled both the duty of good faith in regard to claim payment, if the claims are covered, and the duty of good faith in regard to claim handling, regardless of whether the claims are covered. The analysis is incomplete if bad faith in regard to claim payment is analyzed but the “other” type of bad faith is not considered.
The same rules apply generally when a court is reviewing an award that includes an arbitrator’s determination of his/her own authority to decide a dispute (i.e., arbitrability) and that issue was clearly and unmistakably delegated by the parties to the arbitrator for decision. See, First Options, 914 U.S. at 944-45. On the other hand, courts should review de novo an arbitrator’s decision regarding his/her own jurisdiction if it does not appear that the party seeking to vacate such an arbitration award “clearly agree[d] to submit the question of arbitrability to arbitration.” See id. at 946, 947.

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