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Appraisal Provision Enforced

In a dispute involving the appraisal provision of a residential insurance policy, the Eastern District of Pennsylvania granted an insurer’s motion to dismiss a breach of contract claim after finding that the insured’s claim was a dispute over the value of the loss, not a coverage dispute, and that the claim must proceed with the appraisal process set forth in the policy.  The Court additionally stayed the insured’s bad faith claim pending the completion of the appraisal process.  See Bussie v. American Security Ins. Co., 2021 WL 2206282 (E.D. Pa. Jun. 1, 2021).

In Bussie, the insured filed a claim with her insurer after her home was damaged in a fire.  The insured’s public adjuster inspected the premises and estimated damages to be $328,573.68.  The insurer retained its own adjusting firm, which initially assessed the damages to be $317,826.07 for the same areas to the home covered by the insured’s adjuster.  After a series of revisions, the insurer’s adjusting firm ultimately reduced the estimated the damages to be $74,261.96, and the insurer issued a check payable to the insureds for this amount less the deductible and a deduction for depreciation.

Recognizing that there was a dispute as to the amount of the insured’s loss, the insurer sent a letter to the insured’s public adjuster to invoke its right to an appraisal as outlined in an Appraisal Provision of the insured’s residential insurance Policy.  Per the Appraisal Provision, either party may demand an appraisal of the loss when there is a disagreement on the amount of the loss.  The insurance policy further provides that no action can be brought unless the policy provisions, including the Appraisal Provision have been complied with.  The insured did not identify an appraiser as required by the Appraisal Policy and instead initiated suit against her insurer and the insurance adjusting company.  The insured asserted claims against the insurer for breach of contract and statutory bad faith, among other claims.  The insurer moved to dismiss all claims.

The insurer argued that the breach of contract claim should be dismissed because it invoked its right to appraisal under the Policy’s Appraisal Provision and, pursuant to the terms of the Policy, the insured is required to engage in the appraisal process prior to commencing suit.  The insured argued that the appraisal process is neither mandatory nor appropriate because her Complaint alleges a coverage dispute, as evidenced by the insurer’s rejection of certain line items of damages and refusal to pay the majority of the claimed loss.  In rejecting the insured’s argument that there is a coverage dispute, the Court recognized that two adjusters preparing appraisals for a fire loss may disagree as to the scope of damage caused by the fire, and that this does not suggest that coverage is in dispute.  Accordingly, the Court dismissed the breach of contract claim, noting that the insured must proceed with the appraisal process.

In support of dismissal of the bad faith claim, the insurer argued the Complaint fails to allege the necessary elements of a bad faith claim because it fails to allege facts that support an inference that the insurer either denied the insured’s claim or acted knowingly or recklessly in doing so.  The Court, however, disagreed with the insurer’s characterization of the bad faith claim and found that the insured’s bad faith claim was grounded largely on allegations that the insurer worked together with the insurance adjusting firm to reduce the loss estimate prepared by the field adjuster.  Consequently, the Court stayed the bad faith claim pending completion of the appraisal process.