As a dispute-resolution mechanism, appraisal can be an effective means of resolving a valuation dispute between an insurer and its policyholder. Appraisal provisions may include language that allows an insurer to deny a claim even if an appraisal has already taken place (“If there is an appraisal, we still retain our right to deny the claim.”)

Until recently, losses denied solely on coverage grounds were not subject to appraisal. Johnson v. Nationwide Mutual Insurance Company, 828 So. 2d 1021 (Fla. 2002). However, a recent decision from the Florida Supreme Court opens the door to a court's exercise of discretion in ordering the parties to appraisal even when the insurer has denied the claim.

In American Coastal Ins. Co. v. San Marco Villas Condo. Ass'n Inc., No. SC2021- 0883, 2024 WL 369079 (Fla. Feb. 1, 2024), an insurer issued payment for Hurricane Irma damages based on its estimate of damages totaling about $350,000, less depreciation and deductible. After obtaining its own estimate in excess of $8 million, the insured unilaterally invoked the policy's appraisal provision. When the insurer refused to proceed with appraisal, on the grounds that its investigation was ongoing and appraisal was premature, the insured sued to compel appraisal. Following the insurer's completion of its investigation, the insurer denied coverage, arguing that the insured breached the policy conditions by committing fraud or making material misrepresentations regarding the claim. Despite the insurer's denial of coverage, the trial court entered an order compelling appraisal. The Second District Court of Appeal affirmed the order compelling appraisal despite the coverage denial. The court certified conflict with three decisions of the Fourth District Court of Appeal—Citizens Prop. Ins. Corp. v. Demetrescu, 137 So. 3d 500, 502 (Fla. 4th DCA 2014), Citizens Prop. Ins. Corp. v. Mich. Condo. Ass'n, 46 So. 3d 177, 178 (Fla. 4th DCA 2010) and Sunshine State Ins. Co. v. Corridori, 28 So. 3d 129, 131 (Fla. 4th DCA 2010)—which held that a trial court errs in compelling appraisal without resolving all coverage issues first.

The Florida Supreme Court accepted review, approved the Second District's opinion, and disapproved the certified district cases to the extent they were inconsistent with the court's holding. The court noted that the policy language at issue did not control the sequence of appraisal versus resolution of coverage issues; the appraisal provision contained language regarding the insurer's retained rights to deny a claim even if there is an appraisal. The court reasoned that “[b]y its terms, this retained-rights provision contemplates appraisals occurring prior to resolution of coverage issues.” Id. at *3. Accordingly, without any controlling policy language to the contrary, the court found that appraisal may be compelled before, or concurrently with, coverage disputes.

Notably, the court disagreed with the insurer's argument that allowing appraisal first would result in prejudice to the fraud-misrepresentation coverage defense. The court stated that the insurer's concern that the appraisal panel's loss figure could impermissibly address the insurer's denial of coverage (on fraud grounds) was “speculative and overlook[ed] the safeguards built into the appraisal process.” Id. at n.2. However, the Court did not identify any specific “safeguards.”

In the future, even in denied-coverage cases, the insurer may have to participate in appraisal before resolution of the coverage issues, depending on the language in the policy.

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