Florida High Court Says Appraisals Can Be Compelled Before Coverage Decided

The Florida Supreme Court has resolved a conflict between differing appeals court decisions, deciding that property insurers can be compelled to submit to the appraisal process long before causation, coverage and misrepresentation issues are settled in claims disputes.

“For the reasons explained below, we approve the Second District’s decision and disapprove the certified conflict cases to the extent they are inconsistent with this opinion,” the high court said Thursday.

The opinion in American Coastal Insurance Co. vs. San Marco Villas Condominium Association could be seen as a setback for insurance carriers that have relied on 2010 and 2014 appellate rulings to refuse appraisals in certain cases. The ruling could also be considered a rare win for Florida condo associations, which have been battered by soaring premiums, greatly reduced coverage limits and painful inspection and repair costs that can’t easily be postponed, under a 2022 statute.

The central issue in the American Coastal case was when appraisals can be ordered. Most property insurers include an appraisal clause in policies. In that process, a panel of experts arrive at a repair cost when policyholders and insurers’ amounts differ.

In this case, American Coastal may have hoped to escape or postpone the appraisal due to the huge difference in repair estimates and because of questions about the validity of the condo’s claimed amount. AmCoastal, which until last year was affiliated with now-insolvent United Property & Casualty Insurance, had offered $192,629, after depreciation and deductible, for a San Marco claim submitted after Hurricane Irma hit in 2017.

Dissatisfied with that payout, the condo association hired its own engineers, which claimed damage of more than $8 million, the court explained.

San Marco, on Marco Island, south of Naples, demanded an appraisal, in keeping with the policy. American Coastal refused, arguing that an appraisal was premature while a claims investigation was still underway. The condo association filed suit, asking a trial court to step in and order an appraisal.

At this point, the court noted, AmCoastal sent a letter to San Marco officials, stating that it was now denying the claim altogether due to the condo’s alleged fraud, exaggeration and misrepresentation on the level of damage claimed. The Collier County Circuit Court judge held a hearing and compelled the appraisal process. AmCoastal appealed, but Florida’s 2^nd District Court of Appeals upheld the trial judge.

The appeals court relied on its 2020 ruling in another condo case. But the court also certified that its decision directly conflicted with three earlier rulings by the 4^th District Court of Appeals, which had disallowed appraisals until underlying issues were resolved.

The Supreme Court found that American Coastal’s own policy language shows that appraisals can be done early because the insurer retains the right to deny the claim.

“Although the policy does not contain a provision directly governing the issue of timing, it does include a retained-rights provision that speaks to this issue,” Justice Jamie Grosshans wrote for the court.

She noted a 1996 court decision that upheld an insurer’s right to raise coverage issues after an appraisal.

“Thus, in light of the retained-rights provision and absent policy language controlling the issue of timing, we hold that a trial court has discretion in determining the order in which coverage and amount-of-loss issues are resolved,” the justice wrote.

Michael Packer, an insurance defense attorney with the Marshall Dennehey law firm, said the decision underscores the Supreme Court’s 2002 opinion in Johnson vs. Nationwide Mutual. American Coastal attorneys had, in fact, leaned on the Johnson decision – as interpreted by the 4^th DCA in a 2010 decision – to refute the appraisal demand.

But the high court justices noted that the 4^th DCA had misconstrued the Johnson decision.

“I understand how the 4^th DCA could have misread the Johnson decision because when you read it, you can interpret it to say that when the carrier denies the claim outright, it has to decide the coverage issues first,” Packer said. “But when it is only a partial denial, you can go to appraisal first.”

In the end, the Supreme Court decision this week may not be earth-shaking to the insurance community, partly because some carriers and their attorneys have come to understand that the appraisal process can cut both ways. An insurer may not want an appraisal early on if it fears that the appraisers will land on a massive damage estimate, Packer said. On the other hand, if coverage defenses and a right to deny the claim are preserved, a carrier’s misrepresentation argument could be strengthened if the appraisal award comes in close to the carrier’s offer.

Related: Homeowner Had to File Suit to Compel Appraisal, Leading to Bad-Faith Claim

Going forward, if property insurance companies don’t want to face similar disputes, they can word policies to make it clear that coverage disputes must be resolved before an appraisal, he said.

Packer also pointed out that the high court’s decision does not mandate early appraisals, but gives trial courts discretion to have coverage and causation issues settled first, when appropriate.

“In sum, we conclude that trial courts have discretion in determining the order in which coverage and amount-of-loss issues are resolved,” the high court wrote. “American Coastal, though presenting a myriad of arguments, has not challenged the trial court’s exercise of that discretion based on the facts and circumstances unique to this case.”

Attorneys involved in the case could not be reached Thursday.

Photo: San Marco Villas, via the association’s website.