7th Circuit: Appraisal Should Have Ended Dispute Over Roof Replacement

When managers of the Villas at Winding Ridge in Indianapolis asked a contractor to assess the condition of the 33 roofs in the condominium complex, they learned that a hailstorm the year before had damaged soft metal parts, fascia and air-conditioning condensers on seven or eight of the buildings.

Winding Ridge filed a claim with State Farm Insurance. The insurer said the damage was minor and estimated repairs would cost $65,713.54. Winding Ridge disagreed, but while the matter was still pending, the homeowners’ association borrowed $1.5 million to replace the roofs.

Winding Ridge sued State Farm, alleging bad faith, breach of contract and promissory estoppel. The complex demanded that State Farm pay the entire amount of the loan, plus prejudgment interest in the amount of $97 per day.

On Nov. 8, the. U.S. 7th Circuit Court of Appeals affirmed a district court’s ruling that rejected Winding Ridge’s claims. After nearly five years of litigation, the appellate court found that Winding Ridge was entitled to nothing more than what State Farm had already paid because “very little if any hail damage to the shingles was observed.”

“The fact that Winding Ridge independently replaced the shingles on all 33 buildings for $1.5 million while its claim was pending does not obligate State Farm under the policy or mean State Farm breached the policy,” Circuit Judge Amy St. Eve wrote for the appellate panel.

After Winding Ridge disputed State Farm’s first assessment, the condo complex and State Farm both hired independent appraisers, as called for by the policy. Winding Ridge’s appraiser said shingles had to be replaced on 13 buildings at a total estimated cost of $676,824.07. State Farm’s appraiser said no shingles had to be replaced, but there was minor damage to all 33 buildings that would cost $79,921.80 to repair.

The parties appraisers selected an independent umpire to settle the matter. He found that that State Farm should pay 20% of the cost of replacing shingles on 13 buildings and make other repairs, with a total cost of $154,391,77. State Farm paid that amount.

Winding Ridge insisted that that the shingled needed to be replaced and filed suit in Indiana state court. State Farm removed the case to federal court and persuaded a district court judge to dismiss the claim.

The 7th Circuit affirmed. The appellate panel rejected Winding Ridge’s argument that State Farm was liable for the cost of replacing shingles on all 33 roofs because the style of shingle on the damaged buildings was no longer available. The court also said that State Farm’s initial low-ball settlement offer doesn’t mean it wasn’t acting in good faith.

“The mere fact that State Farm’s initial estimate was less than the award does not suggest culpability,” the opinion says. “At best, it may suggest that State Farm’s first inspection was inadequate. But this alone does not constitute bad faith.”

Dennis Wall, a Florida insurance attorney, summarized the court’s findings Thursday in his Claims and Bad Faith Law Blog. He reminded readers of sage advice attributed to Davey Crockett: “Be sure you’re right, then go ahead.”

“Even after all these years, it is still a good motto to follow,” Wall wrote.