8th Circuit: Policyholder Entitled to Appraisal to Determine Cause of Damage

A Minnesota property owner has a right to an appraisal to determine the cause of a loss even if the insurer contends the damage existed before it issued its policy, a panel of the US 8th Circuit Court Appeals ruled Tuesday.

The appellate panel affirmed a U.S. District Court decision that found that an appraiser must be used to resolve a dispute about when damage occurred. Axis Surplus Insurance Co. had denied a hail-damage claim filed by the owner of an apartment complex, contending that the damage was caused by a hailstorm that struck before it insured the property.

The panel’s opinion said the Minnesota Supreme Court decided that issue in 2012 in Quade v. Secura Insurance Co. Only a court can decide if an insurer is liable under the language of a policy, but if the dispute involves the extent of damage from a covered event then the policyholder has a right to an appraisal, the panel said.

Attorney Timothy Dale Johnson, who represented policyholder Condor Corp. in the case, said the 8th Circuit’s ruling is an important win for policyholders.

“If it went the other way, an insurer can simply deny a claim by saying there’s no damage and then the policyholder would never get an appraisal,” he said.

Johnson, a shareholder with the Smith Jadin Johnson in Bloomington, Minn., said if insurers are allowed to escape the appraisal process by denying that coverage exists, policyholders would have invest significant time and money into filing lawsuits.

Johnson said Minnesota has historically used the appraisal process to resolve disputes about the cause and extent of damages. He said the Quade decision mentioned in the 8th Circuit panel opinion simply revisited similars decision made by Minnesota courts since the 1920s.

The Supreme Court stated in the Quade opinion that the line between liability questions and damage questions is not always clear. That was certainly the case after Condor filed its claim for hail damage to the Promenade Oaks Apartments that it said was caused by a 2018 storm. Axis denied the claim, saying the damage was caused by a storm in 2012, before it provided coverage.

Axis contended that the property insurance contract with Condor required it to appoint an appraisal only in circumstances when coverage is undisputed. The insurer filed a lawsuit seeking a declaratory judgment that there was no coverage and the coverage dispute precluded an appraisal.

District Court Judge David S. Doty sided with Condor and Axis appealed.

The 8th Circuit panel said the Quade decision instructs it on how to distinguish between questions about damage and liability.

The policy issued by Axis required an appraisal to resolve disputes about the “amount of loss.” The appellate panel said if the earlier storm caused the damage, as Axis claims, the amount of damage would be zero. However, if the damage was caused by a storm during the policy period, Axis’ liability would be greater than zero.

“If the question here were solely about whether hail is a covered peril or certain preexisting conditions are excluded, then these would be ‘legal questions for the court,”’ the opinion says. “But when, as here, it ‘involves separating loss due to a covered event,’ the 2018 storm, ‘from a property’s preexisting condition,’ the question is one for the appraiser.”

About the photo: The Promenade Oaks Apartments in Eagan, Minn. are shown. Photo courtesy of Apartments.com.