Insurer That Denied Appraisal Can’t Seek Declaration That it Made the Right Choice

If an insurer wants confirmation by a court that an appraisal is inappropriate, it needs to file a request for declaratory judgment before denying the appraisal request, an Illinois appellate panel ruled Monday.

A panel with the 3rd District of the Illinois Appellate Court affirmed a county judge’s decision to dismiss a lawsuit filed by Travelers Indemnity Co. that sought a declaration that the appraisal provision in a policy issued to the Townes of Cedar Ridge Condominium Association did not apply. Travelers filed the action after refusing the condo association’s request for an appraisal.

“A declaratory judgment action is not the proper vehicle to review past conduct,” the appellate court’s opinion says. “Travelers’ denial effectively terminated Cedar Ridge’s opportunity to have its claim resolved through the appraisal process.”

The use of appraisals to resolve insurance disputes has been a frequent source of litigation in recent years. The controversy stems in part from skepticism among insurers that appraisers chosen by policyholders will give disinterested opinions about value. Insurers also often object when an appraisal is requested to decide whether coverage exists rather than to determine the cost of repairing the damage.

Travelers and Cedar Ridge disagreed over the extent of damage after a March 2019 hailstorm. Travelers said that the vast majority of the alleged damage was ordinary wear and tear and issued a check for $17,140.88 to repair hail damage to gutters, downspouts, air conditioning units and one shingle on one roof.

The condo association submitted a repair estimate for $2,078,657.08 and demanded an appraisal. Travelers denied the request, saying there was no wind or hail damage to appraise.

The insurer filed a lawsuit in the 12th Judicial Circuit in Will County seeking a declaratory judgment that the appraisal provision in the policy did not apply to the coverage dispute. Judge John C. Anderson granted a motion for summary judgment by Cedar Ridge dismissed the lawsuit. Travelers appealed.

Chicago attorney Christina Phillips, with the Merlin Law Group, represented Cedar Ridge. She said she intends to file a breach of contract lawsuit against the insurer.

Phillips said insurers often try to avoid appraisals, but they have lost several cases at the US District Court for Northern Illinois and now try to avoid litigation before federal judges on appraisal questions.

“It’s kind of a rush to the courthouse on the insurer side because they’d rather be in state court than federal court,” Phillips said.

She said “multiple insurers” have sought declaratory judgment to avoid the appraisal process and failed, but the Cedar Ridge case is the first she is aware of that reached a state appellate court. She said the appellate panel’s decision in Cedar Ridge shouldn’t come as a surprise.

“Declaratory judgment is to learn the consequences of your actions before they occur,” she said.

The appellate panel said as much in its judgment affirming dismissal of Travelers’ lawsuit. While the insurer argued that Cedar Ridge never withdrew its request for an appraisal, leaving a controversy in place, the court said Travelers had eliminated any opportunity to change the outcome when it denied the association’s request for appraisal.

“Had Travelers wanted guidance on the scope of the appraisal provision as it maintains, it should have sought a declaration prior to making a determination about Cedar Ridge’s appraisal request,” the opinion says. “Instead it denied first and sought guidance later.”