The Southern District of Texas recently provided additional clarification regarding what flood claims under an Standard Flood Insurance Policy (“SFIP”) were subject to the appraisal clause when there are pricing issues as well as potential coverage issues involved. Ultimately, the Court ruled that because the dispute involved whether a particular item was actually covered under the SFIP, the appraisal clause was not applicable to the flood claim at issue.
Sidney and Bettie Jean Sam (“Plaintiffs”) were insured under a SFIP issued by National Lloyds Insurance Company (“National Lloyds”) pursuant to the National Flood Insurance Program (“NFIP”). Plaintiffs’ apartment building was damaged by flood waters following Hurricane Ike. National Lloyds sent an adjuster to the property in question, and later paid the Plaintiffs $ 100,622.67 for the loss.
The Plaintiffs disagreed with the amount of the claim paid by National Lloyds, and demanded an appraisal under the SFIP. The appraisal clause in an SFIP provides as follows:
Paragraph P. Appraisal:
If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of loss, then either may demand an appraisal of the loss. In this event, you and we will each choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they can not agree upon an umpire within 15 days, you or we may request that the choice be made by a Judge of a Court of record in the state where the covered property is located. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of actual cash value and loss of if it applies, the replacement cost and loss.
National Lloyds subsequently denied the Plaintiffs’ request to submit this claim to the appraisal process because the disagreement was with regard to coverage issues, not just pricing issues. On July 15, 2010, Plaintiffs filed suit in the Southern District of Texas. In the lawsuit, Plaintiffs’ alleged a breach of the insurance contract as well as a wrongful denial of Plaintiffs’ appraisal request, and sought an additional $ 148,377.33 beyond what National Lloyds had already paid for the loss.
After filing suit, Plaintiffs filed a Motion to Compel Appraisal. Plaintiffs argued that the dispute was limited to the pricing and the “degree of repairs” necessary, and thus was subject to the appraisal clause. National Lloyds took the position that the dispute went beyond pricing issues, and instead involved coverage issues—which was beyond the scope of the appraisal clause in the SFIP. The disputed items included a $ 39,000 charge in Plaintiffs’ repair estimate for a commercial superintendent to monitor the repairs and whether the flood waters damaged appliances within the apartments.
The Court, relying on cases from other jurisdictions, stated that:
This appraisal clause can be invoked only to resolve disagreements between the parties regarding the “actual cash value or, if applicable, replacement cost of the damaged property.
See Sam v. Nat’l Lloyds Ins. Co., 2011 WL 4860009, *3 (S.D. Tex. Oct. 13, 2011) (citing to De la Cruz v. Bankers Ins. Co., 237 F. Supp. 2d 1370, 1373 (S.D. Fla. 2002); Apple v. Allstate Ins. Co., 2010 WL 2509887, *2 (M.D. Fla. June 18, 2010); Flaharty v. Allstate Ins. Co., 2010 WL 148226, *3 (N.D. Fla. Jan. 11, 2010)).
The Court agreed with National Lloyds and denied the Plaintiffs’ motion to compel appraisal, holding that the dispute regarding whether the commercial superintendent was a covered charge under the SFIP was a claim regarding coverage, and did not relate exclusively to the actual cash value or replacement cost value of a covered part of the claim—thus it did not invoke the appraisal clause.
This matter is currently set for trial in November 2011. The memorandum opinion is available at: Sam v. Nat’l Lloyds Ins. Co., H-10-2521, 2011 WL 4860009 (S.D. Tex. Oct. 13, 2011).
