Understanding the Appraisal Clause in Your Insurance Policy

Nearly all insurance policies contain what is commonly called an “appraisal clause.” While the specific language differs from one policy to another, the idea is generally the same. This provision is designed to provide a mechanism to resolve disputes about insurance claims — but not all disputes are subject to being resolved by appraisal.

Typical language will say something like this:

“If you and we do not agree on the amount of the loss, including the amount of actual cash value or replacement cost, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand . . . . The appraisers shall then appraise the loss, stating separately the actual cash value or replacement cost of each item, and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two of these three, when filed with the company shall determine the amount of loss.”

If you read this language carefully, it is clear that only disputes about the amount of the loss are subject to appraisal. But sometimes that is not the dispute. Sometimes the dispute involves whether the policy actually provides coverage for the claimed loss, or some part of the claimed loss. Disputes about coverage are not appropriately resolved by the appraisal clause.

If you have suffered a loss and have a dispute with your insurance company, it is very important to understand the difference between disputes over the amount of loss versus disputes about coverage. And, sometimes, it is difficult to tell the difference. If your insurance company demands appraisal, or if you are considering doing so, you should always consult with a knowledgeable insurance coverage attorney before making the demand or responding to one. If the appraisal clause is invoked when it shouldn’t be, it can cause unnecessary delay and can even jeopardize your right to recover under your policy.

Indiana Court of Appeals Addresses Damages for Inherent Diminished Value of Personal Property

On February 19, 2020, the Indiana Court of Appeals issued an opinion that clarified whether plaintiffs can recover damages for the inherent diminished value of personal property caused by the negligence of a tortfeasor. In Shield Global Partners-G1, LLC v. Lindsay Forster, the defendant rear-ended a pickup truck and admitted the accident was her fault. The truck was repaired after the accident occurred and was appraised twice in order to determine its diminished value. The plaintiff then filed a negligence action against the defendant to recover damages for the inherent diminished value of the truck following repairs.

The trial court initially denied the plaintiff’s claim for damages for the diminished value of the truck by equating these damages to “stigma” damages, which are not recoverable unless the property is permanently damaged. However, the Indiana Court of Appeals interpreted the case relied on by the trial court, Wiese-GMC, Inc. v. Wells, to reach a different conclusion.

The Wells case established, among other things, that diminished value damages are recoverable when “repair will not restore the item of personal property to its fair market value before the causative event.” The Indiana Court of Appeals therefore read this case to mean that, “even if the repair restores the property to its previous condition, damages may still be recovered if there is a resulting loss of fair market value to the property as a result of it having been damaged and then repaired.”

The Court of Appeals went on to discuss how property that has been damaged is likely to have a lesser fair market value even if repaired. In other words, recovering the cost of repair is not always sufficient to make an injured party whole again. Even after repairs, an owner may not be able to sell the vehicle at its fair market value before the accident. The Indiana Court of Appeals therefore clarified that when the cost of repair will not restore personal property to its fair market value, the diminution in value may be recovered as well.

Tornado Damage Insurance Claims: The Twist May Be in the Policy Language

Indiana has just been clobbered – again – by fierce, widespread tornadoes. The website of the National Weather Service has excellent data you can review to track the history of the storms and the damage they caused in your area. For example, visit: http://www.weather.gov/ind/august242016severestorm track dataWhen the time comes to finalize your claim with your commercial or homeowners insurance carrier for the damage caused to your property by these strong storms, there are some common pitfalls to be aware of about what is or may be covered.

For example, depending on the scope or extent of the damage to your property, there may be additional dollars over and above the limits of your property coverage available to pay for the cost of debris removal. Policies provide this coverage in different ways and it is important to read and understand how your policy works when you are negotiating with your insurer. Here is one example of how a property policy may provide debris removal coverage:

Debris Removal Language

Language like this appears simple enough on first reading, but look again.  Let’s say you incurred expense removing debris following a storm, and assume the cost of removing the debris was actually more than the damage caused to your structure.  This policy appears to limit the available dollars for debris removal to 25% of the “amount we pay for the direct physical loss of or damage to Covered Property.”  The capital letters means “Covered Property” is defined somewhere else in the policy.  Defined as what?  The building?  The building and outbuildings?  It is important to know.  Also, when this policy provides 25% of the amount of direct loss or damage “plus” the “deductible in this policy applicable to that loss or damage” does that mean 25% of the deductible or 100% of the deductible?  Again — this is important to know when you are settling with your insurance company.

What if all you have is trees down, but (thankfully) they missed your house?  Homeowners policies often provide limited coverage for damage to trees and shrubs. The straight-line winds that accompanied recent storms brought down many, many trees – both living and dead – and the cleanup cost can be staggering. Yet, your homeowner’s policy from that “good neighbor” company that is “on your side” may only provide you with very limited policy proceeds for the cleanup of trees, and then only under very limited circumstances.

Here is some typical language from a standard homeowner’s policy:

We will also pay your reasonable expense, up to $1000, for the removal from the “residence premises” of:

1)  Your tree(s) felled by the peril of Windstorm or Hail or Weight of Ice, Snow or Sleet; or

2)  A neighbor’s tree(s) felled by a Peril Insured Against under Coverage C; provided the tree(s):

3) Damage(s) a covered structure;

4) Does not damage a covered structure, but:  a) Block(s) a driveway on the “residence premises” which prevents a “motor vehicle”, that is registered for use on public roads or property, from entering or leaving the “residence premises”; or  b) Block(s) a ramp or other fixture designed to assist a handicapped person to enter or leave the dwelling building.

The $1000 limit is the most we will pay in any one loss regardless of the number of fallen trees. No more than $500 of this limit will be paid for the removal of any one tree.

Say that again?!

If you need assistance untangling the language of your policy and working to resolve your claim with your insurance company, the policyholder attorneys of Parr Richey are always ready to help. Call Mike Schultz or Jim Buddenbaum toll free at 888-337-7766.

Read Your Policy: Even if You Don’t, the Court Will Assume You Did — or Should Have

Insurance policy forms are about as much fun to read as the tax code or your credit card agreement.  Typically, these forms consist of various parts and pieces that refer back to one another and can only be made sense of using highlighters, sticky notes, and a diagram.  Nevertheless, they are critically important documents that set forth your rights and responsibilities as an insured.  The time to be familiar with what they say and how they work is before you suffer a catastrophic loss.  Waiting to read your policy after the loss is a mistake, and it can be a costly one.

The Indiana Supreme Court recently issued another opinion highlighting the importance of understanding your policy.  In Groce v. American Family Mutual Insurance Company and Michael A. Meek, decided on April 3, 2014 (read it here), the Court revisited the question of whether insured homeowners have an obligation to read and understand their homeowners insurance policy.  The answer is simple:  Yes.

Mr. and Mrs. Groce had been insured by American Family for 10 years before a fire destroyed their home.  They had asked their agent, Meek, to provide them with insurance that would be sufficient to completely replace their home in the event of a fire.  The evidence submitted to the trial court suggested that the agent had reviewed the Groces’ coverage with them in 2003 and that, when doing so, said, “I’m assuming you want replacement cost coverage. . . if anything ever happens – fire, tornado, wind it (sic: the Residence) will be replaced 100%?”, to which Mrs. Groce naturally replied, “Yes.”

The policy that was issued by American Family was a standard homeowners’ policy form that provided for “replacement cost coverage”.  The policy was renewed in the usual fashion from year to year and, at the time of the fire, provided for limits of coverage in the amount of $191,500 for damage to the structure.  The policy provided that American Family would pay “the full cost to repair or replace the damaged building, without deducting for depreciation, but not exceeding” repair costs and “the limit in this policy for the building. . . .”

Therein lied the problem.

The estimate to replace their home was $225,245.90; the limits of the policy were $191,500.00.  The Groces argued that when their agent asked if they wanted to obtain “100% replacement cost” coverage on their home, and they said “yes”, that the agent breached his duty to obtain the kind of coverage they wanted.  That may be true, but the Indiana Supreme Court held that the failure to obtain 100% replacement cost coverage could have been ascertained by the Groces way back in 2003 simply by reading their policy.  As the Court put it: “[w]ithout question, the Groces could have discovered that their dwelling loss replacement coverage did not exceed the applicable policy limits.”

The result?  The statute of limitations for their negligence claim against their agent (which is a 2-year statute in Indiana) started to run back in 2003 — 4 years before the fire.  Their claim was held to be time-barred.

While the Groce case dealt with homeowner’s insurance coverage, the same reasoning applies to business and commercial insurance policies.  The moral of the story is clear:  Read — and understand — your policy before you suffer a loss!

$300,001 Indiana Jury Verdict in Insurance Bad Faith Suit

Varda v. Auto-Owners Insurance Company

The aftermath of the devastating fire at the Varda residence

The aftermath of the devastating fire at the Varda residence

Sullivan Superior Court

November 2013

Facts: Mike Varda owned a modular home with a large attached garage in Terre Haute, Indiana, which was insured by Auto-Owners Insurance Company pursuant to a standard replacement cost homeowners policy providing dwelling limits of $150,000 and contents limits of $105,000. On May 30, 2009, while Mr. Varda was vacationing in Las Vegas, the house and all contents were destroyed by fire. After concluding there was insufficient evidence to pin the fire on the insured, Auto-Owners decided to accept the loss and “pay the claim” and so advised Mr. Varda, his public adjuster, and his attorney, in mid December 2009. However, rather than pay the full replacement cost value of the house Auto-Owners paid Mr. Varda an “advance” of $75,000. Auto-Owners also paid approximately half of the value of the destroyed personal property, even though the adjusters involved admitted they knew at the time that Mr. Varda was owed policy limits for this portion of the claim.

After receiving only partial payment, Mr. Varda’s public adjuster repeatedly requested a meeting with Auto-Owners’ adjusters for the purpose of attempting to reach a fair settlement of Mr. Varda’s claim. The adjusters admitted at trial that they refused to meet with Mr. Varda’s public adjuster. Further, although Auto-Owners had obtained its own estimate of the replacement cost value of the damage (which was substantially higher than the amount Auto-Owners paid its insured), it refused to provide that estimate to Mr. Varda’s public adjuster. Ultimately, an agreement was reached whereby Auto-Owners promised to pay Mr. Varda “at replacement cost” if he would provide a signed contract to rebuild his home. He did so. Auto-Owners still did not pay the claim and demanded appraisal pursuant to the policy’s appraisal clause.

Each party proceeded to appoint an appraiser and an umpire was agreed upon. The appraisal award, entered about a month after Mr. Varda filed suit for breach of contract and bad faith, was not favorable to Mr. Varda in that the panel set the ACV of his property at a figure lower than what Auto-Owners had already paid, and set the RCV of his structure at a figure even lower than the secret estimate Auto-Owners had obtained. Auto-Owners counterclaimed against Mr. Varda alleging that he had been overpaid.

Mr. Varda argued that Auto-Owners breached its contract and its duty of good faith and fair dealing by knowingly failing to pay what it owed on the personal property claim, by refusing to share its estimate with him, and by refusing to meet with his public adjuster to attempt to resolve the claim. He further argued that Auto-Owners waived its right to demand appraisal by refusing to meet.

Contract Damages: Mr. Varda claimed that he was owed $75,000 for breach of the contract due to Auto-Owners’ failure to pay the limits of the structure claim.

Bad Faith Damages: Mr. Varda asked the jury to award an appropriate figure to compensate him for the damages he suffered due to Auto-Owners’ refusal to deal with him in good faith.

Punitive Damages: Mr. Varda introduced evidence that Auto-Owners was a $12.8 billion dollar company at the time it was refusing meet with him or pay his claim, and that the state of mind of the adjusters involved (which was shown through some very damning emails obtained in discovery) justified an award of punitive damages.

The jury awarded $75,000 on the breach of contract claim, $200,000 for Auto-Owners’ bad faith, and $25,001 in punitive damages. (Varda’s counsel suggested a punitive damage figure of $1).

Experts: None

Plaintiff’s Attorneys: Michael Schultz & Peter Obremskey, Parr Richey Obremskey Frandsen & Patterson LLP, Indianapolis and Lebanon

Storm Damage Claims

Today’s storms in Illinois and Indiana have been classified by the National Weather Service as a “PDS” — Particularly Dangerous Situation.  Many of the storm cells blew through the area at speeds near 70 mph.  These storms are known to have caused significant damage in both Illinois and Indiana.

In the aftermath of a large storm, you may need to know what coverage you have for storm damage.


A typical homeowners insurance policy includes the following coverage parts:

Coverage A – Damage to your home

Coverage B – Damage to other structures including garage, deck or swimming pool

Coverage C – Loss or damage to the contents of your home

Coverage D – Loss of use in case your home is not inhabitable

Coverage E – Personal liability to third parties

Coverage F – Medical payments to third parties

Following a storm, the most likely coverages you may need to consider are A, B, C, and D.  Most typical homeowners policies cover damage caused by tornadoes or thunderstorms, but there are some conditions and exclusions you must be aware of when you have a loss or a claim.

Business Owners and Commercial Policies

Most business owners and commercial policies also cover storm damage.  Again, there are conditions and exclusions that must be considered in the event of a loss or claim.  In addition to coverage for damage to the commercial building or contents, many policies provide coverage for business income losses that occur during the time the business is unable to operate, as well as coverage for extra expenses incurred in taking certain actions such as temporarily relocating the business or taking actions to minimize the amount of business income lost during the recovery period.

There are many potential pitfalls for homeowners and business owners who suffer a loss and need to make a claim.  It is important for the insured to have a good working understanding of the types of coverage provided in their policy, whether the policy pays actual cash value or replacement cost, how claims are to be submitted, and how losses are to be paid.

For claim help, contact the property damage litigation partners at Parr Richey.

Coverage Issues After Catastrophic Losses

The recent catastrophic warehouse fires in Indianapolis and Fort Wayne are a good occasion to consider what type of coverage is best on large, older industrial or commercial buildings that have useful purposes but may, in fact, be impossible or impractical to replace.  It is also a good time to think about what amount your insurance company may owe you for business interruption or business income loss where it is not possible to return to business in the location where the original facility was located.

Many small to medium business owners have Business Owners Policies (“BOPs”) that are sold on a standard form.  These policies typically include coverages for things like loss of electronic data processing equipment, business interruption and extra expense, and coverage for all major property and liability risks.  They are often sold with additional optional coverages or endorsements which modify the standard terms of the policy.  In the case of an older building that is more difficult to rebuild or replace, such policies may include extended business income coverage that could provide additional recovery for your business.  A BOP with replacement cost coverage covering a building that is incapable of being replaced may present difficulty in calculating the amount owed under the policy.

Some owners of older properties choose to insure them pursuant to “actual cash value” policies.  In that case, Indiana’s Broad Evidence Rule should be applied, and the fact-finder should consider “all available evidence logically tending to establish” actual cash value.  See, e.g., Ohio Cas. ins. Co. v. Ramsey, 439 N.E.2d 1162, 1168 (Ind.Ct.App. 1982).

If your business has suffered a catastrophic loss, or even a minor one, or if you simply want to review your coverage, it is advisable to speak with an attorney knowledgeable about these types of policies and the issues that often arise following a loss or claim.

For answers to these and related questions, call Michael Schultz at (317) 501-2233, or Jim Buddenbaum at (317) 439-1181.