Insurer’s Correspondence is Key to Determining Whether Appraisal is Warranted

In Heritage Property & Casualty Insurance Company v. Wellington Place HOA, Inc., No. 4D2022-2749 (Fla. 4th DCA Sept. 13, 2023), the Fourth District Court of Appeal recently addressed the following question: How should insurance claims be categorized for the purpose of determining ripeness for appraisal? The answer to this question hinges on one key issue — whether coverage is in dispute. Here, the DCA found that coverage was not in dispute and therefore affirmed the trial court’s order to compel appraisal. As will be explained below, the details of the case are instructive as to how the court reached its conclusion.

The insured made a claim for damages associated with Hurricane Irma, reporting that Irma damaged the roof of the property. In November 2017, the insurer sent a letter to the insured stating that the insurer identified damage to the roof caused by Irma but would not issue payment because the covered damages were below the deductible. The insurer’s letter went on to include the following statement: “The represented values within this estimate do not constitute a settlement of your claim. … If your contractor’s estimate is greater or additional damages are found, please contact us prior to signing any contracts or proceeding with the work.” The insured subsequently retained its own consultant and in September 2019, the consultant sent a letter to the insurer stating that the coverage amount was insufficient to make repairs. The insurer then retained an adjuster to perform additional inspections. In April 2020, the insured submitted its adjuster’s estimate for over $6 million, including, for the first time, the cost of replacement for all windows and sliding glass doors. The insurer conducted examinations under oath and in October or November 2021, the insured demanded appraisal.¹ The insured filed a lawsuit in February 2022 and in April 2022, the insured filed a motion to stay litigation pending appraisal. The trial court issued an order staying the litigation pending appraisal. The insurer appealed, arguing that no “amount of loss” was at issue and appraisal was not warranted because coverage was still in dispute. The Fourth DCA upheld the trial court’s decision. The critical issue at hand was whether the claim was ripe for appraisal, and hinged on one key question: Is coverage in dispute? If coverage is in dispute, then a case is not ripe for appraisal, but if coverage is not in dispute, the case is ripe for appraisal. Here, the DCA found that coverage was not in dispute and therefore affirmed the trial court’s order to compel appraisal.

In Florida, it is generally understood that the ultimate determination of whether coverage for a claim exists is exclusively a judicial question rather than an issue for appraisal. See State Farm Fire & Cas. Co. v. Licea, 685 So. 2d 1285 (Fla. 1996), Midwest Mut. Ins. Co. v. Santiesteban, 287 So. 2d 665 (Fla. 1974). The Florida Supreme Court has differentiated the terms “causation” and “coverage.” In Johnson v. Nationwide Mut. Ins. Co., 828 So. 2d 1021, 1026 (Fla. 2002), the court found that either the court or the appraisal panel can make a determination regarding “causation” of damages while determination of “coverage” resides with the courts. The Fourth DCA has also made clear “the trial court must resolve all underlying coverage disputes prior to ordering an appraisal.” Sunshine State Ins. Co. v. Corridori, 28 So. 3d 129 (Fla. 4th DCA 2010). In fact, the Fourth DCA has specifically rejected the Third District’s “dual track” approach that allows appraisals to go forward even while coverage is in dispute. See Citizens Prop. Ins. Corp. v. Mich. Condo. Ass’n, 46 So. 3d 177 (Fla. 4th DCA 2010).

Based on the above case law, it is clear that the reason the Fourth DCA upheld the trial court’s decision in Wellington Place HOA is that the DCA determined that coverage was not in dispute. As such, the question that must be asked is — why was coverage not in dispute? The answer is that the insurer’s own letter had left the claim “open.” Since the claim was still “open,” the court found that “the insured in this case has only one claim, and because the insurer has not wholly denied coverage, any dispute as to whether the insurer is required to pay for all the reported damage is an ‘amount of loss’ or causation dispute that must be resolved in appraisal.” Wellington Place HOA, at 7.

The insurer argued that the claim for additional damages was either a “supplemental” claim or a “reopened” claim and was not ripe for appraisal because coverage had not been determined for the “supplemental” or “reopened” claim. In other words, coverage was in dispute. The insured argued that (1) it had only one single claim with one single claim number, and the claim was still open and being adjusted at the time the insured sought additional payments, and (2) the initial claim was never “finalized” or “settled” because there was a disagreement regarding the “amount of loss.” The DCA agreed with the insured.

The court determined that even though the policy requires the insured to report any “supplemental” or “reopened” claim, “the policy is silent as to whether a new coverage decision is required for a ‘reopened’ or ‘supplemental’ claim where the insurer has already admitted coverage for the initial claim.” Wellington Place HOA, at 5. Furthermore, contrary to the insurer’s arguments, no additional coverage determination was needed for the “supplemental” or “reopened” claim because “the insured’s initial claim was never settled or closed after the insurer admitted coverage.” Id. at 6. In fact, the DCA specifically relied upon the insurer’s own letter stating that the “initial estimate did not constitute a settlement of the claim.” The DCA concluded that this statement was significant and instructive. In the insurer’s November 2017 letter, it had already “admitted coverage for the insured’s loss as a whole and determined the roof damage that was initially reported in 2017 was covered,” and as the court explained, “a subsequent claim should be treated as part of the initial claim if the insurer has accepted coverage for the initial claim and the claim has not been settled.” Id. at 7.

The Fourth DCA was not persuaded by the insurer’s argument that the insured’s request for payments for additional roof damage or replacement of windows or doors required an additional coverage decision. The Fourth DCA again looked at November 2017 letter. “The insurer specifically advised the insured that its initial estimate did not constitute a settlement of the claim and indicated that supplemental payments could be made if the insured submitted a higher estimate or discovered ‘additional damages.’ The insured did discover ‘additional damages’ and submitted a higher estimate to the insurer as instructed.” Id. at 6. Based on its review of the insurer’s letter, the court determined that additional damages were actually contemplated by the letter and thus these additional damages could be included as damages that the insurer admitted were covered. Coverage was still, therefore, undisputed.

In the Fourth DCA, a case can only proceed to appraisal when coverage is not in dispute, and in determining whether coverage is in dispute, the insurer’s correspondence is instructive. If letters sent by an insurer do not clearly state that the coverage decision is final and/or settled or that the claim is closed, then it is the Fourth DCA’s position that the claim is still open. If the claim is open, then insurer cannot have denied coverage. If coverage was not denied, then coverage cannot be in dispute, which means the claim is ripe for appraisal. Insurers should be mindful of addressing this issue in correspondence with insureds.