A trio of latest Maryland instances determined this summer season involving calls for for appraisal present that many courts are questioning whether or not property insurance coverage value determinations are extra akin to arbitrations and whether or not appraisal calls for are correct when protection points come up. The development is that federal courts are more and more indicating that appraisal is to be handled as a requirement for arbitration and ruled below the Federal Arbitration Act. Maryland insurance coverage value determinations instead decision dispute course of are being upheld, however the courts are rigorously guarding the insurer’s proper to problem protection points.
New Hope Church of God Waldorf v. Brotherhood Mutual Insurance coverage, 1 concerned a belated movement to ship a matter in litigation to appraisal. The court docket famous the next:
In Maryland, ‘appraisal is analogous with arbitration. Consequently, this Court docket has utilized arbitration legislation to appraisal clauses in insurance coverage insurance policies. Underneath the MUAA, ‘any provision in an insurance coverage contract with a client that requires arbitration is void and unenforceable.’ Nonetheless, that rule ‘doesn’t apply to a [contract] provision that establishes an appraisal course of to find out the worth of property.’… Subsequently, ‘ordinarily[,] an insured could compel an insurer to undergo appraisal. The plain language of the appraisal clause, the necessity to protect the insured’s bargained for profit, and the legislative coverage in favor of enforcement of executory agreements to arbitrate dictate this consequence.’
Nonetheless, a court docket order compelling an appraisal is probably not acceptable when the events’ dispute facilities on whether or not the insured is entitled to protection in any respect, reasonably than the precise worth of loss that the events agree is roofed.
….It’s obvious, nevertheless, that the events’ dispute runs deeper than the worth of coated loss and issues whether or not the loss is roofed in any respect…. An appraisal would serve no objective if, as Defendant contends, the loss shouldn’t be coated.
Whereas the court docket denied the request for appraisal, indicating that protection points exist, it particularly famous in a footnote that neither get together raised that the Federal Arbitration Act could preempt Maryland legislation:
The Court docket notes that the Federal Arbitration Act (‘FAA’) ‘preempts conflicting state legislation.’ Thomas Assocs., Inc. v. Oak Mgmt., Inc.,… (D. Md. Nov. 6, 2008) (citing Preston v. Ferrer, 552 U.S. 346, 352 (2008)… Neither get together contends that provisions of the MUAA which might be related listed below are preempted by the FAA.
In Thompson v. Allstate Property and Casualty Insurance coverage Firm, 2 the court docket famous that Maryland acknowledges property insurance coverage appraisal within the following context:
In Maryland, this Court docket has lengthy acknowledged that, however the distinctions between an appraisal below an insurance coverage coverage appraisal clause and arbitration, appraisal is analogous to arbitration. Consequently, this Court docket has utilized arbitration legislation to appraisal clauses in insurance coverage polices.
The federal court docket cited Maryland legislation on the difficulty:
Right here, the appraisal clause expressly offers that within the occasion of a failure to agree on the quantity of loss, on the written demand of both the insured or the insurer, every shall choose an appraiser. This language is apparent and unambiguous. It mandates that each the insured and the insurer undergo appraisal upon the demand of both, thereby assuring that the insured in addition to the insurer has a contractual proper to a immediate and cheap willpower of the quantity of loss. That contractual proper, for which the insured bargained and paid premiums, could be preserved provided that the insured is enabled to compel the insurer to undergo appraisal. 3
The federal court docket additional famous that the brand new Maryland Uniform Arbitration Act (MUAA) nonetheless permits appraisal as a result of it has a particular provision permitting for determinations of property worth:
The MUAA has since been amended. It now states that ‘Besides as supplied in paragraph (2) of this subsection, any provision in an insurance coverage contract with a client that requires arbitration is void and unenforceable.’ Md. Code Ann., Cts. & Jud. Proc. § 3-206.1(b)(1). Nonetheless, paragraph (2) of that subsection then clarifies that ‘This subsection doesn’t apply to a provision that establishes an appraisal course of to find out the worth of property.’… So though Defendant argues that ‘an insurance coverage contract with a client can’t pressure the insured to surrender his/her proper to a jury or bench trial to resolve an alleged breach of the insurance coverage contract,’ the MUAA unambiguously offers {that a} provision requiring appraisal akin to that contained within the Coverage is permissible.
The court docket compelled appraisal however required the appraisers to itemize the damages to protect the protection points for future litigation:
The Court docket will reconcile the above by compelling appraisal whereas preserving Defendant’s proper to contest whether or not sure damages set forth by that appraisal fall inside the Coverage’s gambit. The query of whether or not any explicit injury(s) to Plaintiff’s residence is roofed below the Coverage exceeds the scope of the appraisal clause given the clause’s plain language and the above case legislation. However Plaintiff has introduced ample data supporting that the events contest the worth of sure injury(s) that Defendant has recognized protection for below the Coverage ensuing from a coated peril. Thus, the Court docket will grant Plaintiff’s movement and compel the events to have interaction within the appraisal course of to raised decide the exact worth of loss to Plaintiff’s residence ensuing from a coated peril. Nonetheless, the Court docket may even require the appraisers to itemize their injury studies such that Defendant will have the ability to contest whether or not any explicit damages are excluded from the Coverage’s protection. This resolution acknowledges Plaintiff’s contractual proper to invoke appraisal below the Coverage, preserves Defendant’s means to contest the scope of coated losses below the Coverage following that appraisal, and accords with the Court docket’s common sentiment of encouraging alternate dispute decision strategies for the sake of effectivity and judicial economic system.
The court docket’s evaluation about sending the matter to appraisal first earlier than the protection is decided was beforehand mentioned in depth by me in “What Comes First—The Appraisal or The Protection Dedication?” the place I famous:
Does an appraisal panel decide the quantity of the loss earlier than the protection points are litigated? This query is a typical challenge. The reply ends in imperfect and extended proceedings, which lead to delayed fee to the policyholder. Each state appears to have its personal reply to the query. Courts wrestle with the way to deal with these points.
Lastly, a Maryland federal decide preliminarily denied the request for appraisal as a result of the policyholder’s grievance was so ambiguous it couldn’t decide which declare the policyholder was attempting to resolve by way of appraisal: 4
The Dudleys’ Movement asks the Court docket to compel an appraisal of their house to find out the quantity of loss allegedly attributable to both hearth or storm injury (their Criticism shouldn’t be clear as to which)….
Given the plain lack of readability within the Dudleys’ Criticism relating to which insurance coverage declare (one filed for hearth injury, the opposite filed for storm injury) kinds the idea of their go well with, the Court docket concludes that it could be untimely, at this stage, to compel an appraisal, even when one have been in any other case warranted.
Accordingly, the Court docket DENIES WITHOUT PREJUDICE the Dudleys’ Movement to Compel Appraisal and Keep Litigation Pending Appraisal The Dudleys are GRANTED LEAVE to file a Movement for Depart to Amend their Criticism inside the subsequent thirty (30) days to make clear which declare or claims they’re pursuing right here. Allstate could, after all, oppose the Movement for Depart to Amend in the end.
The underside line is that appraisal is a sound methodology of claims decision in Maryland. Courts will rigorously take a look at the protection points raised, however should still require the appraisal to happen earlier than litigating the protection points relying on case information.
Thought For The Day
I deem it necessary to the safety of each citizen that the duty of contracts must be maintained.
—Francis Scott Key
1 New Hope Church of God Waldorf v. Brotherhood Mut. Ins., No. 23-2341, 2024 WL 3638031 (D. Md. Aug. 2, 2024).
2 Thompson v. Allstate Prop. & Cas. Ins. Co., No. 1:22-cv-02379, 2024 WL (D. Md. June 25, 2024).
3 Citing Aetna Cas. & Sur. Co. v. Ins. Comm’r, 293 Md. 409, 422 (1982).
4 Dudley v. Allstate Automobile & Prop. Ins. Co., No. 8:24-cv-612, 2024 WL 374909 (D. Md. Aug. 9, 2024).