Fourth District Court of Appeal Clarifies Florida Law on Appraisals Demanded by Insureds
May 24, 2010
By Maria Elena Abate, Shareholder
The Fourth District Court of Appeal recently published an opinion clarifying Florida law on appraisals demanded by insureds. In Florida Insurance Guaranty Association, Inc. v. The Olympus Association, Inc., the Fourth DCA held that “it is not reasonable to order an insurer to pay for all elements set forth by an appraiser if the insurer raises an issue of coverage as to only one element and not the whole claim.” 2010 WL 1979242, *3 (Fla. 4th DCA May 19, 2010).
Prior to the Olympus decision, Florida courts had mostly followed an all-or-nothing approach in reliance on two Florida Supreme Court cases, which held that the invocation of appraisal was tantamount to an admission of coverage. See State Farm Fire & Casualty Co. v. Licea, 685 So.2d 1285 (Fla. 1996); Johnson v. Nationwide Mutual Insurance Co., 828 So.2d 1021 (Fla. 2002). Under this all-or-nothing approach, once appraisal was invoked, an insurer could no longer raise individual coverage defenses and was required to pay the entire appraisal amount, even if some portion of that amount was awarded for an item falling within a policy exclusion. Those cases effectively limited the defense of a claim to policy violations and blanket denials, ultimately leading many insurers to simply eliminate appraisal from their policies.
The Olympus case makes clear, however, that these cases address only one side of the issue; where the insurer, not the insured, moves for appraisal. In Olympus, a condo association sought coverage for damage incurred in Hurricane Wilma. After submitting the claim, the insured’s public adjuster demanded appraisal pursuant to the policy, resulting in an appraisal award totaling approximately $7.1 million. Approximately half of this amount was allocated to replacing exterior paint and waterproofing, which was specifically excluded from coverage. The Florida Insurance Guaranty Association, which was obligated to pay the claim as a result of the insolvency of Southern Family Insurance Company, disputed the award. The Court held that, in this instance, the insurer could contest coverage and liability as to only one element of the claim and appraisal. Olympus at *4.
Thus, taken in the context of an insurer forced into appraisal, Olympus provides a more sensible approach through which insurers may potentially retain individual coverage defenses.
Bear in mind, though, that this case may a have limited or no applicability to cases in which the insurance company invokes appraisal. As the Florida Supreme Court explained in both Licea and Johnson, the primary concern with an insurer invoking an appraisal provision is mutuality of obligation, that is, both insured and insurer being bound in the same way. Those courts determined that, because appraisal is only meant to settle disputes over the value of a claim, an insurance company’s invocation of appraisal before determining coverage skips a necessary part of the process and subjects the insured to a one-sided commitment limiting potential recovery without a reciprocal obligation from the insurer to pay any part of the resulting appraisal award. In these situations, the courts have applied the all-or-nothing approach, effectively precluding insurers from raising coverage defenses. As such, Olympus likely will not alter the general rule that an insurance company’s invocation of appraisal acts as an admission of the existence of coverage.
While not technically a change in existing law, Olympus raises interesting issues with regard to the possible inclusion of appraisal clauses in policies and potential strategies for the defense of claims.