WASHINGTON FEDERAL COURT PROPERTY DAMAGE OPINION HIGHLIGHTS DIFFERENCE BETWEEN CHALLENGING APPRAISAL AND CHALLENGING COVERAGE
An appraisal award is conclusive as to the amount of loss and may be challenged only with respect to fairness of the appraisal process. The 4/11/12 opinion in Kochendorfer v. Metropolitan Property & Casualty Ins. Co., 2012 WL 1204714 (W.D. Wa.) illustrates that appraisal awards are deemed conclusive as to the amount of loss; courts may see through an alleged coverage action as a backdoor attempt to challenge the amount of the appraisal award. In this case, tenants in the insured’s rental house ran a marijuana grow operation and started a fire when they tampered with the electrical system. The insured submitted a proof of loss in excess of $300,000. Per the policy, the insured and insurer entered into an appraisal process to resolve the dispute as to the amount of loss. The appraisal panel awarded the insured approximately $311,000 in replacement cost value and $240,000 in actual cash value (ACV). The award accounted for structure repairs, clean-up/remediation, code upgrades, and temporary repairs. The panel also subsequently issued an appraisal award for loss of use, accounting for a reconstruction period of four months upon receipt of the full ACV payment.
After the insurer denied coverage for the code upgrades and clean-up remediation awards, and also failed to issue payment for loss of use, the insured sued. As to loss of use, the federal court said the insurer did not deny the existence of coverage for some amount of loss of use, but rather challenges the amount set forth by the appraisal panel. Citing Goldstein v. Nat\’l Fire Ins. Co., 106 Wash. 346, 353 (1919) and Bainter v. United Pac. Ins. Co., 50 Wn.App. 242, 246 (1988), the federal court, sitting in diversity, held that although the insurer was dissatisfied with the appraisal award, an appraisal occurred, an appraisal award is conclusive as to the amount of loss, and the appraisal award may be challenged only with respect to fairness of the appraisal process. Since the insurer failed to set forth any basis for challenging the fairness of the appraisal, the court held this part of the award was conclusive as to the amount of loss.
As to the cost of the code upgrades, the court, citing Commonwealth Ins. v. Grays Harbor Cty., 120 Wn.App. 232 (2004), held that the test is what a reasonable lay insurance purchaser would believe the code allows the city to enforce. The court held that a reasonable lay insurance purchaser would believe that the code required the upgrades and that the insured therefore was entitled to summary judgment on this issue as well.
As to the clean/up remediation award, the court held that the insurer was, without presenting an argument as to the fairness of the appraisal process, challenging the amount of clean-up costs to which the insured was entitled, rather than presenting an argument as to coverage. Therefore, as with the loss of use issue, the court held the insured was entitled to summary judgment.