Appraisal of Supplemental Claims – Are Supplemental Claims Part of The Loss?

When I first started in this business in the early 1980s, there was no such thing as a “supplemental” claim. The “supplemental claim” is a recent legal concept of property insurance claims law made up by Florida’s insurers, the Office of Insurance Regulation, and codified by Florida’s legislature, which is not in existence anywhere else in the United States other than Florida.

The formal terminology of a “supplemental claim” came from insurance lobbyists trying to shorten notice requirements of damages found after an initial notice of the loss was provided. Florida now has a fairly recent notice of loss statute with provisions for “supplemental” and “reopened claims”—terms of property insurance not found anywhere else in American law except Florida. This notice law provides:

627.70132 Notice of property insurance claim.—

(1) As used in this section, the term:

(a) ’Reopened claim’ means a claim that an insurer has previously closed, but that has been reopened upon an insured’s request for additional costs for loss or damage previously disclosed to the insurer.

(b) ’Supplemental claim’ means a claim for additional loss or damage from the same peril which the insurer has previously adjusted or for which costs have been incurred while completing repairs or replacement pursuant to an open claim for which timely notice was previously provided to the insurer.

(2) A claim or reopened claim, but not a supplemental claim, under an insurance policy that provides property insurance, as defined in s. 624.604, including a property insurance policy issued by an eligible surplus lines insurer, for loss or damage caused by any peril is barred unless notice of the claim was given to the insurer in accordance with the terms of the policy within 2 years after the date of loss. A supplemental claim is barred unless notice of the supplemental claim was given to the insurer in accordance with the terms of the policy within 3 years after the date of loss.

I was in Tallahassee a lot during the time this language was first offered into law. There was much talk about contractors often making a “supplement” to their estimates. There was a lot of talk about losses where more money was being asked for in what became known as a “supplemental claim.” I kept saying that everybody was making something up—the loss is the loss, and people are simply asking for greater benefits if they find more damage or as more damages accrue, such as in business interruption or additional living expense—but we were making up new terms which simply did not exist in the law in order for insurers to find another way to deny paying for the full loss. The entire legislative process of making up these new concepts and formalizing slang used in the adjustment field was a mess.

Following hurricanes, insurance companies in Florida try to make the Chief Financial Officer and Insurance Commissioner look good by faking the closing of claims and providing stupid and utterly false statistics about the number of closed claims files. After listening to the newly appointed Insurance Commissioner Altmaier ramble on in front of a Florida legislative committee about these false statistics, which made it appear as if the insurance industry was quickly responding to Hurricane Irma, I stood up and explained how stupid they really were. I mentioned this issue right after Hurricane Irma in Hurricane Irma Claims Statistics Released by the Florida Department of Insurance, and stated:

Departments of Insurance love to quote high percentage and quick claims closures. Those public servants should be trying to ensure prompt payment and full payment of claims and prevent consumers from being mistreated. They should not be making up or accepting fake statistics just to make themselves look good.

As a result of pressure to provide favorable claims data to the Florida Office of Insurance regulation and make the Insurance Commissioner appear to be doing a “swell” job timely and fully taking care of Florida policyholders, insurance companies were having to “re-open” claims at an amazingly high rate. I had a Hurricane Michael claim where the policyholder called and wrote the insurer not to “close” her claim because she had not finished with her contents list. The insurer knew more money was owed but administratively “closed’ the file to meet Florida regulatory goals. As a result of this, Florida uniquely now has a term, “reopened claim,” in its property insurance law.

Who knew at the time these new terms were being made up that insurers would use these notice of loss terms to avoid appraisal of the entire loss? But that is what is currently happening.

A recent Florida appellate decision1 ruled that the entire denial of a supplemental claim was not subject to appraisal, although the insurer had previously paid damages for other parts of the loss. The facts cited by the court were as follows:

This case involves damages alleged to have been caused by Hurricane Irma. Forest Mere initially submitted two claims under its policy with Heritage for roof damage to its seven condominium buildings. Heritage determined that the roof damages were covered under the policy, and it issued two payments to Forest Mere.

Almost nineteen months later, Heritage received a letter from Forest Mere’s public adjuster containing a supplemental claim for replacement of all windows and doors on the condominium buildings due to alleged Hurricane Irma damage. Heritage investigated the claim but ultimately denied coverage for the supplemental claim in its entirety.

Forest Mere then filed a complaint against Heritage for breach of contract, and Forest Mere sought to compel Heritage to submit to an appraisal as set forth in the insurance policy. Heritage asserted that appraisal was inappropriate because it had never acknowledged coverage for the supplemental claim.

Appraisals determine the amount of the loss. The appraisal language says nothing about a claim. The language says it is an appraisal of the loss. The appraisal panel can come up with amounts far higher or far lower than what the parties were claiming the loss to be. While the parties can agree, and often do, that the appraisal will be about something else, I have always said that the appraisal panel’s job is to determine the full amount of the loss because that is what the policy says they are supposed to do.

So, I disagree with the Forest Mere opinion, where the appellate court reasoned as follows:

The issue in this case was recently decided in another case involving Heritage. See Heritage Prop. & Cas. Ins. Co. v. Veranda I at Heritage Links Ass’n, 334 So. 3d 373 (Fla. 2d DCA 2022). In that case, the insurance policy contained identical language to the policy in this case regarding the definition of a ‘supplemental claim’ as well as the rights and responsibilities relating to an appraisal. As in this case, Heritage acknowledged coverage for the claim for roof repairs but wholly denied coverage for the supplemental claim for damages to windows and doors…We acknowledged that where an insurer admits coverage but disputes the amount of loss, that issue is appropriately referred to an appraisal panel….But we explained that where an insurer wholly denies coverage for a claim, it cannot be referred to appraisal because that is a coverage question which must be decided by the court….