Matching is a Factual Determination and Can Be Resolved by Appraisal

The Connecticut Supreme Court ruled that matching is a factual determination rather than a legal coverage issue and can be resolved by the appraisal process.1 This is a huge win for policyholders. I want to give a big shout-out to Merlin Law Group attorney Shane Smith who volunteered her time to work on this case by filing an amicus brief2 on behalf of United Policyholders.

The court held:

[W]hen an insurer concedes the existence of a covered peril to an insured’s premises, issues concerning the extent of the insurer’s obligation under § 38a-316e (a) to replace adjacent, undamaged items to achieve a reasonably uniform appearance are a component of the amount of loss and are, therefore, part of the appraisal process, as the legislative history of the statute reflected that the legislature intended to codify the existing insurance industry practice of restoring damaged property to a comparable preloss condition and contemplated that the determination of matching would be subjective, made on a case-by-case basis, and resolved through the appraisal process, and case law from other jurisdictions was consistent with that approach; in the present case, the defendant conceded that the damage to the plaintiff’s roof was a covered loss under the policy, and the parties’ dispute regarding how many shingles needed to be replaced in order to make the plaintiff whole was a factual dispute that fell within the scope of the policy’s appraisal clause.

It is important to note that many adjusters know that these issues are factual. What is going on is the insurance company’s insurance defense attorneys trying to make these factual disagreements into alleged “coverage questions” and therefore a matter of law that only courts can decide. The Connecticut court saw through this charade:

It appears to us that, at bottom, the defendant’s underlying concern is that § 38a-316e (a) employs terms that afford too much discretion to decide what is ‘adjacent’ and what is necessary to create a ‘reasonably uniform appearance.’ In response to that concern, we note that the appraisal panel’s umpire, in exercising their discretion to make the matching determination in this case, ultimately may agree with the defendant’s appraiser that the defendant’s obligation extends only to the rear sides of the roofs and the roof ridges. Alternatively, the umpire may conclude that the defendant is required to repair the plaintiff’s entire roof. Regardless, it seems to us that the necessarily fact intensive, case-by-case inquiry inherent in the task of matching requires that appraisers be afforded discretion in making matching determinations.

United Policyholders is a great non-profit organization because it takes action and gets results on issues directly impacting policyholders. Our amicus brief noted in part:

Appraisal is intended to be efficient, inexpensive, fair, and limited in scope to the amount of an insured loss. See Amy M. Coughenour, Appraisal and the Property Insurance Appraisal Clause–A Critical Analysis: Guidance and Recommendations for Arizona, 41 Ariz. St. L.J. 403, 406 (2009). Speed and a quick resolution of the matter is of particular interest to the insured, who is likely to be dealing with displacement or other inconveniences beyond simply a pecuniary loss. . . . Expense is another chief factor in the appraisal process. Litigation, and to a lesser extent arbitration, are costlier means of resolving a dispute. Appraisal minimizes the expense associated with determining the separate issue of the amount of a loss. . . . The legal fees and expenses associated with the appraisal process are likely to be significantly less than those associated with litigation on the issue of damages alone. . . . Appraisal also provides the policyholder and the insurer an equitable means of resolving dollar value disputes by submitting the parties’ disagreement to industry professionals with more expert knowledge about loss valuation than an arbitrator, judge, or jury might possess.

…

On an everyday basis, insurance appraisers and adjusters deal with scope of damage issues such as matching, actual cash value, wear and tear, deprecation [sic] and other mundane adjustment issues, which could just as easily be argued constitute ‘coverage’ disputes, thereby rendering the appraisal process unnecessary. In this case, a common and relatively simple disagreement about whether portions of damaged property can be matched is used to prevent swift and less costly resolution through the insurance appraisal process. This cannot be in the public interest and certainly not in a policyholder’s interest.

From a practical standpoint, appraisal could only proceed under Liberty Mutual’s position if there were total agreement over the extent of damages. As multiple courts have noted, such as Texas, this interpretation ‘would render appraisal clauses largely inoperable’ and would not be in keeping with the intent of the provision itself because a party could always avoid appraisal by labeling the issue a coverage dispute….

This is an important win for policyholders and those trying to move disputes about matching into a forum where they can be resolved quickly.

Thought For The Day

Design can be art. Design can be aesthetics. Design is so simple, that’s why it is so complicated.
— Paul Rand
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1 Kass v. Liberty Mutual Ins. Co., SC 20451 (Conn. Jan 11, 2022).
2 Brief of Amicus Curiae United Policyholders in Support of Plaintiff-Appellee, Kass v. Liberty Mutual Ins. Co., SC 20451 (2022).