Hill et al v. Auto-Owners (Mutual) Insurance Company, No. 4:2019cv00078 - Document 39 (E.D. Tenn. 2020)
Court Description: ORDER denying 18 Motion to Dismiss for Failure to State a Claim. Signed by Magistrate Judge Christopher H Steger on 11/30/20. (GRE)
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decision-makers for resolution in lieu of adjudicating the dispute in court. . . . Appraisal is something narrower. Appraisal is the act of estimating or evaluating something; it usually means the placing of a value on property by some authorized person. . . . Specifically, the object of appraisal in cases of casualty insurance is to quantify the monetary value of a property loss[,] . . . not to decide questions of liability." Id. at 149 (citations omitted). The appellate court found it "unnecessary and even inappropriate to abandon the [ ] distinction between the two . . . ." Id. The appeals court concluded that, when the insurance company drafted its policy, "it did so relying on the generally prevailing understanding that an appraisal was just that—an appraisal, not binding arbitration." Id. 8 The homeowner also argued that the trial court erred by concluding "that insurance appraisers do not have the authority to determine questions of coverage and liability under an insurance policy." Id. at 152. The appeals court found the homeowner's argument unavailing "first 8 Though inapplicable here, the Tennessee Court of Appeals also noted an "second, equally compelling reason for declining to interpret and enforce the appraisal clause . . . as an agreement for binding arbitration[:]" Tennessee's arbitration statute requires that an arbitration agreement involving residential homes have the homeowner sign or initial next to the arbitration clause. Id. at 150, 151. It was undisputed in Merrimack that the homeowner did not separately sign any appraisal clause, so neither the homeowner nor the insurance company could bind the other to arbitration. Id. at 151. 15 Case 4:19-cv-00078-CHS Document 39 Filed 11/30/20 Page 15 of 19 PageID #: 843 because it is not supported by the plain language of . . . [the] insurance policy and second because it flies in the face of settled law on the issue." Id. at 152. Noting that "[a]n appraiser's authority is limited to the authority granted in the insurance policy or granted by some other express agreement of the parties," the appellate court held that the insurance policy "confine[d] the role of the appraisers to determining the 'amount of loss.'" Id. at 152-53. The appellate court continued: In light of other courts' interpretation of similar language, we concluded that the trial court correctly held that [the appraisers] did not have the prerogative to determine whether any particular loss claimed by [the homeowner] was caused by the tornado or whether [the insurer] was ultimately liable under its policy for the loss. The final responsibility for resolving disputes over those issues . . . rests with the courts. Id. at 153. The Tennessee appellate court's reasoning in Merrimack applies to the present case. The Hills' policy with Auto-Owners Insurance provides a mechanism for resolving the "actual cash value or amount of loss covered by" the policy; however, it does not furnish a similar mechanism for resolving coverage disputes. In the absence of an express agreement, resolution of such disputes "rests with the courts." See id. Questions of fact exist in this case concerning the scope of the damage caused by the tornado as opposed to damage that preexisted the tornado. The Hills claim that their appraiser and Auto-Owners Insurance's appraiser "were never in agreement regarding which 'items' were to be valued." [Am. Compl. at ¶ 44, Doc. 16 at PageID #: 495]. Auto-Owners Insurance's appraiser found that some of the damage to the Hills' home was "not caused by the tornado but instead was caused by poor workmanship." [Id. at PageID #: 496]. The Hills' appraiser disagreed, "stating that wind uplift, impact loads, pressure, and flying debris cause this type of damage to brick, not mere non-uniform widths of mortar joints." [Id.]. According to the Hills, "the appraisers for both sides were operating on entirely different sets of assumptions regarding (1) the scope of the damage 16 Case 4:19-cv-00078-CHS Document 39 Filed 11/30/20 Page 16 of 19 PageID #: 844 caused by the tornado and (2) the scope of coverage under the Policy. As a result, the appraisals . . . reflected not appraisals of the costs of various types of repairs, but also causation and coverage decisions." [Id. at ¶ 45]. Since the appraisers could not agree, they submitted their proposals to an umpire: the Hills' appraiser submitted a damage estimate of $325,024.89; Auto-Owners Insurance's appraiser estimated $93,762.07. [Id. at ¶ 46]. The umpire—disagreeing with both—then issued a proposed award of $128,408.89. [Id. at ¶ 47]. The umpire never submitted a line-item breakdown of how he arrived at the $128,408.89 figure; instead, he listed his findings, via bullet points, in a two-page email to the two appraisers. [Doc. 16-9 at PageID #: 696-97]. The umpire stated that the "floor framing was not damaged by the storm[,]" and "[t]he concaved courses of brick on the front elevation . . . . is of poor quality." [Doc. 16-9 at PageID #: 697]. As required by Rule 12(b)(6), the Court must consider the facts in a light most favorable to the Hills. 9 In doing so, the Court concludes that the umpire necessarily made coverage and causation determinations. See Merrimack, 59 S.W.3d at 153 (noting that an umpire "did not have the prerogative to determine whether any particular loss claimed by [the homeowner] was caused by the tornado . . . ."). See generally [Doc. 16 at PageID #: 492-93 ("The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.") (emphasis added)]. The umpire's coverage and causation analysis distinguishes the present case from Artist Building Partners and Thomas. See Thomas, 2016 WL 638559, at *6 (affirming an appraisal award 9 See Twombly, 550 U.S. at 555–56. 17 Case 4:19-cv-00078-CHS Document 39 Filed 11/30/20 Page 17 of 19 PageID #: 845 as binding because the homeowners did "not suggest the appraisal was improperly conducted or there were any coverage issues with the award. They simply desire[d] more money."). 10 In this case, the Hills occupy the role of the Merrimack insurer in asserting that the umpire's authority was "limited to determining the amount of the loss and did not extend to deciding coverage questions." Id. at 146. Paralleling Merrimack, Auto-Owners Insurance's policy does not grant umpires "the prerogative to determine whether any particular loss . . . was caused by the tornado or whether [the] [insurer] was ultimately liable under its policy for the loss. The final responsibility for resolving disputes over those issues . . . rests with the courts." Id. at 153. Even Auto-Owners concedes as much: "Tennessee law is clear that appraisers are precluded from resolving coverage issues, it is black letter law that an appraisal is conclusive and binding on the parties as to the loss amount." [Doc. 19 at PageID #: 708] (emphasis added). Auto-Owners argues that the "overwhelming majority of courts . . . [hold] that appraisers must make some preliminary causation determinations in any appraisal." [Doc. 25 at PageID #: 757-760]. This may be so. And, practically speaking, it would be difficult to completely divorce causation and coverage findings from an appraised loss. But this Court will follow the reasoning in Merrimack which reserves causation and coverage determinations to the courts. See Merrimack, 59 S.W.3d at 153; Pear Tree Properties, LLC v. Acuity, No. 3:16-CV-00551, 2017 WL 3674845, at *2 (M.D. Tenn. August 25, 2017) (denying a Rule 56 motion, in part, by noting that "the plain language of the policy states that the appraiser makes a determination 'on the value of the property or the amount of the loss.' . . . The appraiser has determined the value of the property and the 10 See also Artist Bldg. Partners, 435 S.W.3d 202, 218–19 ("These determinations by the appraisal panel did not exceed the scope of its authority. Pursuant to the insurance policy, the panel was authorized to make a binding determination as to 'the amount of loss,' and the parties expressly agreed to submit to the appraisal panel the issue of the 'the actual business income loss incurred.' Moreover, the parties expressly agreed that the appraisal panel would decide, not only the value of the loss, but 'the reasonable time frame within which the repairs to the building should have been completed.' These determinations necessarily included a determination of the applicable period of restoration."). 18 Case 4:19-cv-00078-CHS Document 39 Filed 11/30/20 Page 18 of 19 PageID #: 846 amount of loss on all disputed areas of liability. Now, the factfinder must determine what areas of loss are covered by the insurance policy."). III. Conclusion For the foregoing reasons, Auto-Owners Insurance's Motion to Dismiss [Doc. 18] is DENIED. IT SO ORDERED. /s/ Christopher H. Steger UNITED STATES MAGISTRATE JUDGE 19 Case 4:19-cv-00078-CHS Document 39 Filed 11/30/20 Page 19 of 19 PageID #: 847
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