In BonBeck Parker, LLC v. Travelers Indemnity Co. of America, 14 F.4th 1169 (10th Circ. 2021) the Court held that the Travelers’ policy permitted either party to request an appraisal on “the amount of loss,” which was a phrase with an ordinary meaning in the insurance context that unambiguously encompassed causation disputes. The Circuit Court predicted that the Colorado Supreme Court would recognize that in the insurance context, the phrase “amount of loss” would encompass causation. In doing so, the 10th Circuit rejected Travelers’ argument that the appraisal clause was limited to monetary determinations, thereby precluding causation determinations. Rather, the 10th Circuit concluded that nothing in the dictionary definition of an appraiser did not indicate that appraisers were limited from considering causation as part of the estimation of value.
BonBeck Parker, LLC and BonBeck HL, LC, (collectively “BonBeck”) submitted a hail damage claim to their insurer, Travelers Indemnity Co. Travelers acknowledged, upon inspection, that some of the claimed damage to the property was caused by a covered hail storm. However, Travelers also concluded that the inspection uncovered damage that was caused by uncovered events, such as wear and tear of the property. BonBeck requested appraisal. Travelers advised BonBeck that it would agree to appraisal, provided that BonBeck would further agree that the appraisers were not to decide whether the subject hail storm, in fact, caused the disputed damage being assessed by the appraisal panel. BonBeck rejected that condition. The scope of appraisal issue ultimately was submitted to the Court.
Travelers’ policy appraisal clause provided that if the parties disagreed on the value of the property, “the amount of loss” could be resolved through appraisal. The policy did not define, however, the phrase, “the amount of loss.” Because the policy did not define the phrase, the Court looked to Blacks Law Dictionary to assist with the Court’s interpretation of the phrase. Specifically, the Court looked to the dictionary definitions of “loss.” According to Blacks Law Dictionary, the term, “loss,” meant “the amount of financial detriment caused by . . . an insured’s property damage, for which an insured becomes liable.” Webster’s Third New International Dictionary defined the term “loss” as “the amount of an insured’s financial detriment due to the occurrence of a stipulated contingent event . . . in such a manner as to charge the insurer with a liability under the terms of the policy.” Merriam Webster’s Collegiate Dictionary defined “loss” as “the amount of an insured’s financial detriment by . . . damage that an insurer is liable for.” The Court found that in each dictionary iteration of the term “loss,” there was a causation component where the dictionaries made clear that the term “loss” referred to damage resulting from a covered event. The Tenth Circuit Court of Appeals then cited to various state courts outside of Colorado which had concluded that causation was an integral part of the definition of loss and that appraisers were empowered to decide the factual cause of damage to property when determining the amount of loss from a hail storm.
The Court noted that the purpose of the appraisal provision in the Travelers policy (and others like it) was to avoid litigation and encourage settlement of the parties’ dispute. If causation was removed from the appraisal evaluation, that purpose would be frustrated because a plethora of detailed damage assessments for judicial review would be reserved. The Court believed this to be unwise when the causation question involved separating losses that were due to covered events from the property’s pre-existing condition that might be subject to exclusions. That type of causation issue arose frequently in property claims and the Court noted that if appraisers were not allowed to allocate damages between covered and excluded peril, then the appraisers could never assess hail damage unless a roof was brand new. This would render the appraisal clause largely inoperative.
Many courts have not decided this issue. The dearth of case authorities is likely because insurers will reserve, against appraisal determination, coverage issues. Coverage issues oftentimes tangentially include issues of causation. With coverage issues reserved, appraisers can reach an award involving the scope of damages which the appraisal panel prices, leaving it to the Courts, and perhaps a jury, to decide more complicated issues involving causation. In the author’s experience, causation determinations can be complex and time consuming and are often beyond the expertise of the appraisal panel members. As an example, in hail cases there are typically significant causation issues involving the differentiation between old hail damage versus new hail damage. This is oftentimes the subject of extensive engineering analysis. Such issues should be decided through a DJA where the parties can present their evidence. That type of advocacy by party representatives does not typically occur in the appraisal process. Rarely does an appraisal panel allow for the submission of evidence and argument of the parties. Thus, the purpose of the appraisal dispute mechanism within the policy would be frustrated by elongating the appraisal process and making the appraisal process, beyond what is intended, much more costly.