The Southern District of Texas recently held that an appraisal award did not establish liability for a covered loss under the policy. In Hoff v. Meridian Sec. Ins. Co., 2023 WL 5192013 (S.D. Tex. Aug. 11, 2023), Meridian Security Insurance (“Meridian”) insured Flemming Hoff (“Hoff”). After filing suit, Hoff requested an appraisal pursuant to the following policy language:

If you [Hoff] and we [Meridian] disagree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent and impartial appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the “residence premises” is located. 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.

The appraisers submitted their award and schedules detailing the expenses and the total appraisal amount. The award did not contain any statement that reflected an apportionment between uncovered and covered losses or when the alleged loss occurred.

The appraisal panel awarded an amount above the policy deductible, but Meridian refused to pay. Hoff subsequently moved for partial summary judgment, arguing that the appraisal award entitled him to judgment on his breach of contract claim as to liability and set the damages amount. In opposition, Meridian disputed that the issuance of the award was conclusive evidence that Hoff’s claim was covered under the policy. Meridian argued that the appraisal award provided an estimate of the property damage but did not determine whether the damage was covered. The parties also disputed whether the loss occurred during the policy period.

The Court denied Hoff’s motion, and agreed with Meridian that the award did not entitle Hoff to indemnity for a covered loss. The Court reasoned that the appraisers issued an award as to the amount of Hoff’s damages, not whether Meridian was liable to pay that amount as a covered loss; there was no differentiation between what damage was covered from what was not. The appraisers also made no effort to determine the timing of the loss.

Impact of Hoff

Hoff emphasizes that while the line between liability and damage questions are sometimes blurred, the scope of an appraisal is damages, not liability. Insurers should be cognizant of these issues and clarify the purpose and extent of an appraisal. In many cases, the appraisal process should serve to bifurcate damages and liability disputes. While the holding in Hoff provides some security for insurers in Texas and is consistent with several other jurisdictions, insurers should remain mindful of the law that governs your coverage dispute to the extent it may vary.