Eastern District of Pennsylvania: State Farm Cannot Refuse Appraisal of Superstorm Sandy Damage

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Currie v. State Farm Fire & Cas. Co., No. CIV.A. 13-6713, 2014 WL 4081051 (E.D. Pa. Aug. 19, 2014).

After Superstorm Sandy damaged the insureds’ house, they and their insurer came to markedly different assessments of the scope and extent of the loss.  The insureds asked for an appraisal, but the insurer refused, claiming there was a dispute about whether certain damages were covered.  Concluding that this dispute was limited to the extent of loss, the court denied the insurer’s motion for summary judgment on the bad faith claim.

On October 29, 2012, Robert and Kathleen Currie’s house in Langhorne, Pennsylvania was struck by a tree during Superstorm Sandy, causing damage to the roof and other parts of the home.  The Curries had a homeowner’s insurance policy with State Farm Fire and Casualty Company (“State Farm”), and they promptly notified State Farm of the claim.  A State Farm adjuster and a roofer contacted by the Curries subsequently inspected the damage.  During the inspection, the roofer told the Curries that he thought replacing the roof would cost more than $100,000.

On November 19, 2012, however, the Curries received an estimate and check from State Farm for little more than $50,000.  This prompted the Curries to hire their own experts, who inspected the property and estimated the total damage at more than $360,000.  State Farm hired an engineer to conduct a second inspection, after which it sent the Curries a second check for an additional $9,500 on May 27, 2013.

The Curries’ policy provided that if the insured and insurer failed to agree on the amount of the loss, either party could demand that the loss be set by appraisal.  In June 2013, the Curries sent to State Farm two written demands for appraisal.  State Farm rejected these demands on July 2, 2013, stating, “This claim involves certain items for which State Farm has not admitted liability [including] sanding and refinishing of the wood floors.  Since the dispute goes beyond the amount of loss, appraisal is not an appropriate method of resolution.”

In October 2013, the Curries filed an action in Pennsylvania state court against State Farm for bad faith and breach of contract, which State Farm removed to federal court.  The Curries alleged that State Farm acted in bad faith when, among other things, it denied their demands for appraisal.  In June 2014, State Farm moved for summary judgment on the bad faith claim, arguing that there existed a “coverage dispute” that made an appraisal inappropriate because the parties did not agree on which items of damage were caused by the storm.

The U.S. District Court for the Eastern District of Pennsylvania noted that well-established Pennsylvania law encourages the resolution of insurance disputes by appraisal, and that appraisal is appropriate when two conditions are met:  1) the insurer has admitted liability for the loss; and 2) the only dispute is over the dollar amount of the loss.  As to this second condition, the court stated that when the parties merely disagree over the extent of damage or whether a covered peril is the cause of certain damage, that dispute is one regarding the amount of loss and thus appropriate for resolution by appraisal.  The court observed that, as a practical matter, differing assessments of loss often boil down to disagreements by the assessors over the cause of damage or scope of necessary repairs.  If State Farm could avoid the appraisal remedy by labeling this state of affairs a “coverage dispute” rather than an extent of loss issue, it would render the policy’s appraisal provision “useless.”

The court stated that the parties’ disagreement concerned whether Superstorm Sandy damaged the Curries’ floors and the scope of repairs needed to their roof.  It concluded that it was “disingenuous of State Farm to characterize this disagreement as a coverage issue in order to avoid appraisal, especially in light of the fact that Pennsylvania law encourages the settlement of disputes regarding the amount of loss by appraisal.”  Therefore, the court denied State Farm’s motion for summary judgment on the bad faith claim regarding the refusal to go to appraisal.

The Curries also alleged that State Farm acted in bad faith in its dealings with the roofer they initially hired, but the court held that the Curries failed to present evidence for that claim.  The court thus granted summary judgment for State Farm on that specific portion of the bad faith claim.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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