Arizona Insurance Appraisal—Can Costs Be Determined Before Causation?

Arizona cases indicate that causation cannot be determined in an appraisal. But can an appraisal go forward to determine the costs of the hypothetical covered damage? It would seem like a huge waste of time since the causation issue will have to be litigated. But, a federal court was faced with this issue.¹

The court ruled that causation could not be determined by the appraisal panel:

The appraisal provision states, in pertinent part, ‘if we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss.’ The provision describes an impartial process involving two appraisers and an umpire to settle differences in the valuations of the property damage. Arizona Courts have determined that an appraisal clause only allows the parties to determine the amount of damage through an appraisal and not to resolve questions of coverage through such a proceeding.

…

…The Arizona Court of Appeals further concluded that ‘the appraisers were authorized to determine only a question of fact, namely, the actual cash value of the insured building.’ Thus, in San Souci Apartments, the Court concluded that the ‘issue of whether the roof tiles were damaged by the hail storm and whether the source of the damage is outside of the policy limits is not a dispute about the amount of loss that all parties agree to be covered’ and was not within the scope of the appraisal provision.

…

Here, in best light to Plaintiffs at this stage, the dispute between the parties centers on which structural engineer’s opinion, Plaintiffs’ structural engineer or Defendant’s structural engineer, is correct regarding the cause of the foundation problems for which Plaintiffs seek compensation from Defendant. Arizona law does not contemplate an appraiser’s central role as arbiter of which structural engineer’s opinion is correct. Appraisal is not appropriate to determine whether or not the refrigerator line leak caused the foundation problems or whether those problems resulted from other, unrelated causes.

Yet, the court allowed the appraisal to go forward to establish the amount of the damages:

Nevertheless, on the record before the Court, the Court cannot conclude that there is no dispute between the parties concerning the cost of repairs to the foundation and related repairs. Defendant has not clearly stated that it will accept Plaintiffs’ loss amount for foundation and foundation related repairs if coverage is established. Under the insurance contract written by Defendant, Plaintiffs are entitled to an appraisal regarding the cost of foundation and foundation related repairs. The Court will compel an appraisal consistent with the terms of the Policy and consistent with the ‘strong preference in favor of allowing [Plaintiff] to invoke the appraisal clause.’

There will be an appraisal award for the damages, and the coverage will be determined in litigation.

Thought For The Day

The Arizona desert to us is starkly beautiful at all times, but when touched by the magic of Spring it becomes a land of enchantment.

—Raymond Carlson

¹ Henderson v. Liberty Mut. Ins. Co., No. 1:23-CV-00670 (D. Ariz Aug. 8, 2023).