The title of this post is a question often asked by policyholders. The practical answer in most states is that one should never expect to successfully appeal a decision by an appraisal panel. If you get a poor award from the panel, you better be ready to accept it because chances are slim that it will be changed by a court. I discussed this fourteen years ago in Appraisals Better Be Won Because They are Difficult to Overturn–Even if Unfair in Result or Procedure.
Illinois is a little different because its case law allows a party to avoid an appraisal award where the award is non-binding. For example, in Stratford West Homeowners Association v. Country Mutual Insurance Co., 788 N.E.2d 342, 343 (Ill App. Ct. 2003), the court ruled:
The provision in question is essentially an arbitration clause, . . . [subject to] the Uniform Arbitration Act . . . . However, non-binding arbitration exists in Illinois as a means of resolving disputes, and neither the Act nor Illinois case law mandates that all arbitration must be binding. . . .
. . . Without language requiring binding arbitration, a policy will be construed as an agreement to submit to non-binding arbitration. …Nothing in the insurance contract indicated that, by participating in the appraisal, Stratford was forfeiting its right to seek redress in court. We decline the opportunity to lower the standard under which parties relinquish their right to sue. A party’s waiver of that right must be evident from the agreement.
In this case, the appraisal does not operate as a final and binding resolution of the parties’ dispute over the amount of the loss and does not foreclose either party from maintaining an action in a court of law. The plaintiff did not give up his right to file suit, and the trial court properly struck Country Mutual’s defenses.
However, in an Illinois case decided last week,1 a federal judge ruled that the policy phrase, “If there is an appraisal, we [i.e., Defendant only] will still retain our right to deny the claim,” still bound the parties to the appraisal award with the following reasoning:
Plaintiff argues that the appraisal provision is nonetheless non-binding because it later states that if there is an appraisal, ‘we [i.e., Defendant only] will still retain our right to deny the claim.’ Plaintiff interprets this language to mean that, if Defendant can deny the claim, then the appraisal cannot be binding. Plaintiff misinterprets this language, conflating ‘claim’ with ‘appraisal.’ The contract between the parties makes clear that an appraisal is limited to the valuation of the loss. …The appraisal does not “answer questions of contract interpretation” or address any number of legal or factual disputes that may give rise to a claim based on Defendant’s denial of liability. …The binding appraisal provision simply means that ‘the insurer may still object to liability, but cannot object to the amount assessed by the appraisal process.’ CenTrust Bank, N.A. v. Montpelier U.S. Ins. Co., No. 12-cv-9233 (N.D. Ill. May 1, 2013).
Contrary to Plaintiff’s claim, the appraisal provision does not allow Defendant to deny the claim if it does not approve the appraisal outcome, rather, the appraisal provision makes clear that the determination of an appraisal amount under that provision will not impact Defendant’s right to deny a claim under the terms of the insurance policy. In other words, submitting to a binding appraisal process does not foreclose Defendant from denying the claim based upon the provisions of the insurance policy, just as submitting to the binding appraisal process does not foreclose Plaintiff from bringing suit based upon an improper denial of Plaintiff’s claim. It does, however, preclude either party from filing suit on the grounds that it disagrees with the outcome of the binding appraisal process, which is the underlying basis of Plaintiff’s first amended complaint.
The bottom line is that appraisal can be a fast and less costly method to resolve an insurance claim. However, policyholders and public adjusters should always work diligently to place proof in front of the entire appraisal panel to support the claimed amount to avoid a disastrous award. A poor award caused by any number of preventable factors usually cannot be overcome in later proceedings.
If you have questions about Illinois law property insurance law, I suggest you contact our very experienced and successful Merlin Law Group attorneys, Ed Eshoo and Christina Phillips, in our Chicago office.
Thought For Preventing A Bad Result
The best preparation for tomorrow is doing your best today.
—H. Jackson Brown, Jr.
1 Courtyards at Prairie Fields Condo. Assoc., No. 1:22-cv-04854 (E.D. Ill. Sept. 22, 2023).
