Missouri Court Clarifies Role of Appraisal Provisions

The Missouri Court of Appeals for the Western District of Missouri recently addressed the types of claims that are subject to insurance policy appraisal provisions. In Brewer v. State Farm Fire & Cas. Co., the Court vacated the trial court’s order directing the appointment of an umpire to resolve a disputed claim for property damage under policyholder’s rental dwelling insurance policy after their home was damages by a tree during a storm.

The insurer inspected the loss and developed an estimate of repairs, but the policyholders disputed the amount of the estimate, maintaining that the necessary repairs cost more than twice as much. The insurer rejected the policyholder’s estimate because it contained multiple items outside the scope of coverage and other discrepancies. After the parties were unable to reach a resolution, the policy holders petitioned for the appointment of an umpire under the policy’s appraisal clause.

The Appellate Court acknowledged that the appraisal provision of the policy was unambiguous and gave both parties the right to demand an appraisal, but only when the parties fail to agree on the amount of the loss. It further noted that when there is a disagreement that relates to the insurer’s liability (or the extent of its liability), as opposed to the amount of damages, it is a coverage dispute and cannot be determined through the appraisal process. To allow appraisers or umpires to resolve insurance coverage disputes would violate Missouri’s statutory ban on arbitration of insurance contracts. See R.S.Mo. § 435.350.

Rejecting the policyholder’s attempt to misuse the appraisal process, the Court concluded that it was presented with a coverage dispute based on the insurer’s identification of “significant questions relating to what repairs are actually covered under the policy.” It further reasoned that, by seeking to invoke the appraisal provision, the policyholders were asking the umpire to determine whether a covered loss existed, which it did not have the legal authority to do.

In addressing these issues, Brewer provides clarification as to when an insurance policy’s appraisal provisions can be invoked, and when they are inappropriate. When the parties agree as to the extent of the insurer’s liability, and their only disagreement is to the amount of the damages based upon that liability, the appraisal provision can be invoked to submit the parties’ dispute to an umpire. However, where there is any disputed liability – i.e. the coverage provided under an insurance policy – such an issue must be left to the courts to decide and the appraisal provisions of an insurance policy are inapplicable.

See Brewer v. State Farm Fire & Cas. Co., No. WD84331, 2022 Mo. App. LEXIS 109, at *3 (Ct. App. Mar. 8, 2022).