When is an Appraisal Demand Premature?  Southern District of Florida Addresses a Post-Litigation Appraisal Demand

Biscayne Cove Condominium Association, Inc. v. QBE Ins. Corp., 2013 U.S. Dist. LEXIS 5194 (S.D. Fla. Jan. 14, 2013), involved a Hurricane Wilma property coverage dispute at a condominium complex. In this case, the court denied the insurer’s (“QBE’) motion to dismiss the insured’s (“Biscayne”) declaratory relief count in its second amended complaint, which sought a declaration that Biscayne was entitled to have a dispute resolved through the appraisal process. The court concluded that, although the insured’s notice of disagreement was premature, the insurer’s failure to respond to that notice for over two years (during most of which the case was stayed pending a Florida Supreme Court ruling) rendered the dispute sufficiently ripe for appraisal.

The primary issue addressed in this case is the prerequisite to an appraisal that a disagreement between the parties exist regarding the amount of loss before an appraisal can be commenced. The Florida courts expect the parties to make “an actual and honest effort to reach an agreement” before invoking the policy’s appraisal provision. In some instances, a party attempts to invoke appraisal prematurely, before the insurer has completed its investigation of the loss, or before an actual disagreement has arisen.

In this case, QBE argued that Biscayne’s demand for appraisal was premature because Biscayne failed to notify QBE that Biscayne disagreed with QBE’s estimate of Biscayne’s losses until after Biscayne filed its lawsuit. According to QBE, it was not given an opportunity to investigate the claim and revise the estimate if appropriate. Biscayne, while conceding that its notice of disagreement took place after commencement of litigation, countered that QBE nevertheless had sufficient opportunity to investigate the claim and revise the estimate within the approximately two years before Biscayne filed its second amended complaint. Biscayne further argued that QBE had not responded to Biscayne’s notification.

In addressing this issue, the court recognized that Florida law requires the insured to inform the insurer of any disagreement it may have and afford the insurer a reasonable opportunity to investigate and adjust the claim before appraisal may be compelled. However, in the absence of any willful disregard by the insured for the policy preconditions, the court also emphasized that belated compliance may be allowed (e.g., a court could stay premature litigation pending compliance or dismiss a premature suit without prejudice to allow compliance). Here, Biscayne issued its disagreement notification the day after suit was filed. Biscayne advised the court that QBE had not responded to the letter or identified an appraiser. Finally, over two years had passed since Biscayne advised QBE that it disagreed with QBE’s assessments of Biscayne’s losses. (During most of this period, the case was stayed pending a Florida Supreme Court ruling on another issue in the case.) The court thus found that QBE had a reasonable opportunity to investigate and adjust the claim and that therefore the disagreement prerequisite for appraisal had been met.

In summary, it appears that the court appreciated the premature nature of Biscayne’s appraisal demand in conjunction with the lawsuit. However, QBE’s failure to respond to the notice of disagreement for over two years during the litigation resulted in a finding that appraisal could proceed. This demonstrates the importance, on the part of the insurer, of responding to such communications and, if it deems appropriate, depending on the circumstances, seeking additional information and continuing the adjustment process simultaneously with any litigation. It may be appropriate, under some circumstances, that this process should not be halted because litigation is stayed.