Beyond Bad-Faith And Non- Cooperation: Moving To An Appraisal- Centric Model For Resolving Property Damage Claims

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1 Beyond Bad-Faith And Non- Cooperation: Moving To An Appraisal- Centric Model For Resolving Property Damage Claims Randy Evans, Esq. McKenna Long & Alridge LLP Washington, DC J. Stephen Berry, Esq. McKenna Long & Aldridge LLP Atlanta, GA INTRODUCTION: Beginning in approximately 2000, there has been a trend for property damage claims (in which coverage is largely uncontested, but the amount of loss is contested) to evolve into litigation claims in which the insureds allege bad faith and seek punitive damages, and/or the insurer alleges failure to cooperate and attempts to avoid coverage for the entire claim. Three factors have contributed to the trend. First, inordinate delays inherent to complex claims become the focal point for extra-contractual disputes. Most of these disputes manifest themselves as allegations against the insured of a failure to cooperate and/or allegations against the insurer of bad faith delay in payment. Second, deviations between demands, payments, and appraisal awards become the predicate for further litigation. If an appraisal panel awards any significant amount different from what the insured demanded or the insurer has paid, then there are allegations of wrongful conduct. For the insured, the claim is a wrongful refusal to pay. For the insurer, the claim is for a false/fraudulent claim. (Some attorneys use a formula, basically if there is a 40% deviation, then a separate claim is made resulting in expensive and contentious litigation.) Third, differences in information submitted in connection with claims result in additional allegations of improper claims conduct. If additional information is developed by either party in connection with the appraisal process, then there are often allegations that the original adjustment or submission was 1

2 based on inadequate investigation or inaccurate/false/fraudulent data. The insured claims bad faith. The insurer claims a false insurance claim or proof of loss. Effectively, these factors have increasingly made appraisals an all or nothing proposition as opposed to an alternate claims dispute resolution procedure. In order to address this challenge, new strategies have emerged which are designed to return the adjustment/appraisal/claims resolution process for both the policyholder and the insurer. These strategies focus on back-shifting the focus of the resolution process to an appraisal/dispute resolution-centric model as contemplated by the insurance contract as opposed to a litigation-centric model that thwarts the goal of efficient and timely resolution. As part of this process, this new focus has centered on procedural and substantive court orders and memoranda of understanding that (a) vest jurisdiction in the appraisal panel (specifically the umpire); (b) channel disputes about the progress of the appraisal (specifically including the speed of the process) back into the appraisal itself; and (c) specify the award form in order to eliminate disputes regarding what the panel decided and what it did not. Examples of these documents and agreements are effective tools for creating an appraisal centric model for claims resolution. The possibilities that these strategies offer are many. Under appraisal-centric models, if an insured does not believe that the process is moving fast enough, then the insured can seek immediate relief from the panel to move the process along. On the other hand, an insured who has not sought to move the process along can not later complain about the speed of the process since the insured could have addressed the problem in real time as opposed to forensically after the delay has occurred. Similar remedies are available for any allegations of inaccurate submissions, improper claim adjustments or failure to pay. The process does not resolve all issues, but it does create better opportunities for global resolution of all the claims issues. Some steps that help refocus dispute resolution in property claims are as follows: Resolution Model: This is an outline of some steps that bring about a transition from attorney-driven property claim disputes, focusing on bad-faith allegations, to a dispute resolution that maximizes accuracy and minimizes litigation. The themes are parity and clarity to ensure a level playing field for both the insurer and the insured and to create a venue/forum to timely address concerns or issues that either may have. 1. TRANSFER JURISDICTION a. Order of Referral. The first possible key to the transformation of the claims dispute from litigation to resolution is an order of the court that refers/transfers powers from the court to the Umpire and/or the Appraisal Panel. Some of the items to be addressed are as follows: i. Jurisdiction: Orders should address the scope of authority vested in the appraisal panel and whether the jurisdiction being vested in the Appraisal Panel includes the power to fully and completely calculate and determine the loss. Issues, such as bad faith, are deferred/abated/stayed until the appraisal is completed. Cases addressing both sides of this issue are noteworthy. Some orders addressing the scope of authority and jurisdiction are illustrative. ii. Discovery: Discovery should be abated/stayed while preserving the ability for both parties to request information about loss. This can be accomplished by order or by agreement. 2

3 b. Empower the Umpire. Orders of Referral and other supporting documents should address the degree to which the umpire is empowered to make the decisions necessary for the orderly and timely progress of the appraisal process. Recommended language can include the following: the umpire shall have full authority to resolve all matters relating to the calculation and determination of the loss. In any event, the Umpire s powers should be clearly articulated and should include: i. Scheduling: To prevent either party from delaying, the Umpire should be given complete authority to set and enforce deadlines, calling meetings, and scheduling inspections of the insured property. The remedy for delay is to ask the Umpire for relief and the Umpire should be granted the power to grant such relief as may be appropriate. ii. Evidence: To ensure an even playing field, the goal is transparency, i.e., both parties have equal access to information. To achieve this result, to focus must be on parity and clarity in the preparation and presentation of the claim. iii. Delay: The Umpire should be able to determine whether one side has delayed and if so, the consequences. iv. Contractual Obligations: Obligations under the contract of insurance, including cooperation, timely adjustment and payment, as well as the right to inspect remain. v. Accuracy: The Umpire has the final authority as to how evidence is presented, the process for consideration of evidence, and the method for decision-making. The primary focus must remain on assuring the accuracy of any evidence presented. 2. SPECIFY THE PROCEDURE a. Memorandum of Appraisal: the following language offer opportunities for regulating the procedure through the agreement of the parties. i. The Panel shall have full authority to resolve all matters relating to the calculation and determination of the loss. ii. The Panel shall decide those administrative/procedural matters necessary to ensure the expeditious progress and completion of the appraisal. Those matters include, but are not limited to, setting and enforcing deadlines, calling meetings, and inspections of the insured property. iii. The Umpire, in her/his sole discretion, has the authority to require, allow, or refuse to consider materials submitted by the appraisers according to any rules or procedures he institutes. iv. The Umpire has the authority to implement, change, or terminate procedures for the inspection of the loss, in her/his sole discretion. The Insurer and the insured will cooperate fully with the Umpire and the Appraisers in their evaluation of the loss and damage to the insured property v. The Appraisal Panel shall not decide or address matters of coverage. b. Award Form: Effective appraisals include award forms that define what is and is not to be addressed by the Panel. Typically, the Panel has no ability to address statutory penalties or bad faith. The Form should, subject to the agreement of the parties: i. Specify the amounts of loss to be awarded. ii. Preserve the right to apply deductibles, terms of the insuring agreement, limits, and sub limits of coverage, and any applicable exclusions. 3

4 iii. Retain credit for advance payments. Where the claim involves multiple buildings, advanced payments on one building that exceed that building s loss should be credited towards other buildings. iv. Reserve coverage issues. 3. FOCUS THE EXPERTS a. Coordination: All experts should be focused on a single goal. To define and achieve the initial focus, a general meeting between all experts, the appraiser, counsel, and the claims representative is recommended. b. Narrowed the focus: It is a given that experts should have excellent credentials and integrity. It is equally important that their reports be based on all available data. The key is to focus the experts on areas of agreement, and the identification of the specific areas of disagreement. Agreements on protocols, hypotheses, and acceptable testing data are important. c. Flexibility: As the appraisal moves forward, specific boundaries are helpful to continually focus on the issues for determination. 4. ADDRESSING ALLEGATIONS OF A FAILURE TO COOPERATE (INSURED) AND/OR BAD FAITH ADJUSTMENT (INSURER) a. Pre-Appraisal i. Delay: The Insured and/or Insurer should not hesitate to launch the appraisal process when the claim turns contentious. ii. Communication: All correspondence with the other party and its adjuster should be thoroughly documented. This includes, if necessary to avoid misrepresentations as to what was communicated, bates-stamping all exchanged documents to verify what was exchanged and when. iii. Discovery: Seek a stay of discovery pending the outcome of the appraisal process. Regularly, judges are inclined to grant such stays in order to permit the process to work. Even where stays are denied, the parties will typically end up with a stay as litigation discovery obstructs (as opposed to facilitates) the appraisal process. b. During Appraisal i. Discovery: Transparency is the most important characteristic of an effective appraisal. Transparency may or may not involve discovery. This should be the decision of the Umpire depending on the facts and circumstances of the claim. Even then, it is not discovery as in the litigation context. It involves the sharing of data from which both sides can determine what happened, why, and how to fix it ii. Access: Both parties access to the insured property should be preserved in the Memorandum of Appraisal and, if possible, the Order of Referral. iii. Communication: All correspondence in connection with the appraisal should be sent by the parties' appraiser. iv. Testing: Require notice and access to all testing performed by the parties. c. Post-Appraisal Litigation i. Answer: Allegations should be divided between pre-appraisal award and post appraisal award. ii. Waiver/Estoppel: For post appraisal conduct, waiver and estoppel defenses may be asserted against either party to the extent the party did not avail themselves of the ability to 4

5 address the alleged wrong at the time it could be corrected by the Umpire and/or Appraisal Panel. iii. Summary Judgment: Some state courts have awarded summary judgment to insurers upon proof that the insurer complied with the contractual appraisal process. Relevant Law: Litigation over the role of the appraisal process in disputed property damage claims has primarily involved two major issues. First, under what circumstances can the Appraisal Panel decide issues of causation (as opposed to, simply, the amount of damage that exists)? Second, to what extent does the appraisal provision shield the parties from claims of bad faith and/or lack of cooperation? Significant rulings on these two issues are discussed below. 1. APPRAISAL PANELS JURISDICTION OVER COVERAGE AND CAUSATION ISSUES Disputes over the amount of property damage involved in a claim frequently involve the determination of what caused certain elements of the damage. The extent to which an Appraisal Panel can address these issues often depends on the negotiation of the Panel s jurisdiction in advance of its deliberation. a. The Default: Addressing Causation In The Absence Of A Negotiated Agreement As the Supreme Court of Alabama recently noted, [a]ll jurisdictions, however, are not in agreement as to what issues may be submitted for appraisal. Rogers v. State Farm Fire and Cas. Co., 984 So. 2d 382 (Ala. 2007). In Rogers, the insureds residence was damaged by a tornado. The parties agreed as to the causation of the damage to the roof of the house, but disagreed as to the cause of the damage to its brick veneer or to its foundation. After the insureds filed suit, the trial court ordered the dispute be resolved through appraisal. The Rogers court noted that some courts allow appraisers to address causation in certain circumstances, even without an agreement of the parties. For example, the Supreme Court of Florida held in Johnson v. Nationwide Mutual Insurance Co., 828 So. 2d 1021, 1022 (Fla. 2002) that causation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed. This ruling was followed by the court in Kendall Lakes Townhomes Developers, Inc. v. Agricultural Excess & Surplus Lines Ins. Co., 916 So. 2d 12, 15 (Fla. 3 rd DCA 2005) ( when the insurer admits that there is a covered loss, but there is a disagreement on the amount of loss, it is for the appraisers to arrive at the amount to be paid. ); see also, Cigna Ins. Co. v. Didimoi Property Holdings, N.V., 110 F. Supp. 2d 259 (D. Del. 2000) (appraisal provision of property insurance policy which stated that appraisers would determine amount of loss authorized appraisers in examining fire damage to insureds building to determine whether claimed damage was caused by fire, not simply amount of money needed to repair or replace claimed damages; determination of cause was distinct from coverage/exclusion decisions outside appraisers authority.); Lasha v. Farmers Ins. Co. of Washington, 119 Wash. App. 1086, (Wash. App. Div. 3, 2004) ( causation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed. ). However, in a decision, the Rogers court ruled the trial court committed reversible error by ordering State Farm and the Rogerses to submit to the appraisal process issues that involved causation, 5

6 which should have been decided by the trial court. Id. at 392. This decision relied heavily on authorities from many states holding that appraisals should be limited to only determining the amount of damage and not coverage issues. E.g., Jefferson Ins. Co. of N.Y. v. Superior Court, 3 Cal.3d 398, 90 Cal.Rptr. 608, 475 P.2d 880, 883 (1970) (the function of the appraisers is to determine the amount of damage resulting to various items submitted for their consideration, and not to resolve questions of coverage and interpret provisions of the policy, which exceed the scope of their powers); Wausau Ins. Co. v. Herbert Halperin Dist. Corp., 664 F.Supp. 987, 989 (D. Md. 1987) (where insurer does not factually dispute the consequences of the occurrence, but contests the issue of legal causation on the basis that the policy exclusions apply so as to limit the scope of coverage, the issue is one of contract interpretation, and is within the competence of the court, not an appraiser, to resolve); St. Paul Fire & Marine Ins. Co. v. Wright, 97 Nev. 308, 629 P.2d 1202, 1203 (1981) (contrary to arbitration, where the arbitrator is frequently given broad powers, appraisers generally have more limited powers; an appraiser's power generally does not encompass the disposition of the entire controversy between the parties, but extends merely to the resolution of the specific issues of actual cash value and the amount of loss). A Texas court recently ruled likewise in Lundstrom v. United Services Auto. Ass n-cic, 192 S.W.3d 78 (Tex.App.-Houston [14 Dist.],2006) (appraisal umpire exceeded scope of authority by concluding that damage was caused by plumbing leak rather than earth movement). This appears to be the majority rule, in the absence of an agreement of the parties for a more specific appraisal resolution. b. The Clarification Allowed By An Agreed Resolution Model In what has become an often-cited opinion, the Supreme Court of Mississippi addressed the scope of an appraisal panel s authority in Munn v. National Fire Ins. Co. of Hartford, 237 Miss. 641, 115 So. 2d 54 (Miss. 1959). In Munn, the lower court enforced an appraisal award concerning storm damage pursuant to a windstorm policy. Specifically, in Munn the appraisers refused to put any price whatsoever on the walls of the insured s residence. The court chose to strike the appraisal award because it addressed a yes or no issue of causation regarding a singular item of damage that was the only coverage issue in the case. The Supreme Court overturned that ruling because the appraisal panel had made a coverage determination that should have been reserved for the court. Id. at 55. Significantly, the Munn court limited its ruling on causation to appraisals where it is not otherwise provided by the agreement. Id. at 57. This limitation is the basis for negotiated resolution models such as that proposed above. Notably, courts in other states have specifically noted this exception. Lundstrum, supra, at 88; Didimoi, supra at 266. The need to articulate the specific bounds of the Appraisal Panel s jurisdiction, and to hold the Panel to it, was highlighted in Kendall Lakes, supra. In Kendall Lakes, the court issued this order: the appraisers shall derive at an amount of the total loss, and shall further breakdown the amount of the loss by virtue of excluded causes. The Court shall be the ultimate finder of fact on the issue of whether the loss, in whole or part, was caused by a covered cause. Id. at 14. The court held the Umpire properly considered causation; however, the umpire exceeded the duties assigned to it and made findings specifically reserved for determination by the trial court. Id. at 16. Specifically: A review of the trial court's order reflects that the trial court imposed limitations on the duties it granted to the umpire. The trial court ordered the umpire to derive at an amount of the total loss, and shall further breakdown the amount of the loss by virtue of excluded causes. The record on appeal does not indicate that either party objected to this language contained in the trial court's order. Contrary to the trial court's order, the umpire did not do as directed as the umpire's report did not state the total loss or 6

7 Id. at Insurance Coverage Litigation Committee CLE Seminar, March 4-7, 2009: breakdown the amount of the loss by virtue of excluded causes. While an umpire has the authority to resolve causation issues, since the trial court specifically reserved this issue for the court's determination, the umpire in this case exceeded the authority granted to it by the trial court. The trial court's order additionally and clearly states that [t]he Court shall be the ultimate finder of fact on the issue of whether the loss, in whole or part, was caused by a covered cause. In contravention of the trial court's order, the umpire did not fulfill the tasks assigned to it and instead made factual findings as to coverage, an issue not in dispute and an issue it lacked authority to resolve; and causation, an issue which pursuant to the trial court's order, the trial court had reserved for itself. Thus, we conclude that trial court erred by confirming the appraisal award. Jurisdiction to determine causation can also be afforded by a court order, when appropriate. In Knapp v. Allstate Ins. Co., 134 F.3d 378 (9 th Cir. 1998), the insured argued that the appraisal umpire exceeded his powers in issuing a ruling based on a determination that much of the damage was preexisting, because such a determination impermissibly resolves a question of coverage. The court overruled the objection because, primarily, the court s order directed the appraisers to determine the amount of loss incurred at Plaintiffs Newhall property as a result of the January 17, 1994 Northridge earthquake in accordance with the terms of Allstate s policy. Accordingly, the panel did not exceed its authority by appraising the value of the earthquake damage. 2. THE AFFECTS AN APPRAISAL CAN HAVE ON BAD FAITH CLAIMS Use of the appraisal clause in insurance policies can and should affect claims of bad faith claim handling by the insurer. Four concepts underline this principle. First, bad faith usually depends on the insurer s role as decision-maker in paying claims. By transferring the role to an umpire, appraisal reduces the insurer s role to that of a contractual party who pays what it is told to pay. Second, bad faith usually depends on a certain standard of conduct (e.g., did the insurer have an arguable reason to withhold an amount). The appraisal clause both eases and clarifies the standard: did the insurer pay the amount determined by the umpire? Third, likewise, the issue of whether the insurer paid in a timely manner is reduced to the narrow issue of whether payment was made promptly after the umpire s ruling (many policies specify a time limit). Fourth, bad faith theory often assumes the insurer has an unfair advantage of power over the insured: during the adjustment process, the insurer holds the money (in addition to its vast wealth) while the desperate insured must argue from a position of weakness. Appraisal transfers power from the insurer to the umpire, reducing the insured s ability to argue that the insurer used financial leverage to negotiate unfairly. Case law considering the interplay between bad faith claims and appraisal clauses is best analyzed by focusing on pre-appraisal bad faith claims, allegations of bad faith in the appraisal process itself, and post-appraisal bad faith claims. These are examined in turn below. a. Pre-Appraisal Claims of pre-appraisal bad faith usually focus on either allegations of delay by the insurer, or alleged low-balling by the insurer. Insurers have often been able to insulate themselves from both types of claim by complying with a contractual appraisal process. The courts of many states have ruled that an insurer is not liable for bad-faith delay if it adheres in a timely manner to the contractual appraisal procedure specified in its policy. Longpoint Condominium 7

8 Ass'n v. Allstate Ins. Co., 2005 WL (N.D.Fla., 2005) (finding no bad faith failure to investigate Florida statute where insurer presented its case to Umpire before 60-day period after badfaith demand expired.). However, an insurer must invoke the appraisal procedure in a timely manner in order to forestall a bad-faith delay claim. For example, in Bard s Apparel Mfg., Inc. v. Bituminous Fire & Marine Ins. Co., 849 F.2d 245, 249 (6th Cir. 1988), the insurer refused for several months to engage in an appraisal, and it was only after the insured gave notice of its intention to file suit that the insurer attempted to invoke the appraisal process. The Court of Appeals for the Sixth Circuit agreed with the district court and concluded that, under the circumstances, the insurance company not only waived its right to an appraisal as a condition precedent to suit, but also waited an unreasonable length of time to the prejudice of Bard's before demanding an appraisal. Id. (emphasis added). The law of most states also precludes claims of pre-appraisal bad faith that are based on an insurer s initial payment that, although made in good faith, is later determined to be insufficient by an appraisal. Typical of such rulings is Tutor v. Ranger Ins. Co., 804 F.2d 1395, 1399 (5th Cir. 1987). Tutor involved the fire loss of a logging machine. Four months after the loss, the insurer sent the insured a proof of loss form showing a loss of $44,333, an amount determined by its appraiser. The value was later determined to be $56,000, but the court found no bad faith in the delayed payment of the difference because the insurer relied on the only appraisal it had at the time. See also, Tristar Lodging, Inc. v. Arch Speciality Ins. Co., 434 F. Supp. 2d 1286 (M.D.Fla., 2006) (affirming summary judgment for insurer on bad faith because insured admitted that it did not know the amount of the claim and was in the process of putting it together. ) (emphasis in original) (also ruling that seeking attorney fees in a bad-faith claim during appraisal process was contrary to Florida public policy); American Manufacturers Mutual Ins. Co. v. Osborn, 17 P.3d 1229 (Wash. App. 2001) (insurer was entitled to summary judgment on its insured's first party bad faith claim, even though an appraiser awarded the insured more than the insurer had offered, where the insured offered no evidence that the insurer's handling of the claim was unreasonable.). An excellent example of this principle is the recent ruling in Rock-N-Rolls Auto Salon, Inc. v. U.S. Fidelity & Guar. Co., 2006 WL (N.J. Super. A.D. 2006). The insurer estimated the insured s loss at $444,000 and paid it; the insured hired a public adjuster who estimated the claim at $773,000. After the insured filed a bad-faith suit, the insurer filed a motion to compel appraisal. The appraisal awarded the insured an additional $117,000, substantially more than it paid but closer to the insurer s estimate than to the public adjuster s over-inflated estimate. The court found no bad faith because [t]he claims that USF & G denied were fairly debatable, and there were valid reasons for the delays in processing claims. USF & G made timely payments to plaintiffs in accordance with the estimates prepared by the valuation experts it retained. Its denials of the additional amounts claimed by plaintiffs were based on those estimates, and any delays in payments were based on plaintiffs delays in submitting required documentation to support their claims or reasonable disputes concerning the amounts due. Id. at *3. Likewise, in Mitchell v. Aetna Cas. & Sur. Co., 579 F.2d 342 (5th Cir. 1978), a complex of two office buildings owned by the insured was damaged by Hurricane Camille. When the parties did not agree on the amount of loss, the insured demanded an arbitration. The insurer treated the demand as one for an appraisal, and the insured participated with competent counsel. The insured was not satisfied with the appraisal amount, so filed a bad faith action and won a jury trial. However, the Circuit Court 8

9 reversed and remanded for a new trial. The court noted that the insured s claim was not liquidated at the time of the suit, and the insurer had always been ready to tender the award set by the appraisers. Therefore [t]heir refusal to pay more was not frivolous, or in bad faith. Id. at 352. Similarly, in Trooper Jake, Inc. v. Auto-Owners Ins. Co., 2005 WL (Mich.App., 2005.), an appellate court reversed an award of interest against the insurer because the insurer had complied with the appraisal process provided for in its policy: Id. at *3 (emphasis added). Regardless, this is not a case in which a failure to comply with appraisers' findings necessitated a lawsuit given Auto-Owners' timely payment of the amount the appraisers awarded. In this case, Trooper Jake never demanded appraisal. It was not until a year later-after Auto-Owners' initial payment and after Trooper Jake had filed suit against Auto-Owners-that Auto-Owners demanded an appraisal. Evidently, the trial court incorrectly assumed that only Auto-Owners had the authority to demand an appraisal when it asked Auto-Owners' counsel why Auto-Owners had not asked for an appraisal sooner than it did. In any event, we see no basis to charge Auto-Owners with negligence in violation of any duty to Trooper Jake for failing to demand appraisal at an earlier point when Trooper Jake had an equal right to demand appraisal itself. However, not all states concur. In Wailua Assocs. v. Aetna Casualty & Sur. Co., 27 F. Supp. 2d 1211 (D. Haw.1998), the court held that the insured could attack Aetna s unreasonable delay from the time Wailua submitted its claim to the initiation of the appraisal, for the time during the appraisal, and for the time between the confirmation of the award and Aetna s payment relating to the first time period. The court further held, however, that the award precluded Wailua from challenging the relevance of the information Aetna had submitted to the appraisal panel or its accuracy. See also, Smithson v. U.S. Fidelity & Guar. Co., 186 W.Va. 195, 411 S.E.2d 850 (W. Va., 1991) (concluding that a first-party bad faith claim was not barred by the settlement of the loss in an appraisal proceeding under the fire insurance policy if the insured substantially prevailed in the appraisal proceeding over the amount of the loss). b. During Appraisal Clearly, an insurer can be held in bad faith for improper actions during an appraisal. One court found such behavior in Massey v. Farmers Ins. Group, 986 F.2d 1428 (10 th Cir. 1993) (Ok. law). The court noted that, according to the defendant insurer s own training manual, it was against company policy to invoke the appraisal process or to even call it to the attention of the insured. Further, the defendant insurer failed to appoint a competent and disinterested appraiser because the first appraiser appointed by Defendant was not competent, and that neither of the two appraisers appointed by the defendant were disinterested (the first appraiser was an attorney who did substantial work on the defendant s behalf, and indeed had been retained by Defendant to represent it in its dealings with Plaintiffs; the second appraiser, relied on insurance work, a substantial portion of which was from Defendant, for his livelihood, and he had earlier provided an estimate for repairing the same house). Moreover, there was direct evidence, in the form of a letter by one of Defendant's attorney who happened to be an associate of Wilburn, that Defendant attempted to improperly influence the second 9

10 appraiser by conveying its expectation that the appraiser would stand by his estimate to rebuild the house. However, it has also been held that policyholders can forfeit a bad faith claim by thwarting the purpose of an appraisal clause. For example, in Dunn v. Way, 241 Mont. 208, 786 P.2d 649 (Mont., 1990) the court precluded a bad faith claim where the insured failed to respond to the insurer s notice that appraisal procedure had been invoked (and precluded the insured s right to interest because the insured failed to follow the policy s appraisal procedure, which would likely have made their damages certain). c. Post Appraisal Courts frequently rule that an insurer that pays an appraisal award promptly after it is rendered cannot be found liable for post-appraisal bad faith. E.g., Taz Hardwoods Co., Inc. v. Westchester Fire Ins. Co., 2007 WL (N.D.W.Va.,2007) (awarding summary judgment to insurer that promptly requested appraisal upon disagreement and promptly paid appraisal upon award). Courts have also ruled that insurers need pay no interest on an appraisal award that is timely paid. Krim v. Commercial Union Assur. Co., 94 Mich.App. 639, 288 N.W.2d 463 (Mich. App., 1980) ( when an insurer and an insured settle a good-faith dispute over the amount of liability on a fire insurance claim through negotiation or resort to appraisal procedures provided for under the policy, interest is not available to the insured if the insurer pays the claim within thirty days of the ascertainment of the loss.). Of course, the failure to pay within a time frame allowed by the policy can be the basis of a bad-faith delay claim. Country Forest Products, Inc. v. Green Mountain Agency, 758 A.2d 59 (Me. 2000) (court found bad faith because of the failure of the insurers to pay the appraisal award within 60 days). SAMPLE FORMS: A. Memorandum of Appraisal B. Order of Referral C. Award Form D. Affirmative Defenses 10

11 ABOUT THE PRESENTER(S): PRESENTER 1: Randy Evans is the chair of the Financial Institutions practice team of McKenna, Long & Aldridge, LLP in Washington, D.C. He handles high profile, complex coverage litigation in courts throughout the United States. In addition, Randy served as outside counsel to the Speakers of the 104th-109th Congresses of the United State and represents former Speakers of the U. S. House of Representatives, Dennis Hastert and Newt Gingrich. Randy is a frequent lecturer and author on the subjects of professional liability, government ethics, and politics, including The Practical Guide to Legal Malpractice Prevention (Eighth Ed. 2000) and The Practical Guide to Purchasing Legal Malpractice Insurance (Third Ed. 1999). PRESENTER 2: Stephen Berry is a litigator with McKenna, Long & Aldridge, LLP in Atlanta, Georgia. He specializes in insurance coverage and insurance bad-faith litigation, with particular emphasis on construction defect and catastrophic property damage claims. Stephen is listed in the 2007, 2008, and 2009 editions of The Best Lawyers in America in the practice area of Insurance Law. PRESENTER 3: Tina Nicholson is a litigator with the Merlin Law Group in Houston, Texas. Her practice focuses on the representation of policyholders in commercial and residential property insurance litigation, first party property insurance, and bad faith litigation. PRESENTER 4: Robert Romero is the partner-in-charge of Hinshaw & Culbertson LLP s San Francisco office and sits on the firm s seven-member Management Committee. He is a past member of its Executive Committee. Mr. Romero s national practice emphasizes complex jury trial work. He also serves as an arbitrator and mediator in commercial disputes. Mr. Romero has been lead trial counsel in insurance coverage and bad faith cases throughout California and the western United States, including Arizona and Hawaii. He continues to serve as national bad faith counsel to a major insurer. Mr. Romero also has extensive trial experience defending professionals, including attorneys, insurance agents and brokers, architects, engineers and real estate professionals. PRESENTER 5: Catherine Smith Durkin is the Director of Construction Defect Coverage Litigation at Zurich North American Claims where she manages attorneys supervising bad faith and coverage litigation nationwide. 11