The California Court of Appeal has held that appraisers only have authority to determine the amount of loss, and do not have authority to determine the cause of loss or any other coverage issue. ( Kacha v. Allstate Insurance Company (2006) 45 Cal.Rptr.3d 92)
Facts
A fire destroyed houses on three sides of Jeff Kacha’s custom house. Heat and smoke from the fire damaged Kacha’s house and personal property.
Allstate insured Kacha’s house and personal property at the time of the fire. Allstate determined that the cost to clean the house and contents was $25,799, and paid that amount to Kacha.
Kacha believed the amount of his loss was $858,393. He retained a public adjuster and demanded that the amount of loss be established by the appraisal process, as set forth in the conditions of the policy. Each party designated an appraiser. Because the two appraisers could not agree on who should act as the neutral umpire of the appraisal panel, the superior court selected the umpire.
Throughout the appraisal process, Allstate maintained that many of the items for which Kacha was seeking recovery had sustained damage from causes other than fire.
At least initially, Kacha appeared willing to allow the appraisal panel to determine if the fire had caused all the damage in question. Later, however, Kacha’s public adjuster asserted that the appraisal panel only had authority to determine the amount of loss, not the cause of loss.
Allstate urged the appraisal panel to award Kacha nothing for items that Allstate contended had sustained damage from causes other than fire. Allstate’s appraiser and the umpire ultimately signed an appraisal award setting the replacement cost of the damage at $163,792 – far more than the amount Allstate previously had paid, but far less than the amount Kacha had been seeking. The appraisal award was itemized, and showed that Allstate’s appraiser and the umpire had not awarded Kacha anything for numerous items that clearly had sustained damage from some cause (even though the cause of damage was disputed).
The superior court confirmed the appraisal award, finding that Kacha initially had agreed to allow the appraisal panel to determine the amount of loss caused by the fire .
Holding
The Court of Appeal reversed, and ordered that the appraisal award be vacated.
The Court of Appeal noted that California’s statutory fire insurance policy provides as follows: “No permission affecting this insurance shall exist, or waiver of any provision be valid, unless granted herein or expressed in writing added hereto .” Pursuant to this statutory provision (which is deemed to be part of every fire insurance policy), the Court of Appeal found Kacha had not waived any rights, and had not expressly or impliedly agreed that the appraisers had authority to determine the cause of the damage.
Because the appraisal panel only determined the amount of loss caused by fire and did not determine the amount of loss of all claimed damage, the panel exceeded its authority.
Comment
Where the cause of damage is disputed, a coverage question exists. This case reaffirms the rule that appraisers can determine the amount of loss, but cannot determine the cause of loss (or any other coverage issue) unless the parties expressly authorize the appraisers to do so.
Where a coverage question exists and the insured demands appraisal, the insurer generally should participate in the appraisal process subject to a full reservation of rights. After the appraisal panel has determined the amount of loss, the insurer remains free to contest (and even litigate) any coverage issues.