Accepting coverage for part of a claim may subject the insurer to the policy evaluation process when the extent of the damage covered is in dispute, according to a recent decision by the Eastern District of Tennessee. in Morrow v. State Farm Fire & Cas. a company, Case #1: 21-CV-00133-DCLC-CHS, 2022 WL 885863 (ED Tenn. March 22, 2022), a severe storm combined with strong winds and gusty activity destroyed the insured’s home in Manchester, Tennessee. After the storm, the insured immediately reported the damage to her home to her insurance company. The insured’s policy covered the direct physical loss of her home, other premises on her property, and personal property. The insurer acknowledged that the damage to the insured’s home was covered under the policy and paid, at its own discretion, the damage for its loss. However, the insured claimed that the insurance company failed to determine the actual cost of the damage to her home. She told the insurance company that her payments were not enough to cover all the damage and return her home to its pre-storm condition.
As a result of this dispute, the insured invoked the policy assessment clause, which provided for mandatory assessment if the insurer and the insurer failed to agree on the “amount of loss” and one of the parties demanded that the “amount of loss” be through the assessment. The insured chose an appraiser, but the insurance company refused her request for an appraisal. The insurer told the insured that its estimate of the damage to her home was a dispute in coverage rather than a dispute in the amount of the loss, which could not be settled under the appraisal clause of the policy. The insured then sued The insurance company, asserting claims of breach of contract and bad faith.
After the lawsuit was filed, the insured moved to compel the insurance company to engage in the evaluation process stipulated in the policy. In response, the insurance company claimed that there was a dispute over coverage between it and the insured, not a dispute about the amount of the loss. The insurer admitted that it acknowledged covering the insured’s claim and paid her for an estimate of the damage to her home. However, the insurance company explained that its contractor had concluded that there was no other damage to her home from the storms other than what she initially admitted. Furthermore, the insurance company confirmed that the policy did not provide coverage for the damages specified by the insured’s contractor. The insurance company claimed that its initial estimate and payment were the only amounts payable to the insured under the policy.
The court held that the evaluation judgment was valid in Tennessee and applied to the claim in question. The court noted that the two parties did not dispute that the damage to the insured is generally covered; Instead, they argued about the extent and amount of the loss: the insured asserted that there was an additional uncalculated loss at the insurer’s discretion, while the insurer claimed that its initial payments represented the full value of the damage caused by the storm. Because the insurance company acknowledged that at least some of the storm damage was covered, the court held that the dispute was about the total amount of the loss, not the coverage. The court decided otherwise, that would allow insurers to avoid valuation by claiming a coverage problem, even when the dispute involved additional amounts of the loss. Accordingly, the court decided that the dispute fell under the policy evaluation clause. Accordingly, the court agreed to the request of the insured to obligate him to appraise and ordered the parties to engage in the appraisal process.
Therefore, under Tennessee law, when an insurance company acknowledges coverage and pays a portion of a claim, it may have to participate in the evaluation process if it takes a stand not to cover any other damages. An insurance company that has accepted part of a claim will only be able to avoid the evaluation process if it is clear that its dispute with the insured is about a coverage issue, not just the extent of the damages covered.
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