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Factual background:
Luigi’s restaurant in Oelwein, Iowa, burned down, resulting in total loss. Luigi’s was insured under a policy with an insurance limit of $ 550,000. The policy provided two methods of determining the actual cash surrender value (ACV) of the loss: First, if there is a regular market for similar properties, the ACV of the property is its market value (the “Market Approach” ). If there is no regular market for similar properties, then CCV is the cost of replacing the building with similar materials (the “Cost Approach”).
United Fire used Rally Appraisal to determine the LCA of the loss. Rally used the market approach and compared the restaurant to four similar properties. Rally concluded that the building’s AGV (not including contents) was $ 242,000. United Fire made a payment based on this finding.
Luigi’s rejected the assessment and invoked his right to the assessment. Using the cost approach, Luigi’s assessor determined the ACV to be $ 1,030,000, of which $ 900,000 was for the building and $ 123,000 for the contents. On June 22, the evaluation committee unanimously accepted an allocation of $ 502,000, including $ 380,000 for the building and $ 122,000 for the content.
United Fire has reviewed the indemnity and said it has already paid the content claim as part of the company’s separate personal property coverage. The United Fire appraiser attempted to withdraw his signature from the appraisal award, claiming he was misled about the cover and forced to sign the award. Luigi refused to reconsider the price, demanding the total price of $ 502,000. United Fire then paid the full indemnity on July 12 within the 30-day police deadline.
Luigi’s subsequently sued United Fire for breach of contract in connection with the review process and in bad faith. The jury returned a verdict for Luigi’s, awarding contractual damages of $ 48,000 (the difference between the appraisal and the policy limit), bad faith damages of $ 42,000 and $ 30,000 in punitive damages.
On appeal, the Iowa Supreme Court ruled that United Fire was entitled to a directed verdict.
No breach of contract:
Luigi’s argued that United Fire broke the policy by making an initial “lowball” offer, forcing Luigi’s to invoke an appraisal and spend around $ 41,000 on the appraisal. Luigi’s argument was based on his belief that he was entitled to recover the entire $ 550,000 policy limit in the event of a total loss. The court concluded that Luigi’s was not necessarily entitled to all of the policy limits, explaining that the police would not provide two methods to determine ACV if the policy was already forecasting a construction value of $ 550,000.
Luigi’s also argued that United Fire broke the policy by failing to appoint “a competent and experienced appraiser” because its appraiser relied on the market approach and not the cost approach. The Court rejected this argument, noting that the United Fire appraiser was a chartered real estate appraiser who had participated in 40-50 restaurant appraisals, and that Luigi’s own appraiser had acknowledged that the building had verifiable market value, making thus the sustainable market approach.
United Fire’s actions were not in bad faith:
Under Iowa law, an insurer commits a bad faith claim denial if it (1) did not have a reasonable basis for denying a claim, and (2) the insurer knew or had reasons to know that he did not have a reasonable basis to deny a claim.
Luigi’s argued that United Fire’s reliance on Rally’s assessment results constituted a bad faith denial. The Court disagreed, explaining that “United Fire had no obligation to override the opinion of its own expert in favor of the opinion of the insured’s expert. Identifier. to 10.
Luigi’s further argued that United Fire’s attempts to cancel the appraisal bonus prior to payment were in bad faith. However, the court ruled that Luigi’s claim for bad faith delay in insurance benefits failed because United Fire paid the appraisal allowance on time in accordance with the policy.
Finally, Luigi’s argued that two separate communications from Rally provided grounds for a bad faith claim. The court ruled that a letter and email regarding the disagreement over the scope of the assessment and the potential for litigation was not bad faith, as the question of whether the assessment “would include consideration of the furniture, fixtures and fittings were subject to dispute and therefore fairly questionable. ”Identifier. at 13.
Take away food :
The court’s decision contains several useful takeaways that insurers and policyholders should consider when relying on valuation. Notably, the tribunal provided analysis on how referrals from assessors can establish that they are “competent” and “experienced”. The tribunal also clarified that parties can question an agreed assessment award when there is a legitimate debate as to the intended scope of the assessment.
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