Do You Value Your Appraisal Provision?

Insureds have increasingly used Florida’s informal mediation program, set forth in §627.7015, Florida Statutes, as a defense to an insurer’s request to demand appraisal under the insurance policy.  The statute provides that if an insurer fails to abide by certain notice requirements contained in the statute, the insured shall not be required to submit to, or participate in, any contractual loss appraisal process as a precondition to legal action for a breach of contract against the insurer for its failure to pay the policyholder’s claims covered by the policy.1

According to the statute, for personal lines and commercial residential policies, at the time a first-party claim is “filed,” an insurer shall notify all first-party claimants of their right to participate in the statutory mediation program.2 The statute defines the term “claim” as “any dispute between an insurer and an insured relating to a material issue of fact.”3 The failure to meet the notice requirements of the statute has been successfully used by insureds to argue that their insurer waived its right to invoke appraisal.

However, the statute lists the following exceptions in which an insurer is not required to give notice of the mediation program:

Where the insurer has a reasonable basis to suspect fraud;

Where there is no coverage under the policy based on the agreed facts as to the cause of the loss;

Where the insurer has a reasonable basis to believe that the claimant has intentionally made a material misrepresentation of fact that is relevant to the claim, and the entire request for payment of a loss has been denied on the basis of the material misrepresentation; or,

Where the amount in controversy is less than $500, unless the parties agree to mediate a dispute involving a lesser amount.4

In Florida Ins. Guar. Ass’n, Inc. v. Shadow Wood Condominium Ass’n, Florida’s Fourth District Court of Appeal discussed the applicability of the statute, in the context of a successor to an insolvent insurer who appealed an order denying its request to compel appraisal.5 In its affirmance of the lower court’s order, the Fourth District held that the insolvent insurer failed to comply with the notice requirements of the statute, and the insured – a condominium association – was not required to submit to the loss appraisal process.6 The Court emphasized the legislative purpose behind the statute in arriving at its ruling as follows:

There is a particular need for an informal, nonthreatening forum for helping parties who elect this procedure to resolve their claims disputes because most homeowners’ and commercial residential insurance policies obligate insureds to participate in a potentially expensive and time-consuming adversarial appraisal process prior to litigation. The procedure set forth in this section is designed to bring the parties together for a mediated claims settlement conference without any of the trappings or drawbacks of an adversarial process.7

Separately, the statute states that “[t]he department shall adopt by rule a property insurance mediation program to be administered by the department or its designee,” and “shall prepare a consumer information pamphlet for distribution to persons participating in mediation.”8 The Department of Financial Services has implemented Florida Administrative Code Rule 69J-166.031.  The Rule requires that the insurer give notice within five (5) days of the insured’s “filing” a first-party claim.  Although “filing” is not defined in the statute or the rule, the Court’s ruling in Shadow Wood suggests that the time period may start at the time the insurer first receives notice of the insured’s claim.9 Thus, based upon the language of the Rule promulgated by the Department of Financial Services pursuant to the statute, insurers should provide the statutory notice within five (5) days of receiving notice of the insured’s claim.10

Rule 69J-166.031 of the Florida Administrative Code sets forth the following notice requirements:

The Notice shall be in writing and shall be legible, conspicuous, printed in at least 12-point type, and printed in typeface no smaller than any other text contained in the notice.

The first paragraph of the Notice shall contain the following statement: “The Chief Financial Officer for the State of Florida has adopted a rule to facilitate the fair and timely handling of residential property insurance claims. The rule gives you the right to attend a mediation conference with your insurer in order to settle any claim you have with your insurer. An independent mediator, who has no connection with your insurer, will be in charge of the mediation conference. You can start the mediation process after receipt of this notice by calling the Department of Financial Services at 1(877)693-5236. The parties will have 21 days from the date of the notice to otherwise resolve the dispute before a mediation hearing can be scheduled.”

The Notice shall include detailed instructions on how the insured is to request mediation, including the address, phone number, and fax number for requesting mediation through the Department.

The Notice shall state that the parties have 21 days from the date of the notice within which to settle the claim before the Department will assign a mediator.

The Notice shall include the insurer’s address and phone number for requesting additional information.

The Notice shall state that the Administrator will select the mediator.

The Notice shall refer to the parties’ right to disqualify a mediator for good cause and paraphrase the definition of good cause as set forth in paragraph (7)(e) of the Rule.

The Notice Shall indicate that the insured is to notify the mediator 14 days before the mediation conference if the insured will bring representation to the conference, unless the insurer waives the right to the notice of representation.

In conclusion, if an insurer values its appraisal provision and wants to preserve its right to make use of the provision, the insurer must timely provide sufficient statutory notice to its insureds pursuant to §627.7015, Florida Statutes, and Rule 69J-166.031, F.A.C. (2009).

1              §627.7015(7), Florida Statutes

2              §627.7015(2), Florida Statutes.  The alternative procedure for the resolution of disputed sinkhole claims, as set forth in §627.7074, Florida Statutes, supersedes the alternative dispute resolution process §627.7015, Florida StatutesSee §627.7074(3), Florida Statutes (3).

3              §627.7015(9), Florida Statutes.

4              §627.7015(9)a-d, Florida Statutes.

5              26 So. 3d 610 (Fla. 4th DCA 2009).

6              Id. at 611.

7              Id. at 612-13.  See also, QBE Ins. Corp. v. Dome Condo. Ass’n, 577 F. Supp.2d 1256 (S.D. Fla. 2008) (holding that the statute puts the responsibility of notification on the insurer).

8              §627.7015(2), (8), Florida Statutes.

9              See Shadow Wood, 26 So. 3d at 613, fn.2 (stating that the insolvent insurer did not give the statutory notice at the time the insurer filed its claim, shortly after Hurricane Wilma, and noting that the successive insurer failed to give notice when it took over the claim from the insolvent insurer).

10           However, under Rule 69J-166.031, F.A.C. (2009), an insurer is not required to provide statutory notice when no payment has been made for a covered loss because the insurer concludes the amount of covered loss is less than the insured’s deductible.

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