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Runaway Bay Condominium Association v. Philadelphia Indemnity Insurance Companies

United States District Court, N.D. Illinois, Eastern Division

April 25, 2017



          Judge Elaine E. Bucklo United States District Court Northern District of Illinois

         Plaintiff Runaway Bay Condominium Association (“Runaway Bay”) brings this action to compel defendant Philadelphia Indemnity Insurance Company (“Philadelphia”) to submit the parties' insurance coverage dispute to an appraisal. Before me is Runaway Bay's motion to compel Philadelphia to participate in the appraisal. Subject to the qualification noted below, the motion is granted.[1]


         On August 2, 2015 and February 19, 2016, storms caused damage to buildings in an apartment complex owned by Runaway Bay in Palatine, Illinois. Runaway Bay was insured under a policy (“the Policy”) issued by Philadelphia and submitted a claim in connection with the damage. Runaway Bay values its loss at $2, 597, 144.28; Philadelphia's estimate is $33, 353.87.

         Runaway Bay contends that the parties' dispute should be resolved through an appraisal process. Runaway Bay relies on the following provision of the Policy:

If we and you disagree on the value of the property or the amount of “loss”, either may make written demand for an appraisal of the “loss”. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of “loss”. If they fail to agree, they will submit their differences to the umpire.

Property Coverage Form, Ex. 1 to Def.'s Answer (Doc. No. 12-3) at 30.

         Philadelphia has refused to appoint an appraiser or to otherwise participate in the appraisal process.[2] According to C 3860, 2017 WL 372308 (N.D. Ill. Jan. 26, 2017); 70th Court Condo Ass'n v. Ohio Sec. Ins. Co., No. 16 CV 07723, 2016 WL 6582583 (N.D. Ill. Nov. 7, 2016); Maggard v. CCC Info. Servs. Inc., No. 14 C 2368, 2015 WL 1112088 (N.D. Ill. Mar. 10, 2015).

         Philadelphia, the motion for appraisal should be denied because Runaway Bay's claim raises issues of coverage under the Policy. According to Philadelphia, such questions can be resolved only by the court. It maintains that the appraisal process is strictly limited to determining the value of an insured's loss. Philadelphia identifies five such “coverage issues” that it believes require denial of Runaway Bay's motion to compel appraisal: (1) the extent to which the damage to Runaway Bay's property was actually caused by the storms on the dates in question; (2) whether the Policy requires that certain undamaged portions of the property be replaced so that they are visually indistinguishable from portions of the property to which repairs are made; (3) whether the property sustained physical loss or damage; (4) whether Runaway Bay is entitled to recover for overhead and profit costs associated with hiring a contractor; and (5) whether Runaway Bay provided Philadelphia with prompt notice of its loss as required under the Policy. As discussed below, while Philadelphia is correct that some of these issues indeed relate to coverage, most do not; and in any event, none of the issues requires denial of Runaway Bay's motion to compel.

         1. Causation

         Philadelphia notes that the parties dispute whether and to what extent the damage to Runaway Bay's buildings was caused by the storms on the dates in question. For example, Philadelphia maintains that certain portions of the property showed signs of preexisting mechanical damage and thus were not damaged, or were damaged only minimally, by the storms. According to Philadelphia, questions about what caused the damage are not appropriately addressed by appraisers.

         This argument assumes that the task of determining the value of the damage can be meaningfully separated from the task of determining what caused the damage. Philadelphia fails to explain how this bifurcation might be achieved as a practical matter. Philadelphia also fails to explain why, even assuming the two inquiries could be separated in practice, the issue of causation is not appropriately addressed by an appraiser. Philadelphia cites no provision of the Policy suggesting that appraisers are forbidden from addressing questions of causation; nor does Philadelphia provide any reason for thinking that determinations regarding causation are beyond the appraiser's ken.

         In fact, the argument Philadelphia presents here has frequently been advanced by parties opposing motions to compel appraisal, and courts have routinely rejected it. See, e.g., Philadelphia Indemnity Insurance Company v. Northstar Condominium Association, No. 15 C 10798 (N.D. Ill. Oct. 18, 2016) (“[I]t seems inherent to an appraiser's duty when assessing damage to assess what caused the damage.”); 201 N. Wells, Inc. v. Fidelity and Guaranty Ins. Co., No. 00 C 3855 (N.D. Ill. Jan. 24, 2001) (“The court finds that determining the cause of the damages is inherent to the appraiser's duties.”); see also Travelers Indem. Co. of Am. v. BonBeck Parker, LLC, No. 1:14-CV-02059-RM-MJW, 2016 WL 7733000, at *4 (D. Colo. Oct. 24, 2016) (“[T]he Court holds that appraisers may determine the issue of causation.”); Zarour v. Pac. Indem. Co., No. 15-CV-2663 JSR, 2015 WL 4385758, at *3 (S.D.N.Y. July 6, 2015) (“The Second Circuit, however, has found that the question of ‘[a]pportioning damage causation' is ‘essentially a factual question ... to be resolved by making factual judgments about events in the world, not legal analyses of the meaning of the insurance contract.' Therefore, the issue of damage causation is properly subject to appraisal.”) (citation omitted) (quoting Amerex Grp., Inc. v. Lexington Ins. Co., 678 F.3d 193, 206 (2d Cir.2012)); CIGNA Ins. Co. v. Didimoi Prop. Holdings, N.V., 110 F.Supp.2d 259, 264 (D. Del. 2000) (“[T]he Court concludes that in the insurance context, an appraiser's assessment of the ‘amount of loss' necessarily includes a determination of the cause of the loss, as well as the amount it would cost to repair that which was lost.”).

         Philadelphia cites only one case in which a court has held that the issue of causation was not appropriately decided by appraisal, Spearman Industries, Inc. v. St. Paul Fire & Marine Ins. Co., 109 F.Supp.2d 905 (N.D. Ill. 2000).[3] However, Spearman's discussion of the issue is very brief and does not disclose the basis for its conclusion. In any event, for the reasons already explained, I conclude ...

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