United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, UNITED STATES DISTRICT JUDGE
Auto Group, Inc. filed a claim under its insurance policy
with Owners Insurance Company for losses from fire damage to
its building. Owners Insurance paid Adam Auto roughly $70,
000 on the claim. Adam Auto alleges that this payment was too
low because Owners Insurance underestimated the extent of
fire damage and the cost of repairing that damage. To resolve
these two issues and determine its amount of loss, Adam Auto
filed suit seeking to compel Owners Insurance to engage in
the appraisal process established by the insurance policy.
Auto owns a building that it insured with a policy from
Owners Insurance. That policy included the following
If we and you disagree on the value of the property or the
amount of loss, either may make written demand for 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. A decision
agreed to by any two will be binding.
Ex. A, dkt. no. 1-1, at 75.
2018, Adam Auto filed a claim with Owners Insurance for
losses associated with fire damage to its building. Owners
Insurance paid approximately $70, 000 on the claim. Adam Auto
asserts that the payment did not cover the full value of its
fire-related loss because it understated the extent of fire
damage and the cost of repairing that damage. In March 2019,
Adams Auto wrote to Owners Insurance requesting appraisal
under the policy term quoted above to resolve the dispute
over the amount of the loss from fire. Owners Insurance
denied the request, because, in its view, Adam Auto was
contesting the types of damages covered under the policy
rather than the amount of the loss. Because appraisal was
available under the policy only to resolve disputes over the
amount of loss, Owners Insurance denied Adam Auto's
Auto has sued Owners Insurance for breach of contract and for
vexatious conduct under 215 Ill. Comp. Stat. 5/155(1) of the
Illinois Insurance Code. Adam Auto has moved for entry of
judgment on the pleadings on count 1 of its complaint. Count
1 does not state any cause of action; it just requests a
declaratory judgment compelling appraisal pursuant to the
insurance policy. Thus Adam Auto is essentially moving to
compel appraisal. See Runaway Bay Condo. Ass'n v.
Phila. Indem. Ins. Co., 262 F.Supp.3d 599, 600 n.1 (N.D.
Ill. 2017) (construing a pleading that did not state any
cause of action but sought a declaratory judgment compelling
appraisal as a motion to compel appraisal).
diversity suit, the Court applies the law of the forum state,
Illinois. See Ryerson Inc. v. Fed. Ins.
Co., 676 F.3d 610, 611 (7th Cir. 2012). Under Illinois
law, construction of an insurance policy is a question of
law. Nicor, Inc. v. Associated Elec. & Gas Ins.
Servs. Ltd., 223 Ill.2d 407, 416, 860 N.E.2d 280, 285
(2006). In determining whether to apply a contract term, a
court's primary purpose is give effect to the intent of
the parties as expressed in the agreement. Worley v.
Fender, 2017 IL App (5th) 160110, 79 N.E.3d 173, 177. If
the terms of the policy are unambiguous, a court applies it
as written, and it must construe policy ambiguities
"liberally" in favor of the insured. Id.,
79 N.E.3d at 177-78. Appraisal clauses in insurance policies
are analogous to arbitration clauses, which courts may
enforce, and therefore courts may compel appraisal in
appropriate circumstances. Lundy v. Farmers Grp.,
Inc., 322 Ill.App.3d 214, 218-19, 750 N.E.2d 314, 318
language of Adam Auto's insurance policy is unambiguous:
appraisal is available to resolve "disagree[ments] on
the value of the property or the amount of the loss."
Compl., Ex. A, dkt. no. 1-1, at 75. Adam Auto seeks to invoke
this provision to resolve two issues: the extent of fire
damage and the cost of repairs resulting from that damage. It
believes these issues pertain to "amount of the
loss" and are therefore appropriate for resolution by
appraisal. Owners Insurance disagrees. It contends that Adam
Auto is disputing the scope of policy coverage, which cannot
be resolved via appraisal. See Lytle v. Country Mut. Ins.
Co., 2015 IL App. (1st) 142169, 41 N.E.3d 657, 663.
attempting to characterize Adam Auto's appraisal request
as a policy coverage dispute, Owners Insurance makes two
arguments. First, it suggests that Adam Auto is seeking
appraisal to resolve whether the policy covers repair of
areas that were not damaged by the fire but might
nevertheless need to be replaced in conjunction with
fire-damage repair. But Adam Auto makes no such contention in
its complaint or in its briefs.
Owners Insurance asserts that Adam Auto's request for
appraisal on the extent of fire damage is a matter of
determining causation. It argues that causation is a question
of coverage-not amount of loss-because it requires deciding
whether the circumstances that caused the damage were covered
by the policy (e.g., fire) or not (e.g., wear and tear). But
"[t]his argument assumes that the task of determining
the value of damage can be meaningfully separated from the
task of determining what caused the damage." Runaway
Bay Condo. Ass'n, 262 F.Supp.3d at 601. To determine
which damages to Adam Auto's building are pertinent to
calculation of the amount of loss, an appraiser necessarily
would have to distinguish between damages caused by the fire
from those caused by other events or conditions like wear and
tear. Thus, courts have "routinely" rejected the
argument that issues that implicate damage causation are not
appropriate for resolution by appraisal. Id. (citing