Earlier this week I posted about the recent Ingram v. State Farm case in which a federal court in the Eastern District of Tennessee obliterated State Farm’s defense that appraisal was inappropriate for disputes about “scope.” The Ingram case was just one of several recent opinions from around the State of Tennessee concerning insurance appraisals in Tennessee.

For our next case, we travel to Nashville to the federal court in the Middle District of Tennessee to explore another case in which my firm represents the policyholders against State Farm – State Farm Fire & Has. Co. v. Harper (Case No. 3:20-00856).  In this case, the Harpers’ home in Mount Juliet was severely damaged by the March 3, 2020 tornado, and the Harpers promptly filed a claim with their insurer, State Farm. State Farm hired an engineer with NV4 to inspect the home, and subsequently estimated the cost of repairs at around $135,000. In contrast, the Harpers’ hired their own engineer and ultimately estimated the amount of loss at well over $300,000. To resolve this dispute, the Harpers invoked their insurance policy’s appraisal clause. As is too often the case, State Farm objected to the appraisal request, stating that “the appraisal provision of your policy is to resolve differences in the price of repairs which State Farm determined are covered. Appraisal cannot be used to resolve differences about the scope of work to be performed or coverage provided by contract.” After twice more rejecting the demand for appraisal, State Farm ultimately sued the Harpers and asked the court to enter a declaratory judgment that the appraisal provision does not apply in this instance. Although the case is still pending, the court ruled that State Farm’s objection and refusal to participate in the appraisal process was improper and ordered appraisal to proceed.

The issue was teed up for the court via the Harpers’ Motion to Compel Appraisal. State Farm opposed the appraisal on the basis that the dispute between the parties relates to the different engineering scope of work opinions and that this was not a dispute that could be resolved by appraisal. On the other hand, the Harpers pointed out that there was no dispute about coverage because everyone agrees that the tornado damage was covered by the policy, that State Farm had already made payments associated with the loss, and that the appraisal process is mandatory once properly invoked.

Ultimately, the Court determined that “the question before the court is whether a disagreement over the scope of work is something more than a disagreement over the amount of loss.” The answer to this question was a resounding “No”, and the Court determined that the appraisal provision must be enforced.  In issuing its ruling, the Court made some key observations that make clear that “scope of loss” and “amount of loss” are really the same thing:

“Appraisal is proper in this instance because defining the “scope of the work” is inherent in determining the “amount of loss.” Regardless of whether one estimate recommends tearing down the structure and one does not, they are still competing estimates that differ as to the amount of loss.

. . .

Once again, State Farm does not dispute that the entire damage done to the premises was caused by the tornado. State Farm only disputes the scope of the work required to repair the Harpers’ house to its pre-loss condition. Because liability is not at issue in this instance, a dispute over scope of the work in nothing more than a dispute over the monetary value of returning the insured premises to its pre-loss condition. Whether the property needs toby repaired or replaced is ultimately a disagreement over the amount of loss. Based on the plain language of the insurance policy, this is a matter that may be handled through appraisal.

. . .

Based on the plain language of the insurance policy, appraisal becomes mandatory once properly invoked by either party.

Much like the opinion in Ingram v. State Farm, the Harper opinion too ran roughshod over State Farm’s arguments against appraisal, even citing a Pennsylvania case that labeled an argument similar to State Farm’s as “frivolous.” Mark this one as a win for the good guys. The Harper opinion was issued on August 12, 2021 and can be found here. Congrats to my partner Jonathan Bobbitt and our associate Nan Steer, who worked with me on this case and contributed mightily to righting the ship.

*Note that the Harper Order discussed above was issued by United States Magistrate Judge Jeffery S. Frensley.  State Farm has challenged the Order via a motion for review, which has been briefed for final decision by the United States District Court Judge. An update will be posted once the review process has been finalized.