The United States Court of Appeals for the Seventh Circuit has affirmed the district court’s ruling that insurance appraisers can establish both the amount and cause of loss when a business files a claim. Mesco Manufacturing held a business policy from Motorists Mutual Insurance Company and submitted a claim for hail damage to the roofs of its manufacturing facilities, for which Motorists Mutual paid US$7,806.75. However, Meso disagreed with the amount, choosing to invoke the policy’s appraisal provision. Appraisers, selected by both the insurer and the insured, agreed that the metal roofing was hail-damaged, but disagreed on whether the ethylene propylene diene terpolymer (EPDM) and modified bitumen roofs were hail-damaged. Motorists Mutual’s own engineer concluded the EPDM and modified bitumen roofs were not hail-damaged, notifying Mesco that said roofs could not be included in the appraisal process due to the disagreement stemming from the roof coverings being damaged, as opposed to their value. The umpire, selected due to the appraisal, concluded the modified bitumen roofs were hail-damaged, but not the EPDM ones. As such, an appraisal award of US$1,020,480.32 was issued in replacement cost value, or US$894,733.82 in actual cash value. Motorists Mutual only issued US$265,296.21 for “the covered damages that were awarded by appraisal,” excluding damage to the modified bitumen and EPDM roofs. Mesco then sued, alleging that Motorists Mutual had acted in bad faith, in addition to breaching its contract, for which they sought a declaratory judgment that Motorists Mutual owed the entire appraisal award. The district court granted Mesco’s motion for summary judgment, citing their compliance with policy terms and a lack of exceptional circumstances — such as manifest injustice, fraud, collusion, or misfeasance — as the determining factors in concluding that Motorists Mutual had breached the policy by not paying the full award. The Seventh Circuit found the umpire had the authority to determine the amount of hail damage, due to the existence and extent of damage being factual questions. As such, the umpire had to differentiate between hail damage and damage caused by wear and tear before issuing his appraisal award, and was seen to be acting within his authority. The policy’s appraisal provision stated "If there is an appraisal, [the insurer] will still retain [its] right to deny the claim." Motorist Mutual attempted to utilise this ‘right to deny’ clause, but had failed to allege any exceptional circumstances that would justify ignoring the appraisal award. Motorists Mutual want the right to deny clause to be interpreted as permitting an insurer to set aside any binding appraisal award with which it disagreed — a sentiment the district court believes would “undercut the purpose of the appraisal process.”
