Insurance — Commercial property — Sinkhole claim — Appraisal — Trial
court erred in determining that appraisal clause in policy was unenforceable
because policy provided that insurer retained right to deny claim following
appraisal — Dispute over method of repair required to return property to its
original state is subject to appraisal

THE CINCINNATI INSURANCE COMPANY, a foreign corporation doing business in the
State of Florida, Appellant, v. CANNON RANCH PARTNERS, INC., a Florida
corporation, Appellee. 2nd District. Case No. 2D14-827. Opinion filed October
17, 2014. Appeal pursuant to Fla. R. App. P. 9.130 from the Circuit Court for
Hillsborough County; Sam D. Pendino, Judge. Counsel: Guy E. Burnette, Jr., of
Guy E. Burnette, Jr., P.A., Tallahassee, for Appellant. John J. Thresher and
Kimberly D. Thresher of Thresher and Thresher, P.A., Tampa, for Appellee.

(VILLANTI, Judge.) The Cincinnati Insurance Company seeks review of the order
denying its motion to compel appraisal and abate litigation.1 Because the matter in dispute is one subject to
appraisal, we reverse and remand for further proceedings.

Cincinnati Insurance insures a piece of commercial real property owned by
Cannon Ranch Partners, Inc. The Cannon Ranch policy includes coverage for
sinkhole damage. On August 14, 2012, Cannon Ranch discovered structural damage
on its property and subsequently filed a claim with Cincinnati Insurance.
Cincinnati Insurance sent a letter to Cannon Ranch confirming the receipt of the
claim and advising that an investigator would inspect Cannon Ranch’s property to
determine the cause of the damage. The investigator hired by Cincinnati
Insurance, AMEC Environmental and Infrastructure, determined that the damage was
caused by a sinkhole. AMEC recommended that perimeter compaction grout and
shallow chemical grout be applied to remediate the sinkhole activity at a cost
of roughly $220,000. AMEC further determined that underpinning was not necessary
to repair Cannon Ranch’s property.

Cincinnati Insurance provided AMEC’s report to Cannon Ranch. After reviewing
AMEC’s report, Cannon Ranch contacted Cincinnati Insurance to express concern
that AMEC did not include underpinning in its repair recommendation and that
AMEC was biased in its investigation because it had been hired by Cincinnati
Insurance. In response, Cincinnati Insurance offered Cannon Ranch the
opportunity to nominate a list of five investigators, one of which would be
chosen by Cincinnati Insurance to conduct a second investigation. Using this
method, C.E. Odell & Associates was hired to reinspect Cannon Ranch’s
premises. C.E. Odell conducted a survey and determined that underpinning was
necessary in addition to the grouting procedure recommended by AMEC, and it
estimated that the repairs would cost approximately $495,945.

At Cincinnati Insurance’s insistence, a third company, Geohazards, conducted
a peer review of the reports from both AMEC and C.E. Odell. Geohazards
determined that underpinning was not necessary and furthermore that AMEC’s
testing was insufficient to establish that even shallow chemical grout was
required to restore the property to its pre-sinkhole state.

Following its receipt of these divergent reports, Cannon Ranch entered into a
contract with RAB Foundation Repair LLC to perform repairs, including
underpinning, on the property consistent with the recommendations of C.E. Odell
at an estimated cost of $566,755. However, according to its terms, the contract
was contingent on Cincinnati Insurance’s approval. Not unexpectedly, Cincinnati
Insurance refused to approve the contract because the repairs were not based on
the recommendations of AMEC or Geohazards. Instead, Cincinnati Insurance sent a
letter to Cannon Ranch demanding an appraisal of the damage and citing the
following provision from paragraph 2, Section D of the insurance policy:

(Emphasis added.) Cannon Ranch refused to participate in the appraisal
process and brought suit against Cincinnati Insurance for breach of contract.
Cincinnati Insurance subsequently filed its motion to abate the litigation and
compel appraisal.

At the hearing on the motion, Cincinnati Insurance argued that the
disagreement on the appropriate method of repair and the estimated costs of
restoration was a dispute over the amount of “loss” that was subject to
appraisal under the terms of the insurance policy. In response, Cannon Ranch
argued that the method of repair was a matter of coverage, which is exclusively
a judicial question. Cannon Ranch also argued that Cincinnati Insurance had no
right to appraisal under the policy because disputes over coverage do not
trigger the appraisal clause found in paragraph 2, Section D of the insurance
policy. The court denied the motion, finding that appraisal was not mandatory
under the terms of the insurance policy. Cincinnati Insurance now appeals,
arguing that the trial court erred in finding that appraisal was not mandatory
due to the language of the insurance policy and that there was no right to an
appraisal because the issue in dispute is one of the amount of loss and not one
of coverage. We agree on both points.

First, the trial court erred in finding that appraisal was not mandatory
under the language of the insurance policy. In its oral ruling, the trial court
found that Cincinnati Insurance could not demand appraisal because the insurance
policy’s appraisal clause allowed Cincinnati Insurance to retain the right to
deny the claim following a proper appraisal. While the trial court did not
expound on the reasoning behind its decision, it could not have found the
appraisal clause to be unenforceable unless the clause violated either statutory
law or public policy. See Green v. Life & Health of Am., 704
So. 2d 1386, 1390-91 (Fla. 1998). Cannon Ranch points to no statutes or public
policy considerations that are violated by this “retained rights” provision.
Moreover, controlling Florida law permits “retained rights” provisions, and
these provisions do not render the appraisal clause unenforceable. See
State Farm Fire & Cas. Co. v. Licea, 685 So. 2d 1285, 1288 (Fla.
1996). Hence, the trial court erred to the extent it found that Cincinnati
Insurance could not demand an appraisal due to the language of the appraisal
clause being unenforceable as inconsistent or violative of public policy.

Second, the trial court erred in finding that there was no right to an
appraisal because the issue in dispute is in fact one of the amount of loss and
not one of coverage. In Florida, “[a] challenge of [c]overage is exclusively a
[j]udicial question.” Midwest Mut. Ins. Co. v. Santiesteban, 287 So. 2d
665, 667 (Fla. 1973). However, “when the insurer admits that there is a
covered loss,” any dispute on the amount of loss suffered is appropriate for
appraisal. Johnson v. Nationwide Mut. Ins. Co., 828 So. 2d 1021, 1025
(Fla. 2002) (quoting Gonzalez v. State Farm Fire & Cas. Co., 805 So.
2d 814, 816-17 (Fla. 3d DCA 2000)). Notably, in evaluating the amount of loss,
an appraiser is necessarily tasked with determining both the extent of
covered damage and the amount to be paid for repairs. Id. Thus,
the question of what repairs are needed to restore a piece of covered property
is a question relating to the amount of “loss” and not coverage. Ipso facto, the
scope of damage to a property would necessarily dictate the amount and type of
repairs needed to return the property to its original state, and an estimate on
the value to be paid for those repairs would depend on the repair methods to be
utilized. The method of repair required to return the covered property to its
original state is thus an integral part of the appraisal, separate and apart
from any coverage question. Because there is no dispute between the
parties that the cause of the damage to Cannon Ranch’s property is covered under
the insurance policy, the remaining dispute concerning the scope of the
necessary repairs is not exclusively a judicial decision. Instead, this dispute
falls squarely within the scope of the appraisal process — a function of the
insurance policy and not of the judicial system. Therefore, Cincinnati Insurance
acted within its rights when it demanded an appraisal, and the trial court erred
in denying the motion on this basis.

Accordingly, we reverse the order denying the motion to compel appraisal and
abate litigation and remand for the entry of an order compelling arbitration and
abating the litigation.

Reversed and remanded with directions. (SILBERMAN and KELLY, JJ., Concur.)

__________________

1We have jurisdiction. See Fla. R.
Civ. P. 9.130(a)(3)(C)(iv).