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CONDOMINIUM ASSOCIATION, Plaintiff,
INDEMNITY INSURANCE COMPANIES, Defendant.
MEMORANDUM OPINION AND ORDER
*1 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
parties’ dispute should be resolved through an appraisal process. Runaway Bay
relies on the following provision of the Policy:
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.
Def.’s Answer (Doc. No. 12-3) at 30.
an appraiser or to otherwise participate in the appraisal process.2
According to 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.
“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.
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.
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.
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.”).
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 that questions concerning the cause of the damage to Runaway Bay’s
property are appropriate for appraisal.
parties dispute whether the Policy requires replacement of certain undamaged
portions of the property in order to visually match portions of the property to
which repairs are made. Specifically, Runaway Bay contends that undamaged
siding on the buildings must be replaced along with the damaged siding so that
the material will appear consistent throughout. In support of its position,
Runaway Bay invokes the following provision of the Policy:
costs basis than the least of:
or replace the lost or damaged property.
12-3) at 33. According to Runaway Bay, only matching siding constitutes
property of “comparable material and quality” under subsection (1)(b)(i).
are not before me at this stage. It is clear, however, that deciding the merits
of the argument will require an interpretation of the expression “comparable
material and quality” in the Policy. This is a paradigmatically legal question.
See, e.g., Lundy v. Farmers Group, 750 N.E.2d 314, 319 (Ill. App.
Ct. 2001) (“This question requires an interpretation of the policy language, in
particular, the phrase ‘like kind and quality.’ These issues cannot be resolved
through the appraisal process. Consequently, we agree with the trial court that
the issues plaintiff raised in her second amended complaint were not subject to
the appraisal clause.”); cf. Nat’l Presbyterian Church, Inc. v. GuideOne
Mut. Ins. Co., 82 F. Supp. 3d 55, 60 (D.D.C. 2015) (holding that policy’s
“like kind and quality” provision required insurer to cover matching to
undamaged property, since provision was ambiguous and was properly construed
against the drafter).
Policy requires replacement of undamaged property to achieve matching is not
appropriate for appraisal. This does not mean that Runaway Bay’s motion to
compel appraisal must be denied. It means only that the “matching” issue will
not be part of the appraisal process.
disagree over whether various portions of the property suffered physical loss
or damage under the Policy. Philadelphia’s expert opines that many parts of the
property sustained no physical damage; Runaway Bay’s expert states that
virtually all of the buildings were physically damaged. See Reply Br. at
7. Philadelphia appears to argue that since the Policy covers only physical
loss or damage, the parties’ disagreement on this point constitutes a “coverage
contend that Runaway Bay is seeking coverage for parts of the property that
Runaway Bay itself acknowledges were not physically damaged. Nor does
Philadelphia contend that the parties dispute the meaning of terms such as
“physical damage” or “physical loss.” Instead, their dispute is over the extent
of the physical damage to the property. As with the issue of causation,
Philadelphia fails to explain how making this determination can be separated
from the task of valuation, or why appraisers lack the competence to make such
issue of physical damage is suitable for appraisal.
4. Overhead and Profit
Runaway Bay’s estimate of its damages includes overhead expenses and profit
costs associated with hiring a general contractor. Philadelphia contends that
the question of whether overhead expenses and profit ought to be included as
part of the loss calculation presents a coverage issue.
fails to support this contention. It asserts that “[t]his issue likely will
depend on what property was damaged, what needs to be repaired, and if a [sic]
multiple trades will be required for the repairs, as opposed to just a roofer,
for example.” Def.’s Resp. Br. at 11. But these issues have to do with whether
the damage is extensive enough to require employing a contractor, not with
whether the Policy covers overhead costs and profit in the event that
employment of a contractor is necessary. Again, Philadelphia offers no basis
for thinking that appraisers lack the competence to address the question of
whether a contractor is necessary, nor for thinking that the Policy forbids
them from doing so. Notably, another court in this district recently rejected
the same argument Philadelphia presents here. See, e.g., Windridge,
2017 WL 372308, at *3 (“In calculating repair or replacement cost, it is
necessary to assess what must be replaced or repaired, who is qualified to
perform that work, and how much that work costs. That inquiry requires
determining whether a general contractor is needed, in which case profit and
overhead is part of the loss, or whether a single tradesman can do the work.
That determination is a question proper for appraisal.”).
profit are appropriately addressed via appraisal.
asserts that Runaway Bay failed to comply with the Policy’s requirement that
the insured provide Philadelphia with prompt notice of losses covered under the
policy. See Def.’s Answer, Ex. 1 (Doc. No. 12-3) at 31 (requiring
insured in the event of loss to “[g]ive [Philadelphia] prompt notice of the
‘loss’ ”). Under the Policy, failure to provide prompt notice results in a loss
of coverage. According to Philadelphia, the question of whether Runaway Bay
provided prompt notice is a legal question for the court, not one for
issue is a legal one. It has failed to show, however, that the adequacy of the
notice is a genuine issue in this case. Runaway Bay notified Philadelphia of
the damage caused by the August 2, 2015 storm on October 23, 2015—roughly
twelve weeks later.4 Philadelphia offers no citation to
authority—and indeed no argument at all—to suggest that Runaway Bay’s notice
was deficient. I note that under Illinois law, in seeking to show an insured’s
failure to comply with a prompt notice provision, an insurer must show that it
was prejudiced by the insured’s delay. See Taco Bell Corp. v. Cont’l Cas.
Co., 388 F.3d 1069, 1074–75 (7th Cir. 2004). Yet Philadelphia has not
asserted, much less attempted to demonstrate, that it was prejudiced by the
notice Runaway Bay provided. It is also worth noting that the Windridge
court concluded as a matter of law that a period of four months was sufficient
to comply with the same “prompt notice” provision at issue here. See, e.g.,
Windridge, 2017 WL 372308, at *3. As Windridge also noted,
Illinois courts have found adequate notice to have been provided after periods
of eleven months and indeed even thirty-one months. Id. (citing Berglind
v. Paintball Bus. Ass’n, 930 N.E.2d 1036, 1046 (Ill. App. 2010), and First
Chi. Ins. Co. v. Molda, 36 N.E.3d 400, 419-20 (Ill. App. 2015),
respectively). Philadelphia makes no attempt to address these precedents.
conclusory invocation of the Policy’s notice provision does not defeat Runaway
Bay’s motion to compel.
Runaway Bay’s motion to compel appraisal is granted. The parties’ dispute will
be submitted to appraisal in accordance with the terms of the Policy, except as
to the question of whether the Policy requires replacement of undamaged siding.5
Runaway Bay’s pleading, which it styles as a “Petition to Compel
Appraisal,” does not expressly assert any cause of action. However, it seeks
declaratory relief in the form of, inter alia, an order compelling
appraisal, see Am. Pet. at 4, and its request for relief is based on a
specific provision of the insurance policy issued to it by Philadelphia. For
this reason, I construe Runaway Bay’s pleading as seeking a declaratory
judgment and as asserting a claim for breach of contract, which are the claims
typically brought by parties seeking to compel an appraisal. See, e.g., Windridge
of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., No. 16 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.
In its pleading, Runaway Bay contends that, pursuant to “Illinois
Standard Policy language,” Philadelphia was required to appoint an appraiser
within twenty days of Runaway Bay’s demand for appraisal. Pl.’s Am. Pet. (Doc.
No. 5) ¶ 19. According to Runaway Bay, Philadelphia failed to appoint an
appraiser within the allotted time and should be forbidden from doing so at
this juncture. Id. ¶ 20. Runaway Bay does not press this argument in its
motion to compel, and I thus do not consider it here.
Philadelphia cites several other cases in support of its position, but
none of these is apposite. The question presented in Lytle v. Country Mutual
Insurance Co., 41 N.E.3d 657 (Ill. App. Ct. 2015), was whether the policy
at issue covered the cost of upgrading to comply with building code ordinances,
not the question of what caused the damage to the plaintiff’s property. In FTI
International, Inc. v. Cincinnati Insurance Co., 790 N.E.2d 908 (Ill. App.
Ct. 2003), the dispute was not over causation but over which measure of value
(the cost of repair or the sale price) was to be used in determining the amount
of the plaintiff’s recovery. In Hanke v. American International South
Insurance Co., 782 N.E.2d 329 (Ill. App. Ct. 2002), the court held that the
defendant could not compel the plaintiff to submit to appraisal because the
suit alleged that the defendant was using the appraisal clause as part of a
fraudulent scheme. Finally, Lundy v. Farmers Group, 750 N.E.2d 314 (Ill.
App. Ct. 2001), involved a dispute over whether the use of imitation parts for
car repairs were of “like kind and quality” as required under the policy.
Philadelphia appears to concede that Runaway Bay provided prompt notice
of the damage resulting from the storm on February 19, 2016.
Philadelphia and Runaway Bay also dispute whether the appraisal will
have preclusive effect preventing Philadelphia from further litigation
regarding the scope of Runaway Bay’s loss. However, the parties’ arguments on
this point are cursory, and neither has pointed to any provision of the Policy
in support of its position. In any case, the preclusive effect vel non
of the appraisal does not determine whether Runaway Bay has a right to compel
the appraisal in the first place.