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Alyce Armstrong bought a “landlord insurance policy” to insure a duplex she owned in Milwaukee. A fire caused substantial property damage to the duplex. Now the insurer, Allstate Indemnity, faces a bad faith claim by Armstrong’s estate.

Armstrong died before the fire occurred. Her daughter and personal representative, Daryl Rose Coppins, pursued the claims on the estate’s behalf. Coppins sued to challenge the way Allstate calculated the insured loss. She also said Allstate breached the insurance policy and acted in bad faith by failing to appraise at “actual cash value.”

In Estate of Alyce Armstrong v. Allstate Indemnity Company, 2013AP2739 (Nov. 12, 2014), a three-judge panel for the District I Court of Appeals sided with the estate, reversing a circuit court order that granted summary judgment to Allstate.

The landlord insurance policy covered up to about $300,000 in “actual cash value,” which covers the actual value of the property minus deductions for depreciation.

When Coppins gave notice of loss to Allstate, the claims adjuster calculated the actual cash value at $113,000. Allstate did not accept this appraisal though. It hired a real estate market appraiser who said the “market value” of the property was $50,000.

Coppins disputed that amount. Each side retained separate appraisers pursuant to an “appraisal clause.” Coppins’ appraiser said actual cash value was almost $251,000. Allstate’s guy adopted the “market value” of $50,000 as the actual cash value.

Ultimately, the parties agreed to an appraisal “umpire” who said the replacement cost of the dwelling was almost $288,000 but that actual cash value was only about $79,000.

Coppins filed suit, challenging the method that the umpire used to calculate actual cash value and adding breach of contract and bad faith claims. Coppins said Allstate was intentionally disregarding its responsibility to pay actual cash value under the policy.

The three-judge appeals panel reversed the summary judgment order and will let the case continue, concluding that a “reasonable trier of fact” could find the Allstate acted in bad faith when it hired a real estate market appraiser and not an insurance adjuster.

“[T]here is factual support for Coppins’ claim that Allstate deliberately misconstrued its policy in order to shirk its duties by hiring an incompetent appraiser, one who had no background in adjusting insurance claims, and instructing him to solely rely on market value,” wrote Judge Patricia Curley for the three-judge panel.

The panel noted that although “actual cash value” was not specifically defined in the policy, the policy language and other sources indicate how it is to be calculated.

In his report, the umpire said Wisconsin recognizes the “broad evidence rule” in determining actual cash value, which allows appraisers to use a variety of elements in reaching a determination. But the panel noted that this rule did not apply in this case.

The panel said the award must be set aside because the appraiser “did not understand his contractually assigned task.” He essentially substituted market value for actual cash value, the panel concluded, and the policy did not allow him to make that substitution.