A Kuehn Appraisal Postscript: Hired Guns and Childrens Imagination Station v Prime Insurance Syndicate

Our posts on Kuehn v State Farm have created a good bit of buzz in certain insurance and legal circles as interested parties have flooded us with information on the appraisal clause, insurance cases involving appraisal and of course its misapplication in Dwyer which I profiled earlier today. Chip Merlin picked up our Kuehn coverage on his blog writing a couple of posts that copiously linked us. We’re grateful to be listed on Chip’s blogroll.

Unlike Chip I’ve never worked with Scot Spragins, the partner at Hickman, Goza & Spragins representing State Farm in Kuehn so I do not have that personal experience to add to my opinion of him. Like everyone else who hasn’t worked with Mr Spragins I only have the evidence submitted into the record of Kuehn to judge his professionalism by which I’ve concluded is very lacking. Simply put Mr Spragins and his firm are steppin’ out from literally hundreds of years of case law and insurance lore on both the appraisal clause and its application and he is smart enough to know it.

In my career as a CPA I’ve seen more than a few people refused legal services by ethical lawyers who recognized their prospective client’s legal position was contrary to established law. That is as it should be IMHO, practicing lawyers are the gatekeepers to our judicial system in respects and it keeps crap from clogging the court system. In looking at the Katrina insurance related litigation it has become clear there are certain lawyers, both plaintiff and insurance defense alike that will pump a dog legal position if the money is right. It is there that I still think Scot Spragins and his law firm resides.

Beyond the emails in the Kuehn evidentiary record we found there is a good bit of case law in this area. One such recent case was heard by Judge Louis Guirola little more than a year ago in the Children’s Imagination Station v Prime Insurance Syndicate that addressed these issues spot on. Like State Farm in Kuehn, Prime Synidcate was unhappy with the results of appraisal.  Unlike Kuehn and its blockbuster exhibition of bad faith by Team Spragins, Prime’s lawyers did not try to interfer with the process itself while the appraisal was ongoing. Prime simply tried to negate the results which was quickly bounced out of court house. I noted one final commonality with Kuehn in that appraiser Lewis O’Leary was involved, this time as umpire. Prime fought Children’s Imagination Station tooth and nail from ever getting the appraisal pursuant to the policy provisions, probably because they knew they lowballed the damage.  Here are some snippets from the granted motion for partial summary judgment against Prime:

On August 29, 2005, CIS, which is a daycare center in Long Beach, Mississippi, was damaged by Hurricane Katrina. The daycare center was insured by a policy issued by Prime. The policy limits were $200,000, and the deductible for wind damage was $10,000. (Ex. A to Pl.’s Mot. at 1). In December of 2005, Prime demanded an appraisal pursuant to the provisions of the policy. On August 9, 2007, CIS filed this lawsuit against Prime, asking the Court to appoint an umpire pursuant to the appraisal clause or alternatively to hold that Prime had waived its right to an appraisal by failing to participate in the process in good faith. The appraisal clause in the policy provides:

1. Appraisal
If you and we disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the value of the property or the amount of loss. In this event, each party has the option to either:
a. Select an independent, competent and impartial appraiser; or
b. Use as their appraiser, the adjuster or other party they retained initially to adjust the loss.
The 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 the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the value of the property or the amount of loss. If they fail to agree, they will submit their differences in writing to the umpire. A decision agreed to by any two (2) will be binding.

The order continues:

CIS asserts that it is entitled to the repair costs listed in Item 2 of the appraisal award, which total $114,300, in addition to the repair costs listed in Item 4 of the appraisal award, which total $99,000. Since those repair costs total $213,000, an amount that exceeds the total of the $200,000 policy limits and the $10,000 deductible, CIS asserts that it is entitled to the policy limits. After the appraisal, Prime paid CIS $89,000, which reflects the $99,000 in damage listed in Item 4 of the appraisal minus the $10,000 wind deductible, but refused to pay any additional damages. CIS has filed this Motion for Partial Summary Judgment asserting that there is no genuine issue of material fact that CIS is entitled to an additional $111, 000 (the $200,000 policy limits minus the $89,000 already paid by Prime) under the appraisal award. CIS also demands prejudgment and postjudgment interest.

Is anyone else struck by the bald faced bad faith inherent to Prime Insurance’s treatment of this claim. The insured had a building that did not flood with clear wind damage yet the wind underwriter did everything they could to dely paying this claim from fighting CIS for ever getting the policy mandated appraisal to short paying them after. Prime’s arguments like those of State Farm in Kuehn are hollow to the point that should make  them sanctionable. Evidently Team Prime’s lawyers are also of the variety that will doing anything for the right price as the order continues:

“In Mississippi, as in other states, it is difficult for a [party] to succeed in impeaching an award made by disinterested appraisers. Mississippi law favors amicable settlements of controversies without court involvement.” Mitchell v. Aetna, 579 F.2d 342, 350 (5th Cir. 1978). A court may set aside an appraisal “where the award is so grossly inadequate as to amount to a fraud in effect, although fraud is not charged, or where the appraisers were without authority, or where there is a mistake of fact or to prevent injustice.” Munn v. Nat’l Fire Ins. Co., 115 So. 2d 54, 58 (Miss. 1959).

In the present case, Prime does not assert that the appraisal award should be set aside due to fraud, mistake, lack of appraiser authority, or injustice. Rather, Prime asserts that the appraisal award is ambiguous. Prime’s argument as to why the repairs completed by a contractor, Cifra Construction Company, are not covered under the policy is apparently that the repairs made by Cifra Construction were not related to damage caused by Hurricane Katrina. (Pl.’s Resp. at 5). However, the appraisal award signed by both appraisers and the umpire clearly states:

The appraisal panel has been asked to set the amount of loss as the result of winds from Hurricane Katrina occurring on 08 29 05. The undersigned have considered all available evidence and hereby certify that the replacement cost value and the actual cash value of the loss as the result of wind from Hurricane Katrina is as follows:
. . . .
2. The ACV of damages repaired by Cifra Construction Co is $114,300.
. . . .
4. The ACV of wind damage repairs handled by the inured outside of Cifra’s contract and the damages yet to be repaired, including the replacement of the West & North brick walls damaged as the result of the storm repairs is $99,000. (Ex. C to Pl.’s Mot.) (emphasis added).

One of the appraisers, Mr. Browne, has submitted an affidavit in which he asserts: “The amounts stated in the award do not include the cost of improvements or changes made by the insured of Cifra Construction Company. The award states only the value of losses directly attributable to wind damage to the insured building caused by Hurricane Katrina.” (Ex. A to Reply). The umpire, Mr. O’Leary, has also submitted an affidavit in which he asserts: “The amounts stated in the award do not include the cost of improvements or changes made by the insured or Cifra Construction Company. The award states only the value of losses directly attributable to wind damage to this building caused by Hurricane Katrina.” (Ex. B to Reply).

In opposition to the Motion for Partial Summary Judgment, Prime requests time in which to conduct depositions of CIS’ appraiser, Kenneth Browne, and the umpire, Lewis O’Leary. In support of this argument, Prime asserts that CIS’ interpretation of the appraisal award is different from that of Mr. O’Leary and Mr. McCaffrey and submits that their testimony will establish that the intended award to CIS was $99,000. However, as explained previously, CIS has submitted affidavits from Mr. Browne and Mr. O’Leary that do in fact support CIS’ interpretation of the appraisal award and the plain language of the appraisal award. Prime has not submitted any evidence to the contrary from its own appraiser, Mr. McCaffrey, and has not submitted an affidavit to the Court asserting that it is incapable of obtaining such an affidavit from Mr. McCaffrey.

Judge Guirola concluded:

The Court finds that the appraisal award clearly and unambiguously provides that the repairs completed by the construction company were caused by the hurricane. The appraisal award is signed by all three of the individuals who participated in the appraisal, and Prime admits that the agreement of at least two of the individuals who conducted the appraisal is binding. Prime has not pointed to any policy language that excludes coverage for the repairs completed by the construction company; it has not submitted any evidence, even from its own appraiser, that the damages repaired by the construction company were not caused by Hurricane Katrina; and it has not demonstrated that it is incapable of obtaining evidence that creates a genuine issue of material fact. Therefore, the Court finds that CIS’ Motion for Partial Summary Judgment is granted.

Finally, those who know me from the financial blogosphere going back to the early part of this decade know that as a general rule my writing style is generally “over the top”. I guess that is a natural outcome from having money on the line behind the posts.  Against calling the CEO of a fortune 500 company an anus, publishing damaging information that costs a small cap company roughly $70MM of market cap in one day or challenging another CEO at an annual general meeting I attended back when, calling out these two bit legal whores for big insurance is easy.

you don’t have to put on the red light
those days are over
you don’t have to sell your reputation to the night

you don’t have to wear Ed Rust’s dress tonight
walk the streets for money
you don’t care if it’s wrong or if it’s right

You don’t have to put on the red light……


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