Law360 Insurance Authority
March 2, 2022
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Property insurance policies typically provide an assessment process to resolve disputes about the amount of damage. However, as industry experts know only too well, the meaning of “amount of damages” is often disputed, and courts in different jurisdictions have interpreted the term differently.
In January, the Connecticut Supreme Court weighed and issued a long-awaited decision that clarified the scope of appraisers’ powers and ruled that appraisers can apply Connecticut’s Matching Statute when determining the amount of loss.
The underlying litigation in the Klass v. Liberty Mutual Insurance Co. came into existence after an insured attempted to recover the cost of a full roof replacement after a storm damaged several shingles on a sloping roof on the property.
The insured claimed that replacing just the damaged shingles would result in a mismatched roof and relied on Connecticut’s Matching Statute to support his claim for a full replacement.
The insurer determined that the damage was covered; However, it disagreed that a complete roof replacement was warranted as a spot repair would create a reasonably uniform appearance. The insurer refused cover for the undamaged sloping ceilings.
The insured then relied on the policy’s standard valuation provision, which uses two experts and a neutral arbitrator to determine the amount of damage.
The insurer denied the insured’s request for an appraisal on the grounds that the issue was coverage, not amount of damage, and that the appraisers had no authority to interpret and apply the Matching Statute.
The insured then filed a request for compelled valuation in Connecticut Superior Court, Ansonia-Milford Judicial District, stating the conflict as a conflict with the amount of damage under the policy.
The insurer rejected the application, arguing that courts cannot force an expert opinion on an unresolved legal issue.
The court of first instance initially agreed with the insurer, but on application for reconsideration overturned its decision and issued a compulsory expert opinion order.
The insurer appealed, and the appeal went directly to the Connecticut Supreme Court.
Upon review, the state Supreme Court affirmed the trial court’s decision and ruled that the trial court properly enforced the assessment.
Although the Connecticut Supreme Court recognized that “coverage is a matter of law for the courts,” it found that application of the relevant statute “did not affect coverage.”
The court justified this
[b]y make a “covered loss” a prerequisite for an insurer’s obligation to pay compensation … the [matching] The law seems to indicate that the obligation to compensate is of a different nature than the obligation to cover.
The court added
the signposts for production [matching] Decisions — “contiguous” and “reasonably uniform appearance” — strongly suggest factual judgments based on visual inspection rather than legal determinations.
The court came to the conclusion that the “objective and case-related examination in connection with the matching task” fell within the competence of an expert panel.
In particular, however, the court chose not to provide any further guidance on the application of the Matching Statute, leaving the decision entirely to the discretion of the experts.
Other courts have contradicted the holding company in Klass
Not all courts agree that matching provisions are subject to expert opinion.
For example, in Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Co. in 2017, the U.S. District Court for the Northern District of Illinois applied Illinois law to consider a dispute analogous to that in Klass, but found the opposite Enough.
There, the insurer agreed to cover the cost of repairing the portion of the roof damaged by a hailstorm, but disagreed that a full roof replacement was justified on the basis of the adjustment.
The insured compelled an expert opinion and argued that the question of whether a complete roof replacement was necessary was within the scope of an expert opinion due to the need for adjustment.
The Windridge Court took the opposite stance from Klass, denying the insured’s request, finding “whether the policy will cover the need for an aesthetic adjustment if only certain parts of the building are physically damaged and repaired while other parts are not.” … relates to the coverage.”
Shortly thereafter, in 2017, citing Windridge and again applying Illinois law, the Northern District of Illinois reached the same conclusion in Runaway Bay Condo Association v. Philadelphia Indemnity Insurance Cos.
Remarkably, the court in Klass did not take into account this conflicting extra-state authority.
Impact on property insurers operating in Connecticut
The decision in Klass will have an immediate impact on property insurers operating in Connecticut.
Post-Class, once an insurer recognizes a covered loss, it cannot avoid judgment solely on the basis that there is a coverage dispute relating to the application of Connecticut’s Matching Statute.
Appraisers are now empowered to interpret the law, including determining whether the repair of damaged property is consistent with undamaged property, as well as the meaning of the terms “adjacent” and “reasonably uniform appearance.”
Due to the lack of guidance from the Connecticut Supreme Court on the meaning of these statutory provisions, a number of conflicting results are to be expected.
Insurers can also expect policyholders to rely on Klass to seek to further expand the scope of adjusters’ powers, such as in determining causation.
Critically, however, the court clarified that its decision in the Klass case did not rule on the question of whether causality was a question of coverage. For now, this remains an open question in Connecticut.
Therefore, Connecticut insurers reserve the right to deny evaluation if the parties dispute causality, which inherently entails coverage provisions. But when it comes to matching, Klass is now the law.
 Connecticut’s Matching Statute provides that “[w]If covered property damage requires the replacement of an item or items and the replacement item or items do not match neighboring items in quality, color or size, the insurer must replace all such items with material of the same kind and quality and having a reasonably uniform appearance.” Conn. Gen. Stat. § 38a-316e.
 The court also considered the origins of the law and the approach of other jurisdictions. Referring to legislative history, the Court identified comments from lawmakers that suggest the accordant law was intended to codify existing industry practice regarding “the assessment process.”
 Runaway Bay Condo. Ass’n vs Philadelphia Bym. Into the. Company, 262 F. Supp. 3d 599, 603 (ND Ill. 2017) (stating that “the question of whether the policy requires the replacement of undamaged property in order to achieve a match is not amenable to evaluation.”) While Illinois does not have a “Matching Statute,” the reasoning of the Windridge and Runaway Bay courts remains applicable.
 The court recognized that there is shared jurisdiction on this issue in other jurisdictions, in contrast to Quade v. Secura Ins., 814 NW2d 703, 706 (Minn. 2012) (noting that appraisers’ assessment of “amount of damage” must take into account causality), with Rogers v. State Farm Fire & Casualty Co., 984 So. 2d 382, 391-92 (Ala. 2007)
(Limiting the experts’ duty to determine the monetary value of damage to property and accordingly the decision that experts cannot make determinations as to the cause of damage).
Law360 – Conn. Judgment Expands Scope of Property Insurance Reviews 4874-5528-5522 v.1.pdf