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A Better Partnership
November 20, 2014

MSC concludes that the terms of a homeowner's insurance policy govern the scope of coverage, even in the face of an appraisal award

In disputes regarding the extent of personal property loss under a homeowner’s insurance policy, the State of Michigan requires each party to submit separate appraisals to an umpire under a process described in MCL 500.2833(l)(m).  Typically, the umpire’s appraisal award is conclusive in regards to the amount of loss and judicial review is therefore limited to instances of bad faith, fraud, misconduct, or manifest mistake.  However, the Michigan Supreme Court held in Dupree v. Auto-Owners Insurance Co., No. 147647, that if the appraisal award is viewed as involving a matter of coverage under the insurance contract, then the award is not afforded conclusive effect, the policy language is not beyond the scope of judicial review, and the limiting terms of the insurance policy will remain determinative.
Michele Dupree brought an action against her homeowner’s insurance company, seeking to recover the full cost of repair or replacement for the personal property destroyed in a fire at her home.  Because the parties did not agree on the extent of personal property loss, they each submitted separate appraisals to an umpire.  The umpire issued an appraisal award setting forth the full replacement cost, the applicable depreciation, and the actual cash value loss of the property.  Defendant paid Plaintiff the actual cash value of the property, but refused to pay the full replacement cost on the grounds that Plaintiff had failed to submit proof, in accordance with the replacement-cost provision of her insurance policy, that she had actually replaced the damaged property.  The trial court granted summary judgment to Plaintiff and the Court of Appeals affirmed, holding the umpire’s appraisal award was conclusive with regard to the amount of loss, and that, because the award constituted a judgment, it superseded the policy’s replacement-cost provision.
The Michigan Supreme Court reversed and held that Plaintiff was not entitled to the full replacement cost of her property and that the deference afforded the appraisal award under the statute was inapplicable because the award at issue could not be read as a conclusive judgment for replacement cost.  Therefore, because Plaintiff failed to submit proof of actual loss, a condition precedent to replacement cost coverage under her insurance policy, Defendant insurance company was liable only for the actual cash value of Plaintiff’s damaged personal property.

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