Culvey v. Auto-Owners Ins. Co.

670 F.Supp.3d 657

Zachary CULVEY and Rebecca Culvey, Plaintiffs, v. AUTO-OWNERS INSURANCE COMPANY, Defendants.

Case No. 22-CV-3495

United States District Court, N.D. Illinois, Eastern Division

Filed April 25, 2023

Signed April 24, 2023

Christina M. Phillips, Edward Eshoo, Jr., Merlin Law Group, Chicago, IL, for Plaintiffs.

Brian James Talcott, Krysta Kaye Gumbiner, Dinsmore & Shohl LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

John Robert Blakey, United States District Judge

Plaintiffs Zachary Culvey and Rebecca Culvey sue their homeowners insurance company, Defendant Auto-Owners Insurance Company, alleging that the company failed to adequately cover losses to their dwelling caused by hail and seeking to compel the company to submit to an appraisal process. See [1]. Plaintiffs move for judgment on the pleadings on one count of their three-count complaint. See [10]. For the reasons stated below, the Court grants their motion in part.

I. Factual Background

Defendant issued Plaintiffs a homeowners insurance policy ("the Policy") which covered their Aurora, Illinois, home from June 30, 2021 through June 30, 2022. [1] ¶ 5. The Policy insures against certain perils, including hail. [1-1] at 20 (providing coverage for "risk of accidental and direct physical loss" to the dwelling and personal property described therein "caused by . . . Windstorm or Hail."). The Policy provides that, if the insurer and the insured are unable to "agree on the actual cash value, amount of loss or repair costs covered by this policy, either party may make a written demand for an appraisal." [1-1] at 37. The appraisal provision outlines the steps to be taken once a party makes such written demand:

Each party will select a competent and impartial appraiser and notify the other of the appraiser's identity within 20 days after the demand is received. The appraisers will select a competent and impartial umpire. If the appraisers are unable to agree upon an umpire within 15 days, you or we can ask a judge of a court of record in the state where the residence premises is located to select an umpire.

The appraisers shall then appraise the loss, stating separately the actual cash value and loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the actual cash value or amount of loss. If they cannot agree, they will submit their differences to the umpire. A written award by the two will determine the actual cash value or amount of loss.

Each party will pay the appraiser it chooses, and equally pay the umpire and all other expenses of the appraisal. If you demand appraisal and your full amount of appraised loss is upheld by agreement of the appraisers or the umpire, then we shall pay your appraisal fee and the umpire's fee.

We retain our right to deny the claim in the event there is an appraisal.

Id.

On July 9, 2021, Plaintiffs' home sustained hail damage, and Plaintiff submitted a claim to Defendant for the loss. [1] ¶¶ 7, 8. Defendant acknowledged that the loss was covered and issued a payment of $7,087.32, an amount calculated based upon the estimate Defendant obtained from its adjuster, factoring in its estimate of depreciation and the Policy's deductible. Id. ¶ 9; [1-2] at 4; [1-1] at 10. The figure fell well below the estimate Plaintiffs obtained from their contractor, who calculated that the amount of the loss was $72,934.40. [1] ¶ 10; [1-3] at 10. The estimate from Defendant's adjuster, Reliable Adjusting Company Enterprises, covered siding repairs to two sides of Plaintiffs' home, [1-2], while Plaintiff's contractor, Benchmark Exteriors, included an estimate for siding repairs on all four sides of the house, [1-3].

On April 5, 2022, based upon the parties' disagreement, Plaintiffs made a written demand for appraisal. [1] ¶ 13. Defendant subsequently denied the demand, [16] at 2, and, on July 6, 2022, Plaintiffs sued for breach of contract (Count II) and bad faith claims handling (Count III). See [1]. They also seek a declaratory judgment "compelling and requiring the parties to proceed with appraisal in accordance with the terms of the "Appraisal" provision in the insurance policy to determine the amount of the loss . . . ." Id. at 4 (Count I). Plaintiffs now move for judgment on the pleadings as to Count I.

II. Legal Standard

A party may move for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) "after the pleadings are closed—but early enough not to delay trial." A motion for a judgment on the pleadings is evaluated under the same standard as a motion to dismiss. Federated Mut. Ins. Co. v. Coyle Mech. Supply Inc., 983 F.3d 307, 313 (7th Cir. 2020). Thus, when the plaintiff moves for judgment on the pleadings, the Court will grant the motion only if "it appears beyond doubt that the nonmovant cannot prove facts sufficient to support its position, and that the plaintiff is entitled to relief." Scottsdale Ins. Co. v. Columbia Ins. Grp., Inc., 972 F.3d 915, 919 (7th Cir. 2020).

In considering the motion, the Court looks only to the pleadings, which "include the complaint, the answer, and any written instruments attached as exhibits." N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 452 (7th Cir. 1998). The Court "views all facts and inferences in the light most favorable to the non-moving party." Federated Mut. Ins. Co., 983 F.3d at 313 (citing Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 1993)).

III. Analysis

Under Illinois law,¹ appraisal clauses are viewed as "analogous to arbitration clauses" and, like arbitration clauses, "are valid and enforceable in a court of law." 70th Ct. Condo Ass'n v. Ohio Sec. Ins. Co., No. 16-CV-07723, 2016 WL 6582583 at *4 (N.D. Ill. Nov. 7, 2016) (citing Lundy v. Farmers Grp., Inc., 322 Ill.App.3d 214, 255 Ill.Dec. 733, 750 N.E.2d 314, 318-19 (2001)). Illinois courts compel appraisal only "when the language of the appraisal clause is clear and unambiguous, and when it is obvious that the disputed issue falls within the scope of the clause." Id. (citing Travis v. Am. Mfrs. Mut. Ins. Co., 335 Ill.App.3d 1171, 270 Ill.Dec. 128, 782 N.E.2d 322, 325-26 (2002)). Illinois courts have found, however, that questions of law fall outside of the appraisal process. See FTI Intern., Inc. v. Cincinnati Ins. Co., 339 Ill.App.3d 258, 274 Ill.Dec. 135, 790 N.E.2d 908, 910-11 (2003). Instead, appraisal remains "a relatively limited process . . . whose primary function is to ascertain the value of property or the amount of loss." Id.

Here, neither party disputes that the language of the appraisal clause clearly and unambiguously calls for appraisal if the parties "fail to agree on the actual cash value, amount of loss or repair cost." [1-1] at 37; [1] ¶ 12. Defendant argues that the disagreements between the parties fall outside of this scope, and instead present issues of coverage not subject to appraisal. See [16] at 3, 5, 6. Thus, this motion turns on the question of whether the parties' dispute concerns whether a particular kind of loss is covered—in which case it stays with the court—or "the value of a covered loss—in which case it goes to appraisal." River Grove Plaza Inc. v. Owners Ins. Co., No. 22-CV977, 2022 WL 16782412 at *1 (N.D. Ill. Nov. 8, 2022).

Plaintiffs set forth in their complaint seven specific disagreements over the amount of loss to the dwelling:²

as reflected by the differences in their estimates, the parties disagree as to the amount of the loss to the dwelling, including, but not limited to, disagreeing as to (a) whether more than one roof vent and more than one exhaust cap were damaged by hail, (b) whether more than 20 linear feet of counterflashing was damaged by hail, (c) whether the roof shingles were damaged by hail, (d) whether more than two elevations of siding were damaged by hail, (e) the extent of the hail damage to the two elevations of siding that Auto-Owners included in its estimate, (f) the pricing needed to perform the repair/replacement of the items that Auto-Owners included in its estimate, and (g) whether the hail damage is extensive enough to require employing a general contractor.

[1] ¶ 11. As framed, these items "plainly concern the value of the loss, not the scope of coverage," and "disputes concerning the extent and cause of property damage are proper subjects for appraisal." River Grove Plaza Inc. v. Owners Ins. Co., 2022 WL 16782412, at *3 (citing Khaleel v. Amguard Ins. Co., No. 21-CV-992, 2022 WL 425733, at *2-3 (N.D. Ill. Feb. 11, 2022); B&D Inv. Grp., LLC v. Mid-Century Ins. Co., No. 20-CV-3299, 2021 WL 6125853, at *3-4 (N.D. Ill. Dec. 28, 2021) (both ordering an appraisal to determine the extent of damage caused by hail)). Thus, the appraisal process can rightly resolve the question of whether hail damaged the roof vents, exhaust caps, roof shingles, and siding. Similarly, the question of whether the damage was extensive enough to justify hiring a general contractor relates to the costs required to make repairs, not to a question of coverage, and thus may properly be resolved through appraisal. See Runaway Bay Condo. Ass'n v. Philadelphia Indem. Ins. Companies, 262 F. Supp. 3d 599, 603-04 (N.D. Ill. 2017) (holding that the question of whether the damage is extensive enough to require employing a contractor is properly resolved through appraisal); River Grove Plaza Inc., 2022 WL 16782412, at *2 ("whether a general contractor is necessary to repair the roof is subject to appraisal because it concerns 'who is qualified to perform [the] work' as well as 'how much that work costs.' ") (quoting Windridge of Naperville Condo. Ass'n v. Philadelphia Indem. Ins. Co., No. 16-CV-3860, 2017 WL 372308 at *2 (N.D. Ill. Jan. 26, 2017) (hereinafter, Windridge I)).

Defendant offers two reasons for its claim that the parties' disputes are not subject to appraisal. First, Defendant argues that the disagreements present issues of causation and that such issues are not subject to...