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This month we report on two property insurance decisions from the Alabama Supreme Court and the
Georgia Court of Appeals.
Alabama Supreme Court Holds Policyholders Must Comply with Post-Loss
Duties Before Invoking Appraisal
The Alabama Supreme Court has issued
a decision in favor of insurers, holding that
policyholders may not demand appraisal of a
loss unless and until they have complied with
their post-loss duties to assist the insurer in
investigating the claim. (Baldwin Mutual Ins.
Co. v. Adair, 30 September 2014)
This case arises out of Hurricane Ivan,
which struck the Gulf Coast near Mobile,
Alabama in 2004. Baldwin Mutual received
thousands of claims, adjusted the losses, and
made payments based on the adjustments. More
than two years after making payments, attorneys
for a class of policyholders demanded appraisal
of claims on behalf of 130 policyholders.
The insurer attempted to investigate the
claims further, requesting information to support
any dispute the policyholders had over the
amounts of the losses. The attorneys for the
policyholders refused to provide information,
but instead demanded that the insurer resolve the
dispute through the appraisal process.
The insurer filed a declaratory judgment
action, arguing that until the policyholders
provided the insurer with information to show
what was in dispute, the insurer had no
obligation to go to appraisal.
The Alabama Supreme Court agreed
with the insurer. The Court held the insurer had
no obligation to go to appraisal unless and until
the policyholders complied with their post-loss
duties. These post-loss duties included making
the properties available for inspection, providing
copies of repair estimates, and submitting to
examinations under oath.
The court’s ruling should assist insurers
in Alabama in exercising their rights to
investigate claims. If a policyholder disagrees
with an insurer’s adjustment of a loss, the
policyholder must cooperate in the further
investigation of the disputed issues, and cannot
simply demand appraisal or file a lawsuit.
Georgia Court of Appeals Limits Scope of Mold Sublimit in Water Damage Claim
The Georgia Court of Appeals has held
that homeowners who discovered water damage
to their home were entitled to coverage for the
full policy limit for water damage and ensuing
mold damage under their homeowners policy,
verdict to the insurer. The trial court ruled that
the weight of the evidence showed the property
damage was caused by mold, and therefore, the
mold sublimit was the maximum amount owed
by the insurer.
The Court of Appeals reversed the
judgment and upheld the jury’s verdict. The
Court of Appeals held that the evidence
supported the verdict that all the damage to the
home was caused by covered water damage, and
so the coverage was not limited to the amount of
the mold sublimit. The Court of Appeals held
that the sublimit applied only to damage caused
solely by mold. Here, the court held the hidden
water damage caused all the property damage,
including the ensuing mold. Therefore, the court
held the full policy limit applied.
The Court of Appeals also upheld the
judgment of bad faith, ruling that the issue of
bad faith is ordinarily for the jury to determine.
In this case, the court held there was evidence to
support the jury’s verdict that the denial of the
water damage claim had been in bad faith.
notwithstanding a mold sublimit. (Henderson v.
Georgia Farm Bureau, 16 July 2014.)
In this case, homeowners discovered
water damage from a puddle of water in their
kitchen. Upon further investigation, it was
discovered that there was extreme rotting of
floor joists, and black mold was found under
floors, behind walls, and over ceilings.
This homeowners policy expressly
provided coverage for “seepage of water” so
long as the water damage was hidden. Covered
losses were subject to a policy limit of $153,500.
The policy included an additional coverage for
mold, with a sublimit of $32,000 for mold
damage. The insurer paid the $32,000 for the
mold sublimit, but denied coverage for the rest
of the damage.
The homeowners sued the insurer, and a
jury found that the insurer owed them the full
amount of the policy limit for covered water
damage, as well as a penalty and attorney’s fees
for bad faith. The trial court overturned the
verdict, granting a judgment notwithstanding the
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