Olga Despotis Trust v. Cincinnati Insurance Company
2017 U.S. App. LEXIS 15353
8th Cir.2017Background
- A tornado destroyed the Trust’s insured medical-imaging building on Dec. 31, 2010; Trust claimed $1,400,000 ACV, insurer (CIC) initially paid $800,000 as undisputed ACV and tendered a check for $813,931 including other items.
- CIC invoked the policy’s appraisal provision on April 19, 2011 to resolve disputed loss amounts; the Trust refused appraisal, proposed settlements, and filed suit challenging enforceability of appraisal.
- The district court ordered appraisal; an appraisal panel later fixed ACV at $1,056,000 and replacement cost at $1,500,000; CIC paid the additional ACV and some lost rent.
- The Trust sought to amend to allege CIC breached by refusing replacement-cost payment; district court denied amendment as prejudicial and time‑consuming, and granted summary judgment to CIC on breach and vexatious-refusal claims.
- District court reasoning: (1) appraisal was binding and enforceable and CIC did not waive appraisal; (2) breach claim premised on pre-appraisal payment could not accrue before appraisal completion; (3) replacement-cost payment was conditioned on repair/ replacement begun within two years, which the Trust failed to show.
- Trust appealed; Eighth Circuit affirmed, holding appraisal enforceable, CIC did not waive appraisal, Trust failed to show breach or vexatious refusal under Missouri law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of appraisal clause | Appraisal vague, unconscionable, and CIC reserved right to deny after appraisal so clause unenforceable | Clause unambiguous; appraisal applies to amount of loss and preserves coverage defenses; cost‑sharing not unconscionable | Clause is unambiguous and enforceable; appraisal applicable to disputed covered damages |
| Waiver of appraisal right | CIC failed to timely name an appraiser and delayed invoking appraisal, so waived the right | Trust refused to participate and filed suit; CIC promptly invoked appraisal in writing and later sought judicial enforcement | No waiver; CIC timely invoked appraisal and Trust’s refusal to engage precludes waiver finding |
| Scope of appraisal (ACV vs. replacement cost) | CIC invoked appraisal only for ACV, so replacement cost should not have been submitted | Appraisal provision requires appraisers to state property value and amount of loss; CIC’s letters sought appraisal of all covered damages | Appraisal could properly resolve all covered-damage valuation issues including ACV and replacement cost amounts |
| Breach and vexatious-refusal claims | CIC’s initial ACV payment was wrong and underpayment prevented Trust from rebuilding; CIC’s conduct was vexatious and excused Trust’s failure to meet replacement‑within‑2‑years condition | CIC paid undisputed ACV promptly, invoked appraisal, and paid the appraisal‑determined ACV balance; replacement-cost requires repair/replacement underway within 2 years — Trust did not meet condition; CIC’s conduct was reasonable | Summary judgment for CIC: no breach (claim could not accrue pre-appraisal; replacement‑cost condition unmet); no vexatious refusal as CIC had reasonable cause and remedied underpayment after appraisal |
Key Cases Cited
- Gohagan v. Cincinnati Ins. Co., 809 F.3d 1012 (8th Cir.) (standard of review for summary judgment and policy interpretation)
- Burger v. Allied Prop. & Cas. Ins. Co., 822 F.3d 445 (8th Cir.) (state law governs insurance policy interpretation in diversity cases)
- Secura Ins. v. Horizon Plumbing, Inc., 670 F.3d 857 (8th Cir.) (application of state law to insurance disputes)
- Federated Mut. Ins. Co. v. Moody Station & Grocery, 821 F.3d 973 (8th Cir.) (replacement‑cost payment conditioned on repair/replacement performed)
- Woods of Somerset, LLC v. Developers Sur. & Indem. Co., 422 S.W.3d 330 (Mo. Ct. App.) (policy language construed by plain meaning; ambiguity not created by disagreement)
- Lance v. Royal Ins. Co., 259 S.W. (Mo. Ct. App.) (1924) (appraisal clauses binding and must be complied with before insured's action accrues)
- Dworkin v. Caledonian Ins. Co., 226 S.W. 846 (Mo.) (distinguishing arbitration clauses from appraisal provisions)
- DeWitt v. Am. Family Mut. Ins. Co., 667 S.W.2d 700 (Mo.) (vexatious‑refusal penalty possible despite litigable issues when insurer acted recalcitrantly)
- Bailey v. Farmers Union Co-operative Ins. Co., 498 N.W.2d 591 (Neb.) (insurer misconduct can excuse insured's failure to satisfy policy conditions)