942 F.3d 824
7th Cir.2019Background
- Villas at Winding Ridge (Indianapolis) had a June 13, 2013 hail event; damage was not discovered until a 2014 roof inspection when roofs were 9–16 years old.
- State Farm insured the complex for July 1, 2012–July 1, 2013; policy permitted appraisal to resolve disputes over amount of loss and preserved insurer’s right to deny coverage.
- State Farm adjuster estimated $65k–$80k (no full shingle replacements); Winding Ridge’s public adjuster estimated ≈$1.98M (full replacement for many roofs).
- Parties invoked the policy appraisal clause; appraisers and umpire inspected. Umpire issued a binding award of $154,391.77 (including a 20% repair allowance for shingles on 13 buildings, soft-metal replacements across all buildings, and localized shingle work around vents).
- Winding Ridge nonetheless replaced all roofs for ≈$1.5M, sued State Farm for breach, bad faith, and promissory estoppel; district court granted summary judgment for State Farm.
- Seventh Circuit affirmed: appraisal clause enforceable, award binding, no breach or bad faith by State Farm.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of appraisal clause | Clause ambiguous; should not bar judicial review | Clause unambiguous and binding | Clause is unambiguous and enforceable; appraisal invoked properly |
| Umpire exceeded scope by resolving coverage/matching issues | Umpire improperly decided scope (coverage/matching) rather than only amount | Umpire decided the disputed loss as submitted; did not decide coverage | Umpire resolved the amount the parties submitted; award binding; coverage disputes do not necessarily void appraisal |
| Breach of contract (failure to pay full roof replacements / apply award) | State Farm breached by not paying to replace all 33 roofs and by not amending award for matching shingles | State Farm paid what award required; appraisals showed limited shingle damage; Winding Ridge’s independent replacement does not create insurer liability | No genuine factual dispute; State Farm did not breach the policy |
| Bad faith | Insurer’s lower initial estimate and handling (and alleged retaliation relating to another claim) show bad faith | Insurer investigated, participated in appraisal, paid the binding award; no evidence of conscious wrongdoing or clear-and-convincing proof of an unfounded denial | No clear-and-convincing evidence of bad faith; summary judgment for State Farm affirmed |
Key Cases Cited
- Vesuvius USA Corp. v. Am. Commercial Lines LLC, 910 F.3d 331 (7th Cir. 2018) (unambiguous contract terms are given their plain meaning).
- Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868 (7th Cir. 2000) (appraisal awards are binding absent fraud, collusion, misfeasance, or manifest injustice).
- FDL, Inc. v. Cincinnati Ins. Co., 135 F.3d 503 (7th Cir. 1998) (enforcement of appraisal awards and limited judicial review).
- Philadelphia Indem. Ins. Co. v. WE Pebble Point, 44 F. Supp. 3d 813 (S.D. Ind. 2014) (appraisal determines amount of loss and does not resolve coverage disputes).
- Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993) (insurer’s duty of good faith and the contours of bad-faith claims).
- Freidline v. Shelby Ins. Co., 774 N.E.2d 37 (Ind. 2002) (bad-faith claim requires clear-and-convincing proof that insurer knew no legitimate basis to deny liability).
- Windridge of Naperville Condo. Ass’n v. Phila. Indem. Ins. Co., 932 F.3d 1035 (7th Cir. 2019) (similar insurance-language precedent: no entitlement to whole-roof replacement when only limited damage shown).