State Farm settles fire loss that went to policy’s appraisal process – $243,000 Settlement

The insured’s Mecklenburg County home burned in July 2013. She had first-party homeowner’s coverage with State Farm Fire & Casualty Co.

State Farm paid some on the claim, but not a reasonable amount. So the insured hired a public adjuster to present her claim. With the adjuster’s help, she invoked her policy’s appraisal process.

Under that process, a required option for all Virginia homeowner’s policies, each side picked an appraiser to set the loss. The appraisers valued the loss differently, so the insurer and insured chose a neutral umpire to resolve their differences

The appraisal process concluded in March 2017, almost four years after the fire.

The loss award for the dwelling and personal property topped State Farm’s prior payments by $241,990.89.

Rather than pay the rest of the award, State Farm sued its insured in federal court, seeking a ruling that it need not pay more because the insured lost her right to recover more from State Farm due to a two-year contractual time limit on suing State Farm. It also attacked the award on the merits as excessive, seeking to revise the loss amount lower even if the time bar did not apply.

The insured filed a motion to confirm the appraisal award as resulting from an arbitration under the Federal Arbitration Act (the “FAA”). The FAA prohibits relitigating such awards on the merits and prevents most appeals. It generally only allows changes to an award if a party conclusively shows fraud or misconduct by an arbitrator, and State Farm never offered evidence of any such problem.

The court denied the motion to confirm the award under the FAA. As grounds, it held the Act did not apply because the policy’s appraisal terms did not state a court could confirm the award. But the court did recognize the parties had agreed to bind themselves by an appraisal.

Before any discovery, the parties agreed to a settlement conference with U.S. Magistrate Judge Roderick C. Young. At that proceeding, the insured argued that the FAA did apply under a 4th Circuit case that asked merely whether the parties had contemplated judicial enforcement of the award, not whether a written agreement allowed judicial review.

The insured also asserted that Virginia arbitration law applied even if the FAA did not. And Virginia imposed limits on attacking an award’s merits that were, if anything, trickier for parties seeking to undo an award than under the FAA. The insured further argued the two-year contractual time bar on loss under the policy did not bar recovery because its express terms only barred suits brought by the insured, and State Farm brought this coverage action itself.

The insured further argued she had a chance at over four years interest on the $241,990.89 portion of the award State Farm did not pay. She also asked for attorney’s fees under Virginia Code § 8.01-209. While winning such bad faith damages is rare in the Commonwealth, she asserted that State Farm’s refusal to honor the neutral umpire’s appraisal award had no reasonable basis under federal and state arbitration law.

The case settled for $243,000 at the conference with Judge Young’s help.

[18-T-005]

Type of action: Declaratory relief action

Injuries alleged: Fire loss of dwelling and contents under homeowner’s policy

Name of case: State Farm Fire & Cas. Co. v. Paulette R. Campbell

Court: U.S. District Court for the Eastern District of Virginia, Richmond

Case no.: 3:17cv352-JAG

Tried before: Mediation

Name of judge or mediator: U.S. Magistrate Judge Roderick C. Young

Date resolved: Jan. 3, 2018

Special damages: $241,990.89

Verdict or settlement: Settlement

Amount: $243,000

Attorneys for plaintiff: John Janney Rasmussen, Richmond

Insurance carrier: State Farm Fire & Cas. Co.