Connecticut Supreme Court Determines Matching Disputes Are Subject to Appraisal
A recent Connecticut Supreme Court decision will likely have substantial ramifications in insurance cases involving replacement disputes under the state’s matching statute.
In Klass v. Liberty Mutual Insurance Company, case number SC 20451, the Connecticut Supreme Court ruled that when an insurer concedes the existence of a covered peril to an insured’s premises, issues concerning the extent of the insurer’s obligation to replace adjacent, undamaged items to achieve a reasonably uniform appearance are a component of the ‘‘amount of loss’’ and are part of the appraisal process.
Klass involved the interpretation of Connecticut’s “matching statute,” which provides that ‘‘[w]hen a covered loss for real property requires the replacement of an item or items and the replacement item or items do not match adjacent items in quality, color or size, the insurer shall replace all such items with material of like kind and quality so as to conform to a reasonably uniform appearance.’’ General Statutes § 38a-316e (a).
The insured sustained roof damage to his home due to wind that resulted in missing shingles from the rear roof slope. Liberty accepted coverage under the insured’s homeowners policy and issued an estimate to replace the damaged rear roof slope only. The plaintiff’s contractor inspected the roof and provided an estimate that contemplated replacement of the plaintiff’s entire roof, including the undamaged slopes, at nearly double the cost of Liberty’s estimate. The insured then demanded appraisal under his homeowners policy.
Liberty took the position that the plaintiff was not entitled to invoke the appraisal process in the absence of a ‘‘competing’’ estimate that addressed the same scope of the claim for which the defendant had accepted coverage, in other words, only the rear roof slope. Liberty argued that any dispute regarding the matching of the front and rear roof slopes was a question of coverage rather than an issue relative to “the amount of loss” and, thus, not subject to appraisal. However, in the interest of amicably resolving the dispute, Liberty agreed to appoint an appraiser to investigate the loss while reserving its right to contest the appraisal panel’s authority to decide an issue of coverage.
Liberty’s appraiser inspected the plaintiff’s roof and issued a report concluding that, given the roof configuration, it is reasonable to conclude that the shingles along the east facing rear slopes and ridge caps of the residence and garage can be replaced such that a reasonable uniform appearance of the roof covering is maintained. Based upon this report, Liberty denied coverage for the front slopes of the plaintiff’s roof on the grounds that the replacement of the entire rear slopes of both the dwelling and garage roofs exceeded the requirements of the matching statute. In light of its denial of coverage for the front roof slopes, Liberty contended that there was no valuation issue remaining for the appraisal process.
The issue was ultimately appealed to the Connecticut Supreme Court, which found that the language of the matching statute did not resolve the issue of whether a dispute as to the scope of an insurer’s replacement obligation under the matching statute was a question of coverage to be resolved by the courts or a question of the amount of loss to be resolved by the appraisal panel. The court examined the legislative history of the statute and found that the Legislature contemplated that matching would be a ‘‘subjective’’ determination made on a case-by-case basis. It found no indication that the extent of an insurer’s replacement obligation was viewed as a coverage issue or that disputes as to matching were to be resolved by courts in the first instance.
The court reasoned that the necessarily fact-intensive, case-by-case inquiry inherent in the task of matching requires that appraisers be afforded discretion in making matching determinations. It then concluded that when an insurer concedes the existence of a covered peril to an insured’s premises, issues concerning the extent of the insurer’s obligation to replace adjacent, undamaged items to achieve a reasonably uniform appearance are a component of the ‘‘amount of loss’’ and are, therefore, part of the appraisal process.
The Klass decision will likely have substantial ramifications across Connecticut and could prove persuasive in jurisdictions that have passed similar “matching statutes.”
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