Hawaii Appellate Court Finds Appraisers Limited to Determing Amount of Loss

    The Hawaii Intermediate Court of Appeals determined that appraisers cannot decide what amount is owed by the insurer after loss, but are limited to finding the amount of the loss. Krafchon v. Dongbu Ins. Co., Ltd., 2023 Haw. App. LEXIS 43 (Haw. Ct. App. Feb. 17, 2023).

    The insureds owned three structures on the property on Maui: the Villa; the Cottage; and the Garage. The three structures were insured under homeowners and dwelling fire policies issued by Dongbu. When the structures were damaged by wildfire, Dongbu tendered over $300,000 under a reservation of rights, pending preparation of a final settlement. There was disagreement over the total amount of the loss.

    The insureds invoked the appraisal provision of the policies. When Dongbu failed to appoint an appraiser, the insureds sued. The trial court granted the insureds’ motion to compel appraisal.

    The appraisal provision stated, in part, “If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss.” The appraisers for the insureds and Dongbu each established replacement cost value, depreciation, and actual cost value for variouis categories of loss and reduced the appraised amount by a deductible amount. The two appraisers, howver, did not agree on the amount of loss. The trial court appointed a retired judge to serve as umpire. The umpired agreed with the insureds’ appraiser. 

    The circuit court granted the insureds’ motion to confirm, expressly recognising that the appraiser’s and umpire’s values included “consideration of scope of insurance coverage and exclusions.” Dongbu appealed the order confirming the appraisal because the appraiser and umpire exceeded their authority by considering insurance coverage issues and deciding whether the policies provided covrage for certain claimed loss.

    The policies stated that the appraisers and umpire, if necessary, were to determine the “amount of loss.” None of the policies defined “loss.” The word appeared 258 times in the homeowners poicy and 149 times in each of the dwelling fire policies. A common meaning of the word “loss” was “decrease in amount, magnitude, value or degree.”

    Not all of the insureds’ loss was necessarily insured or covered under the policies. “Loss” was limited by coverage provisions, exclusions, and other terms and conditions of the policies. The appraisal provision did not limit itself to covered loss; it did not preclude appraisal of non-covered or excluded loss, or loss for which Dongbu was otherwise not liable, and it did not empower the appraisers to consider policy or coverage defenses. 

    Therefore, the appraisers and umpire had no power to decide what amounts Dongbu owed to the insureds under the policies because what Dongbu actually owed depended upon coverage issues that had to be decided by the circuit court.

    The award from the appraiser and umpire could not have been made without considering the scope of insurance coverage. They showed that the appraiser and umpire purported to appraise what they believed to be covered loss. Dongbu was not obigated to pay uncovered or excluded loss, or loss for which Dongbu was otherwise not liable. The appraiser and umpire should have appraised the value of what the insureds lost because of the wildfire, irrespective of insurance coverage.

    Accordingly, the appellate court vacated the order confirming the appraisal award and remanded for further proceedings.