A latest federal court docket resolution out of Illinois ought to make each policyholder and public adjuster perceive the significance of submitting a proof of loss. 1 It’s a case about appraisal, however extra importantly, it’s a case about how a single quantity, written on a proof of loss, controls the result of an in any other case profitable declare.
The coverage at situation contained a really uncommon appraisal provision. It said:
Value determinations. If [the insured] and [Foremost] fail to agree on the quantity of the loss, then each [the insured] and [Foremost] have the suitable to pick a reliable and disinterested appraiser inside 20 days from the day of disagreement. The appraisers will decide the quantity of the loss. . . . If the quantity of loss is decided to equal or exceed the total quantity which [the insured] demanded previous to the appraisal, then [Foremost] pays [the insured’s] appraiser’s charge . . . . In any other case [the insured] pay[s] [his] appraiser and [Foremost] pay[s] [its] appraiser.
Most appraisal clauses merely allocate prices or break up them. This one creates a built-in penalty relying on how the appraisal award compares to the insured’s prior demand. It doubtlessly turns the pre-appraisal demand right into a high-stakes benchmark.
On this case, the policyholder suffered a big fireplace loss. There was no dispute about protection. The one disagreement was the worth of the loss. The insured submitted a sworn proof of loss after which demanded appraisal. The appraisal panel in the end awarded roughly $1.3 million.
That seems like a win for the policyholder. It was not.
The insurer refused to pay the insured’s appraiser’s charge, citing the proof of loss and arguing that the insured had beforehand “demanded” roughly $1.8 million. Because the appraisal award was lower than that quantity, the coverage language dictated that every celebration would bear its personal appraiser’s charge.
The policyholder argued that he by no means meant to demand $1.8 million. As a substitute, he claimed he was searching for coverage limits, which was far decrease. He additionally argued that the proof of loss had been rejected by the insurer, so it mustn’t rely as a requirement in any respect. There was additionally an try to indicate that each events knew the loss exceeded coverage limits, suggesting that appraisal ought to by no means have been invoked within the first place. The court docket didn’t see it that method.
The decide centered on one factor: what the insured submitted. The sworn proof of loss contained a selected line for the “quantity claimed,” and that quantity was roughly $1.8 million. It was signed underneath oath. It was the one doc within the document that clearly said a financial demand previous to appraisal.
The court docket held that the proof of loss represented the insured’s demand, no matter whether or not the insurer rejected it for lack of supporting documentation. Rejection didn’t erase the assertion. It merely meant the insurer was not but obligated to pay it. The quantity nonetheless stood because the insured’s communicated place.
The policyholder tried to repair the issue with later affidavits stating that he solely meant to demand coverage limits. The court docket rejected these efforts underneath the “sham affidavit” rule, noting {that a} celebration can not contradict a previous sworn assertion to create a factual dispute.
There are a number of necessary classes right here, and so they go properly past this one dispute. First, a proof of loss is not only a formality. It’s a authorized doc with actual penalties. Each quantity positioned on that type issues. Courts will deal with it as a definitive assertion of the insured’s place, particularly when it’s signed underneath oath.
Second, intent doesn’t override what’s written. It doesn’t matter what the insured meant to say if the doc says one thing else. Courts interpret contracts and sworn statements primarily based on their plain language, not after-the-fact explanations.
Third, rejecting a proof of loss doesn’t make it disappear. Many policyholders and even some practitioners assume {that a} rejected proof of loss has no persevering with impact. This case reveals in any other case. The doc can nonetheless be used as proof of a requirement, even when it was not accepted for fee functions.
Fourth, this sort of appraisal clause creates a entice for the unwary. By tying fee-shifting to the insured’s pre-appraisal demand, the coverage successfully penalizes inflated or imprecise claims. It forces the insured to demand sufficient to totally seize the loss, however not a lot that an appraisal award falls brief. That is ingenious and distinctive drafting by the insurer.
Lastly, there’s a want for precision and technique in claims dealing with. If there may be any mistake, ambiguity, or misunderstanding in a proof of loss, it should be corrected instantly. On this case, the insurer even invited the submission of a brand new proof of loss. None was offered.
Insurance coverage adjustment is an in depth enterprise. This case demonstrates that the method of acquiring these advantages could be unforgiving. A single quantity, written on a single line, can decide who wins and who pays.
Thought For The Day
“The distinction between the suitable phrase and the virtually proper phrase is the distinction between lightning and a lightning bug.”
— Mark Twain
1 Lewis v. Foremost Ins. Co., No. 23-cv-02697 (N.D. Il. Mar. 23, 2026). See additionally, Plaintiff’s Memorandum of Regulation, and Defendant’s Memorandum of Regulation.