Seventh Circuit Confirms that Appraisers May Determine Cause of Loss in Addition to Amount of Loss

    The Seventh Circuit affirmed the district court's ruling that the appraisers appointed under the policy provisions to establish the amount of loss could also find the cause of the loss. Mesco Manufacturing, LLC v. Motorists Mut. Ins. Co., 2025 U.S. App. LEXIS 18598 (7th Cir. July 25, 2025). 

    Mesco Manufacturing, LLC held a business policy from Motorists Mutual Insurance Company. Mesco submitted a claim for hail damage to the roofs of its manufacturing facilities. The roofs were made of sheet metal, modified bitumen and ethylene propylene diene terpolymer (EPDM). Motorists Mutual paid $7,806.75 for the claim. Mesco disagreed with the amount and invoked the policy's appraisal provision. 

    Appraisers were selected by the insurer and insured. The appraisers agreed that the metal roofing was hail damaged but disagreed on whether the EPDM and modified bitumen roofs were hail damaged. An umpire was selected.

    Before the umpire could resolve the dispute, Motorists Mutual retained an engineer to inspect the property. The engineer determined that the modified bitumen and EPDM roofs were not hail damaged. Motorists Mutual then notified Mesco that those roofs could not be included in the appraisal process because the disagreement was not over the value of the roof coverings, but rather if the roof coverings were damaged.

    The umpire nevertheless proceeded with his inspection and concluded that the modified bitumen roofs were hail damaged, but that the EPDM roofs were not. An appraisal award of $1,020,490.32 was issued in replacement cost value, or $894,733.82 in actual cash value. Motorists Mutual only issued $265,296.21 for "the covered damages that were awarded by appraisal," which excluded damage to the modified bitumen and EPDM roofs.

    Mesco sued, alleging that Motorists Mutual had breached its contract and acted in bad faith. Mesco also sought a declaratory judgment that Motorists Mutual owed the entire appraisal award. The parties filed cross-motions for summary judgment on the breach of contract claim.

    The district court granted Mesco's motion for summary judgment. Because Mesco had complied with all policy terms and no exceptional circumstances justified setting aside the appraisal award, Motorists Mutual had breached the policy by not paying the full award. Motorists Mutual appealed.

    Under Indiana law, when parties voluntarily submitted to an appraisal, they were bound by the appraisal award absent exceptional circumstances such as manifest injustice, fraud, collusion or misfeasance. 

    The Seventh Circuit found the umpire could decide the amount of hail damage because the existence and extent of hail damage were factual questions that could be resolved by an umpire. To issue his appraisal award, an umpire had to differentiate between damage that was caused by ordinary wear and tear and damage caused by hail. Therefore, the umpire was acting within his authority when he attributed the roof damage to hail, as opposed to ordinary wear and tear, and signed a binding appraisal award based on his determination.

    The policy's appraisal provision stated, "If there is an appraisal, [the insurer] will still retain [its] right to deny the claim." Motorist Mutual claimed this "right to deny" clause permitted it to deny Mesco's claim. But Motorists Mutual had not alleged any exceptional  circumstances that would justify setting aside the appraisal award. Instead, Motorists Mutual want the "right to deny" clause to be interpreted as permitting an insurer to set aside any binding appraisal award with which it disagreed. Such an interpretation would undercut the purpose of the appraisal process.

    The judgment of the district court was affirmed.