June 4, 2024 – A complaint stating the existence of a dispute over the appraisal of an insured loss and that one party refused to abide by the insurance contract’s appraisal clause was sufficient to withstand a motion to dismiss for failure to state a claim, the Wisconsin Court of Appeals (District IV) has held.

In Badgerland Restoration & Remodeling, Inc. v. Federated Mutual Insurance Company, 2023AP2109 (May 9, 2024), the Court of Appeals also held that facts contained in an appellate brief but not in the complaint or answer would not be considered on appeal.  

Heavy Hailstorm

In April 2022, a hailstorm damaged a building owned in Waupaca by Maple Crest Funeral Home, Inc. (Maple Crest).

Federated Mutual Insurance Company (Federated) had issued an insurance policy on the building.

Under the policy, either party could make a written demand for an appraisal of any loss if the parties disagreed on the amount of loss.

The appraisal clause required that if the parties disputed the appraisal, either party could make a written demand for an appraisal, after which each party would select an appraiser and the appraisers would select an umpire to issue a binding determination.

Maple Crest immediately informed Federated of the hail damage, and Federated hired an adjuster. In July 2022, the adjuster estimated the replacement cost for the building’s roof at $58,311.21

Cost Overruns

In August 2022, Maple Crest signed a contract with Badgerland Restoration and Remodeling, Inc. (Badgerland).

The agreed amount of the contract was $58,311.21, “plus any approved supplements.” The contract did not define “supplements.”

Badgerland finished repairing the building in October 2022 and submitted an invoice for $110,972.20 to Federated. The invoice treated everything over $58,311.21 as supplementals.

Request for Appraisal

Federated and Maple Crest disagreed whether the necessary repairs cost $58,311.21 or $110,972.20.

In November 2022, Maple Crest sent Federated a written request for appraisal. Federated denied the request, on the grounds that Maple Crest had not disputed the amount of loss.

Breach of Contract Claim

In January 2023, Maple Crest assigned its breach of contract claim against Federated to Badgerland.

Badgerland sued Federated in Waupaca County Circuit Court. Federated filed an answer and moved to dismiss the lawsuit for failure to state a claim.

The circuit court granted Federated’s motion. Badgerland appealed.

Facts From Briefs Don’t Come In

Presiding Judge Joanne Kloppenburg began her opinion for a three-judge panel by explaining that under the doctrine of incorporation by reference, a court may consider a document attached to a motion to dismiss, without converting the motion into a motion for summary judgment, if the document is:

• referred to in the complaint;

• central to the plaintiff’s claim; and

• free from dispute as to its inauthenticity.

Applying that rubric, Kloppenburg concluded the Court of Appeals would not consider the following allegations of fact contained in Federated’s briefs:

• Maple Crest never requested approval for supplementals during the roof repairs;

• Federated never approved any supplementals; and

• Federated no longer had access to the property to evaluate the loss.

“These allegations are neither alleged in the complaint nor included in the documents incorporated by reference,” Judge Kloppenburg wrote. “Reliance on allegations of fact contained in the parties’ briefs is not appropriate on a motion to dismiss.”

Complaint States a Claim

Kloppenburg pointed out that Badgerland had alleged that:

• Maple Crest had suffered hail damage to its building;

• Federated set the amount of that loss at $58,311.21; and

• Maple Crest later determined that the amount of the loss was $110,972.20, the actual cost of the roof repairs.

“Here, the allegations are that there was a dispute over the value of the loss, Federated refused to abide by the appraisal clause when it was invoked by Maple Crest following the completion of the roof repair work, and Federated did not seek relief in court,” Judge Kloppenburg wrote.

“Accordingly, the complaint states a claim for breach of the policy.”

No Dispute?

Federated argued that Maple Crest had no right to invoke the appraisal clause for the following reasons:

• the parties didn’t dispute the value of the loss;

• Maple Crest waived its right to invoke the appraisal clause; and

• Maple Crest is estopped from demanding an appraisal.

Maple Crest argued that Federated hadn’t disputed the value of the loss because it executed a contract with Badgerland for $58,311.21 – the exact amount of the loss as determined by Federated.

But that argument, Kloppenburg reasoned, proceeded without facts that needed to be established at trial, including: 1) whether Badgerland or Maple Crest had communicated with Federated before Badgerland finished the repairs; and 2) whether Federated approved any supplements before Badgerland finished the repairs.

Additionally, Judge Kloppenburg wrote, “Federated does not identify any legal authority supporting the proposition that any provision of the policy required Maple Crest to submit its own estimate or to obtain Federated’s approval of any estimate, before commencing or completing the repair work.”

No Waiver

Federated argued that Maple Crest waived its right to invoke the appraisal clause by waiting until six months after the roof repairs were completed to demand an appraisal.

“Federated cites no authority supporting the proposition that his alleged timing constitutes a delay as a matter of law,” Kloppenburg wrote.

Furthermore, wrote Judge Kloppenburg, “caselaw indicates that completion of the work, while potentially relevant to a claim of unreasonable delay, does not necessarily suffice to establish prejudice or waiver. Here, the complaint does not establish that Federated has been prejudiced.”

Kloppenburg concluded that the same reasoning applied to Federated’s estoppel argument.

The Court of Appeals reversed the circuit court and remanded the case for further proceedings.