Eric Meador, a State Farm claims adjuster, spoke to a Rocklane representative, who advised that approximately 12 of the 32 residential buildings had sustained hail damage to their roofs.

Mr. Meador inspected all 33 buildings at Winding Ridge in May 2014 and observed minimal hail damage. Specifically, he found "soft metal damage, hail damage to the soft metal condensers of some air conditioning units, damage to fascia, some unrelated wind damage that took place following the cancellation of the policy, mechanical damage from ice removal, damage to screens, prior mismatched shingle repairs[,] and golf ball dents on the golf course side of complex."

On May 29, 2014, Mr. Meador prepared a replacement cost estimate for hail damage totaling $65,713.54, which included repairs to soft metal, some air conditioning condensers, screens, and gutters and downspouts. It did not include repairs to any roofing shingles. State Farm subsequently paid Winding Ridge for the estimated repairs less depreciation.

Winding Ridge disagreed with State Farm's estimate and hired Matthew Latham, a public adjuster at Crossroads Claims Consulting, to provide a competing estimate. Mr. Latham concluded that there was hail damage to all 33 buildings and estimated a replacement cost of $1,975,264. This estimate included full replacement for all shingles, decking, metal vents, flashing, caps, gutters, and downspouts on all 33 buildings.

Mr. Meador reviewed Mr. Latham's estimate and agreed to reinspect the buildings. He reinspected them in April 2015 and hired Doug Brown, an engineer, to conduct a separate inspection. Mr. Brown drafted a report of his findings and concluded that "[t]he roofing shingles throughout the neighborhood had not been functionally damaged by hailstone impacts." Mr. Brown also found that the areas identified by Mr. Latham "exhibited granule loss consistent with blistering and the normal aging of the shingles, and were not attributable to hailstone impacts." Lastly, he identified hail damage to soft metals, screens, and some air-conditioning units. Mr. Meador provided Mr. Latham with a copy of Mr. Brown's report and confirmed that State Farm's estimate included the full scope of damages covered by the insurance policy.

On September 9, 2015, Winding Ridge demanded an appraisal under the policy, which State Farm accepted. In doing so, State Farm referred to the policy's appraisal provision and informed Winding Ridge that "[a]ppraisal is a process by which the amount of loss, if any, may be determined. Appraisal does not resolve coverage disputes. In other words, it is not a process by which coverage is determined for a particular loss or item of damage."

Both parties complied with the policy's appraisal provision. State Farm and Winding Ridge each hired independent appraisers, Michael Scott and Garrett Kurtt, respectively, and they reinspected the buildings. Mr. Scott estimated $79,921.80 for repairs to all 33 buildings, but his estimate did not include full shingle replacement on any building. Mr. Kurtt estimated $676,824.07 for repairs including full shingle replacement on 13 buildings. Mr. Kurtt did not claim full shingle replacement for any of the remaining buildings.

The parties again could not agree on an estimate. The main disagreement between the parties was whether all shingles needed to be replaced on 13 buildings. Pursuant to the policy's appraisal provision, the parties' appraisers selected an independent umpire, Al Kalemba with Illiana Claims Services.

Messrs. Scott, Kurtt, and Kalemba inspected the property.

On April 30, 2016, Mr. Kalemba issued a proposed award for (1) 20 percent repair allowance for roofing shingles on 13 buildings; (2) replacement costs for soft metal damage on all 33 buildings; and (3) replacement costs for roofing shingles around new turtle roof vents on all 33 buildings.

Specifically, Mr. Kalemba found that "[t]he granule loss does not indicate hail damage. During the life of a shingle granules are constantly shedding from the mat as designed." Mr. Kalemba's proposed award totaled $154,391.77.

Winding Ridge was dissatisfied with the proposed award. On May 20, 2016, Mr. Kurtt asked Mr. Kalemba to modify the award to cover full shingle replacement on 13 buildings.

Mr. Kalemba did not amend the award.

Both Mr. Kalemba and Mr. Scott signed the award, making it binding, and State Farm issued payment to Winding Ridge.

Winding Ridge sued State Farm, alleging claims for breach of contract, bad faith, and promissory estoppel.

The U.S. District Court for the Southern District of Indiana granted summary judgment in favor of State Farm, and Winding Ridge appealed to the Seventh Circuit. It argued that the appraisal provision was ambiguous and, therefore, unenforceable. It asserted that the award was not binding because the umpire improperly determined the scope of the loss rather than just the amount of the loss. And it claimed that there were genuine issues of material fact that State Farm had breached the insurance policy.

The Seventh Circuit's Decision

The Seventh Circuit affirmed.

In its decision, the circuit court ruled that the policy's appraisal provision – which stated that, if the parties "disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss" – was unambiguous and that after Mr. Kalemba and Mr. Scott signed the award, "the award became binding."

The circuit court rejected Winding Ridge's contention that the award was not binding because Mr. Kalemba had mistakenly determined the scope of the loss. In the circuit court's opinion, Mr. Kalemba had "determined the value of the loss based on the disputed loss submitted by the parties' appraisers and as required under the policy; he did not decide the coverage issues."

The circuit court also was not persuaded by Winding Ridge's argument that, among other things, State Farm had breached the policy by (1) failing to pay for new roofs on all 33 buildings, and (2) applying the appraisal award to the entire claim when it only resolved damage on 13 buildings.

The circuit court noted that Winding Ridge's own appraiser found no hail damage to the roofing shingles on 20 buildings and that his estimate only included full shingle replacements on 13 buildings. Both State Farm's appraiser and the umpire disagreed with Winding Ridge's appraiser's estimate and found minimal hail damage on 13 buildings. In the circuit court's opinion, State Farm had not breached the policy by declining to pay for new roofs on all 33 buildings.

The Seventh Circuit concluded that the appraisal award "plainly resolved the entire claim, not just the damage to 13 buildings."

The case is Villas at Winding Ridge v. State Farm Fire and Casualty Co., No. 19-1731 (7th Cir. Nov. 8, 2019). Attorneys involved include: Attorneys involved include: For VILLAS AT WINDING RIDGE, Plaintiff – Appellant: William D. Beyers, BUCHANAN & BRUGGENSCHMIDT, P.C., Zionsville, IN; David Evan Miller SAEED & LITTLE, LLP, Indianapolis, IN. For STATE FARM FIRE AND CASUALTY COMPANY, Defendant – Appellee: Eric C. McNamar, John Carl Trimble, Joseph Neal Bowling, LEWIS WAGNER, LLP, Indianapolis, IN.