Whether An Insurer Delayed Payment, And Whether That Delay Extends The Period Of Recovery, Are Factual Questions For The Appraisal Process — Not Legal Questions For A Court.

This article addresses two decisions in the case of Scottsdale Ins. Co. v. Altman Mgmt. Co.: 2019 U.S. Dist. LEXIS 178827 (Oct. 16, 2019); and Appellate Case No. 20-1361 (Sixth Cir., Jan. 8, 2021).


  • The question of whether an insurer’s alleged delay in agreeing to issue payment could operate to extend the period of recovery is a legal question for the court — and the answer is yes, it could.
  • The question of whether an insurer unreasonably delayed issuing payment is a factual question properly addressed via appraisal.
  • The question of whether a particular insurer’s delayed payment operates to extend the period of recovery is also a question properly addressed through the appraisal process.

Scottsdale Insurance Company (“Scottsdale”) insured an apartment building which Defendant Altman Management Company (“AMC”) managed. A July 2017 fire caused substantial damage to the building and AMC submitted a claim for necessary repairs and lost rents. Repairs continued into March of 2019, by which time Scottsdale had issued over $1.5 million for lost rent and repairs.

In March of 2019, Scottsdale notified AMC the “recovery period” under the policy would close the following month. Scottsdale believed AMC failed to timely commence repairs, and those repairs would have been complete by April 2019 but for AMC’s unreasonable delay. AMC denied it failed to timely commence the work and instead blamed delays on Scottsdale’s failure to timely accept the repair estimates AMC provided.

Scottsdale filed suit for declaratory judgment in federal district court (Eastern District of Michigan) and asked the court to make the following declarations:

A. The question of whether AMC’s period of recovery could be extended by Scottsdale’s alleged delay in agreeing to make payments is a legal question not “within the scope of the appraisal process;”

B. AMC improperly invoked the appraisal process; and

C. As a matter of law, Scottsdale’s alleged delay in “agreeing to make payments” cannot extend the period of recovery.

In response, AMC filed a motion to dismiss for failure to state a claim upon which relief can be granted.

In its October 16, 2019 order, the trial court agreed with Scottsdale on proposition A and held “[t]he question of whether an insurer’s delay in making payment may extend the insured’s period of recovery does raise a legal question.” The court went further and answered that question: “[A]n insurer’s delay in making payment may extend the insured’s period of recovery.” (Emphasis in original.)

The trial court disagreed with proposition B, and determined AMC’s appraisal demand was proper:

However, whether the insurer in fact delayed payment or, for example, the insured delayed construction to include uninsured betterments, is a factual question to be determined by the appraisers.

Finally, the trial court also disagreed with proposition C and instead determined “Scottsdale’s alleged delay in payments is a factor that the appraiser may consider in reaching its determination regarding the period of restoration.” Based on its disposition of propositions B and C (the propriety of the appraisal demand and Scottsdale’s delay could extend the period of recovery) the trial court granted (in part) AMC’s motion to dismiss and ordered the parties to appraisal.

On appeal, the United States District Court for the Sixth Circuit “affirm[ed] substantially for the reasons stated in the district court’s careful opinion.” Specifically, the appellate court determined:

  • “appraisers resolve…any factual disputes about the amount of an insured’s loss[;]”
  • “[w]hether an insurer has unreasonably delayed payment is a question of fact for the appraisers[;]” and
  • whether “the delay in payments in fact delayed completion of the repair project” is also a question of fact to be resolved via appraisal.

In light of this reasoning, the appellate court determined “[t]he district court was therefore correct to bow out in favor of the appraisers.” Yet it is not clear “bowing out” was the appropriate disposition. Both decisions acknowledge Scottsdale arguably would not owe for lost rent incurred outside the period of recovery and, therefore, also acknowledge the determination of the recovery period necessarily impacts whether coverage exists for some of the claimed rents. In other words, the dispute over whether a claim for lost rent was incurred within the recovery period is a coverage dispute and coverage disputes must be resolved by courts. Holding —in the abstract— that an insurer’s delay in agreeing to issue payment could operate to extend the recovery period as a matter of law dodges Scottsdale’s substantive question and potentially places appraisers and umpires in the position of determining coverage.

Discerning the difference between coverage disputes and amount-of-loss disputes is getting tougher as the framing of these issues becomes increasingly nuanced. Given the significant impact this dispute-classification can have on an insurer’s liability, and the preference courts are showing to push the parties into appraisal, it is more important than ever to proactively and decisively address these disputes.

Jason P. Walker is a Partner in our Columbus office and counsels insurers regarding their evaluation and investigation of complex and/or questionable insurance claims.  He partners with adjusters and special investigators in their search for the facts they need to fully and fairly analyze coverage questions — while simultaneously ensuring compliance with the various laws and regulations governing the insurance industry.