Iowa Supreme Court Rejects Restaurant’s Allegations of Bad Faith and Breach of Contract After Appraisal

The Iowa Supreme Court recently reversed the appellate court’s denial of an insurer’s motion for a directed verdict, finding that United Fire did not breach the insurance policy and did not commit bad faith during a property appraisal. Luigi’s, Inc. v. United Fire and Cas. Co., No. 19-1669, — N.W.2d —-, 2021 WL 1932711 (Iowa May 14, 2021).

Luigi’s restaurant in Oelwein, Iowa, burned down, resulting in a total loss. Luigi’s was insured under a policy with a limit of insurance of $550,000.

The policy provided two methods for determining the actual cash value (ACV) of the loss: First, if there is a regular market for similar properties, the property’s ACV is its market value (the ‘Market Approach’).

If there is no regular market for similar properties, then ACV is the cost of replacing the building with like materials (the ‘Cost Approach’). United Fire retained Rally Appraisal to determine the ACV of the loss.

Rally used the Market Approach and compared the restaurant to four similar properties. Rally concluded that the ACV of the building (not including the contents therein) was $242,000. United Fire issued payment based on this conclusion. Luigi’s rejected the valuation and invoked its right to appraisal.

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