The U.S. District Court for the District of Maryland recently issued two opinions reaching opposing conclusions on whether a showing of actual prejudice is required to establish waiver of an insurance policy’s appraisal provision.
In both cases, the court was asked to resolve a similar question: Whether an insured had waived its right to demand an appraisal under an insurance policy after having pursued administrative relief through the Maryland Insurance Administration and judicial relief through litigation. Despite the underlying factual similarities, the courts reached opposite conclusions.
In Blitz v. USAA Gen. Indem. Co., the court held that neither federal law nor Maryland law required a showing of actual prejudice in order to establish waiver of a contractual right to appraisal. In so holding, the court reasoned that appraisal provisions in insurance policies are enforced in the same manner as contractual agreements for arbitration under Maryland law, and applied Maryland substantive law via the Maryland Uniform Arbitration Act (“MUAA”) Maryland’s analogue to the Federal Arbitration Act (“FAA”). Given the similarities in the MUAA and FAA, the court looked to decisions interpreting the FAA for guidance, explaining that although federal courts had previously required a showing of actual prejudice in order to establish waiver of a contractual right to appraisal or arbitration, that requirement was eliminated by the U.S. Supreme Court in Morgan v. Sundance, Inc., 596 U.S. 411, 418-19 (2022), bringing federal law into concert with Maryland law, which similarly does not require a showing of actual prejudice to find waiver of a contractual right to appraisal.
Conversely, in Reagoso v. USAA Cas. Ins. Co., the court held that the “dispositive question” in assessing whether a party had waived its contractual right to appraisal was whether the party opposing appraisal had suffered actual prejudice. Although the court acknowledged that the both the significant delay in the insured’s appraisal demand and filing of litigation weighed in favor of waiver, the court concluded that the insured had not waived its right to appraisal because the insurer had failed to establish actual prejudice.
While the opposing decisions highlight the uncertainty around the standard for demonstrating waiver of an insurance policy’s appraisal provision under Maryland law, the inherent contradiction in the decisions makes an appeal a near certainty.
Read the decisions here: Blitz; Reagoso
HKR will continue to monitor this issue as it develops.