Property Insurance Appraisals in Illinois

Property Insurance Appraisals in Illinois - Zhao v. State Farm

Has your property sustained damage that is covered by your insurance policy? Are you considering agreeing to engage in an appraisal with your insurer?

In Illinois, appraisals can be a useful tool to resolve disputes over the disputed valuation of the amount of a covered insurance loss. However, the case law governing appraisals is relatively limited, so insurers often take advantage of some of the grey area that comes with appraisals in Illinois.

However, after the ruling by the Illinois Appellate Court for the Second District of Illinois in Zhao v. State Farm Fire & Casualty Co., 2025 IL App (2d) 240723 (Ill. App. May 12, 2025) there is far less grey area.

Zhao v. State Farm Fire & Casualty Co.

In Zhao, Plaintiff’s residential property sustained hail and wind damage as a result of a storm. Plaintiff’s property was covered by a State Farm policy at the time of the storm. Id. at ¶3. After Plaintiff submitted a claim, State Farm sent an estimate for items covered in the claim with an actual cash value payment of $12,677.94, which includes the replacement of gutters, downspouts, and aluminum wraps on certain window frames and trim. Id. at ¶4-5.

Plaintiff disagreed with State Farm’s valuation of the claim, and subsequently received a second estimate from a contractor that determined the hail damage was extensive enough to require the replacement of all windows at the property. Id. at ¶6. This had an estimated cost of $133,817,82, and included an extension scope of work that required the use of a general contractor that triggered the inclusion of overhead and profit in the estimate. Id.

As a result, Plaintiff sent a Demand for Appraisal to State Farm, and invoked her right to an appraisal as outlined in her policy with State Farm. Id. at ¶7.

In response, State Farm sent a letter to Plaintiff stating it had “completed the inspection of the property and we have provided our recent estimate which confirms the covered items for this claim.” Then, State Farm refused to engage in an appraisal, and stated that it viewed the differences in the estimate to be based on a dispute over policy coverage, not the amount of the loss. Id. at ¶8. State Farm further stated it declined to participate in the appraisal because it “cannot be used to resolve disputes regarding coverage provided by the contract.” Id. at ¶10.

As a result, Plaintiff filed a lawsuit against State Farm by and through experienced counsel. The trial court held in favor of Plaintiff in relation to her claim for declaratory relief, stating State Farm acknowledged the existence of a covered loss when it prepared an estimate and paid Plaintiff. Id. at ¶14. Therefore, the dispute was one involving the “amount of loss,” not the scope of coverage, which is provided for in the Appraisal Provision in Plaintiff’s policy. Id. State Farm then filed an appeal.

On appeal, the Illinois Appellate Court for the Second District found in favor of Plaintiff. The Appellate Court ruled the parties disagreed on the definition of coverage. Id. at ¶24. The Appellate Court held “there can be little doubt that the windows of the home are ‘covered’ under the homeowner’s policy. There is a dispute as to whether or not said windows were damaged by the storm, but that is not the same as a dispute as to whether or the windows were covered by the policy at all.” Id. at ¶25.

The Appellate Court went on to state that the parties agree Plaintiff had a valid insurance policy with State Farm at the time of the storm, and that Defendant had already admitted the hailstorm was covered and “caused damage to the trim around some windows on plaintiff’s home. Defendant paid S12,677.94 towards this damage. Surely, the policy that covers accidental damage to a home would also include the windows installed in that home. It stretches credulity for defendant to now assert that there is a question regarding whether windows are “covered” by the policy. There may be a dispute as to whether the windows were damaged by the hailstorm, but that is not an issue of coverage. It is an issue of loss. And appraisal is ideally suited to resolve disputes over loss.” Id. at ¶26.

After asserting that holding, the Appellate Court acknowledged that Illinois courts have long held that appraisal clauses are analogous to arbitration clauses, and are thus a favored alternative to litigation because it can be a ‘speedy, informal, and relatively inexpensive procedure for resolving controversies.” Id. at ¶26.

The Appellate Court then stated “we have repeatedly held that appraisal is appropriate for deciding the scope of damages” and that “several other jurisdictions have gone further to hold that appraisers were authorized to determine the cause of loss when deciding the amount of loss, but that questions of coverage and policy exclusions were still reserved for the courts.” Id. at ¶33.

In the end, the Appellate Court wrote “we find the law in Illinois clear and unambiguous. A trial court may compel compliance with the appraisal clause of an insurance policy to resolve disputes relating to the ‘amount of loss.’ While questions of law and coverage are to be decided by the court, resolving some questions of causation will be necessarily included in the appraisal process” Id. at ¶34. Thus, the trial court was correct in granting Plaintiff’s motion for judgment on the pleadings, and compelling appraisal. Id.

All in all, the courts in Zhao determined that some issues of causation under a property insurance policy involve the amount of loss, rather than questions of coverage, and may therefore be resolved by and through an appraisal process. The courts further held that policy defenses, including defenses related to late notice, have no bearing on an insured’s right to request an appraisal.

Conclusion

If you have demanded an appraisal, and the insurer is refusing to engage in an appraisal, it is in your best interest to contact an experience attorney prior to moving forward. Our firm has seen countless insurance companies send letters to insureds that are in violation of Illinois law in an attempt to dissuade insureds from pursuing their right to an appraisal pursuant to their policy.

Also, if your insurer has agreed to an appraisal, it is still well advised to retain counsel to assist with facilitating the appraisal process. Insurance companies utilize creative tactics to wrongfully limit the scope of appraisal and/or minimize the award based on misleading rationale.

Our team has been involved in hundreds of appraisals in Illinois. We represent appraisers, umpires, contractors, public adjuster, and insureds. We have worked with appraisers and insurance companies to clearly delineate the scope and process of the appraisal by negotiating a Memorandum of Appraisal to foster a fair and efficient appraisal. However, if insurance companies refuse to act reasonably in the appraisal process, we also have experience in taking insurance companies to court, and persuading the court to compel insurers to adhere to Illinois law and refrain from acting in bad faith in violation of Section 155 of the Illinois Insurance Code.