A dispute between an insurer and insured should proceed to appraisal even after the insurer claimed it discovered evidence of fraud by the policyholder, a federal judge in Florida ruled.

In 2017, Hurricane Irma damaged property in Naples owned by the Waterford Condominium Association of Collier County Inc.

Waterford reported the damage to its insurer, Empire Indemnity Insurance Co. Its adjuster inspected the property and found the anticipated repair cost to be $551,733. After subtracting depreciation and deductibles, Empire paid Waterford $51,817.

But Waterford submitted a repair estimate for $2.1 million. Empire continued its investigation and commissioned a second estimate of $595,098. Waterford sued Empire a few months later.

Empire conceded coverage and acknowledged a dispute over the extent and value of damage.

Waterford moved to stay the case and compel appraisal under the insurance policy. The district court granted Waterford's motion over the objections of Empire.

Empire asked U.S. District Judge Sheri Polster Chappell in Fort Myers to reconsider, asserting the fraud claim. But the district court ruled the appraisal should proceed.

In its decision, the district court explained the Empire policy allowed either party to demand appraisal if they disagreed "on the value of the property or the amount of loss."

The judge found there was no doubt the parties disagreed about the amount of Waterford's covered loss and concluded an appraisal was appropriate.

The district court was not persuaded by Empire's argument that the appraisal should be denied or stayed while Empire considered whether to assert a fraud defense, deny the claim and seek to void the policy. The court said "the mere possibility that Empire might raise a fraud defense" did not undermine the rationale for enforcing the policy's appraisal provision.

Even if Empire decided to reverse course and deny the claim, appraisal was "still appropriate to determine the amount of loss because a fraud defense would address the separate issue of coverage," the judge ruled.

In fact, the district court observed, the policy anticipated this situation by stating, "If there is an appraisal, we still retain our right to deny the claim."

Simply put, the district court concluded Empire's consideration of a fraud defense was "no reason to stop or stay appraisal."

The association is represented by Amanda Broadwell, Cary Goggin and Kurtis Keefer of Goede, Adamczyk, DeBoest & Cross in Naples.

Empire is represented by Kathleen Phillips and J. Pablo Caceres of Butler Weihmuller Katz Craig in Tampa.

The case is Waterford Condominium Association of Collier County v. Empire Indemnity Insurance, Case No.: 2:19-cv-81-FtM-38NPM (M.D. Fla. Oct. 2).

Read the order: