Illinois Appellate Court Enforces Appraisal Clause in State Farm Hail Damage Dispute

The Illinois Appellate Court upheld a lower court ruling that State Farm must enter an appraisal process under a homeowners insurance policy, despite the insurer's argument that the dispute concerned coverage issues.

The case originated from a hailstorm damage claim to Xiang Zhao's home in Vernon Hills, Illinois. State Farm had partially paid for repairs but disputed the extent of damage claimed by Zhao, who sought appraisal under the policy to resolve the disagreement over the loss amount. The court found that because State Farm acknowledged some covered damage, the dispute centered on loss valuation rather than coverage eligibility.

The appraisal clause in the policy mandates arbitration when parties disagree on the amount of loss. Additionally, the court clarified that issues about cause and scope of damage are relevant to appraisal, not coverage determination. Importantly, the court held that policy defenses such as late claim notice could be raised later and do not preclude initiating appraisal.

This decision highlights that insurers cannot avoid appraisal by framing valuation disputes as coverage disputes once a covered loss is admitted. It underscores the importance of clear policy language and following contractual appraisal processes for valuation disagreements.