McGowan v. Progressive Preferred Insurance Co.

Supreme Court of Georgia, No. S05G2086, decided October 30, 2006 (Melton, Justice; all the Justices concur). The complete opinion appears below, transcribed from the official reporter via the Caselaw Access Project — Harvard Law School’s open archive of published U.S. case law — at 281 Ga. 169. Only print artifacts have been removed: the reporter’s citation block and page headers. The reporter’s decision-date line and counsel-of-record block, which the print volume interleaves in the middle of the opinion, have been moved to the top where they read naturally; the two footnotes, which the archive text collects at the end, are left at the end and labeled. Three obvious scan artifacts in the archive text were repaired — “Amotion” rejoined as “A motion,” the line-break hyphen in “Bar-wick” closed, and a missing space restored after “$3,099.72.” Nothing else was touched.

The full opinion

McGOWAN et al. v. PROGRESSIVE PREFERRED INSURANCE COMPANY et al. Supreme Court of Georgia (Oct. 30, 2006). Docket No. S05G2086. 281 Ga. 169, 637 S.E.2d 27. Decided October 30, 2006.

Butler, Wooten, Fryhofer, Daugherty & Crawford, James E. Butler, Jr., Joel O. Wooten, Jr., Jason L. Crawford, Dustin T. Brown, James C. Fuller, Gary O. Bruce, for appellants. Sutherland, Asbill & Brennan, John A. Chandler, Thomas M. Byrne, Teresa W. Roseborough, Kristin B. Wilhelm, William D. Barwick, Thomas W. Curvin, Jeremy U. Littlefield, McKenna, Long & Aldridge, John L. Watkins, John S. Berry, Troutman Sanders, Alan W. Loeffler, Herbert D. Shellhouse, Wesley B. Tailor, Rogers & Hardin, Tony G. Powers, Kimberly L. Myers, for appellees.

Melton, Justice.

These consolidated appeals arise out of a common claim that Progressive Preferred Insurance Company, State Farm Mutual Insurance Company, and Atlanta Casualty Company conspired with CCC Information Services, Inc. (CCC), a company that provides total-loss valuations to the insurance companies, to intentionally undervalue automobile property damage claims. Mary Walker was involved in a car accident in which her vehicle was totaled, and she filed a lawsuit against State Farm and CCC, alleging, among other things, breach of contract, fraudulent concealment, fraud in the inducement, and violations of the Georgia Racketeer Influenced and Corrupt Organizations Act (RICO) in connection with the alleged conspiracy between State Farm and CCC to deliberately undervalue her total-loss claim.

While Walker’s case was pending, the trial court ordered the enforcement of an appraisal provision in her State Farm insurance contract. The court-ordered enforcement of the appraisal provision resulted in a total-loss valuation that was greater than the amount that had initially been determined by State Farm. State Farm paid the higher valuation determined from the appraisal process, and the trial court dismissed Walker’s fraud, breach of contract, and RICO claims, finding that these issues were rendered moot in light of the appraisal process and the resulting higher payment for the value of Walker’s vehicle. The Court of Appeals affirmed (see McGowan v. Progressive Preferred Ins. Co., 274 Ga. App. 483 (618 SE2d 139) (2005)), and we granted certiorari to determine whether the Court of Appeals correctly held that invocation of the appraisal clause in this case mooted Walker’s fraud, breach of contract, and RICO claims. For the reasons set forth below, we reverse.

In reviewing the grant of a motion to dismiss, an appellate court must construe the pleadings in the light most favorable to the appellant with all doubts resolved in the appellant’s favor. Alford v. Public Svc. Comm., 262 Ga. 386, n. 2 (418 SE2d 13) (1992). A motion to dismiss should only be granted if the allegations of the complaint, construed most favorably to the plaintiff, disclose with certainty that the plaintiff would not be entitled to relief under any state of provable facts. Cooper v. Unified Govt. of Athens-Clarke County, 275 Ga. 433 (2) (569 SE2d 855) (2002). Therefore, we must assume for purposes of this appeal that, as alleged in Walker’s complaint, State Farm deliberately conspired with CCC to undervalue total-loss claims under its insurance policies so that it could avoid making proper actual cash value payments to its insureds. With this in mind, we turn to the appraisal clause at issue. The clause states:

If the [vehicle] owner and [State Farm] cannot agree on the actual cash value [of the vehicle at the time of the loss], either party may demand an appraisal as described below… . Appraisal under item 1 above shall be conducted according to the following procedure. Each party shall select an appraiser. These two shall select a third appraiser. The written decision of any two appraisers shall be binding. The cost of the appraiser shall be paid by the party who hired him or her. The cost of the third appraiser and other appraisal expenses shall be shared equally by both parties.

By its own language, the appraisal clause provides a method by which the insurer and the insured can make a final determination regarding the actual cash value of a totaled car when there is a dispute as to the car’s value. The clause does not purport to provide a means of addressing broader issues such as an insurer’s potential liability to an insured for claims made in a lawsuit. “[T]he appraisal process does not determine questions of liability.” McGowan, supra, 274 Ga. App. at 487 (1). In its opinion, the Court of Appeals relied on Southern General Ins. Co. v. Kent, 187 Ga. App. 496 (370 SE2d 663) (1988) and Eberhardt v. Ga. Farm Bureau Mut. Ins. Co., 223 Ga. App. 478 (477 SE2d 907) (1996), to reach the conclusion that State Farm was shielded from potential legal liability for fraud and other claims because such claims were rendered moot by invocation of the appraisal clause in the insurance contract. See McGowan, supra, 274 Ga. App. at 489 (2). Kent and Eberhardt, however, do not support this result.

In Kent, the plaintiffs sued their insurance company for its alleged bad faith refusal to pay them $13,900 that they believed that they were owed, despite the fact that an agreed-to appraisal process revealed the actual amount of the plaintiffs’ loss to be $3,099.72. 187 Ga. App. at 496. The jury awarded the plaintiffs, among other things, damages that were greater than the amount set by the appraisal process. Id. The Court of Appeals reversed the jury award, reasoning that, absent fraud in the appraisal process, the parties were bound by the results of the appraisal process with respect to the amount of the loss, and that application of the appraisal clause rendered any argument concerning value moot. Id. at 498 (1).

As the Kent court correctly recognized, a claim for fraud during the appraisal process would not be rendered moot by application of an appraisal clause. Indeed, an appraisal clause could not render such a claim moot, since damages flowing from the fraud would not be limited to the amount of loss for the property. The damages naturally flowing from the fraud itself would be recoverable. See OCGA § 51-6-1. While the issue of the amount of loss can be settled by the appraisal process, issues that go beyond mere diminished value or actual cash value of the lost property cannot be resolved or rendered moot by the appraisal process.

Here, Walker’s fraud, breach of contract, and RICO claims involve more than just the actual cash value of her car. Based on the allegations in Walker’s complaint, this case does not involve a good faith dispute over what State Farm needed to pay Walker for her totaled vehicle, but an alleged pre-existing scheme between State Farm and CCC to ensure that no one would be properly paid under State Farm’s insurance contracts. The damages naturally flowing from this alleged fraudulent scheme and attendant breach of contract included the value of Walker’s car, the expense that Walker incurred by not having use of a car, and the expense that Walker incurred by being forced to hire an appraiser to show that her car was being undervalued. Because the issues raised here reach beyond the mere actual cash value of Walker’s vehicle, the appraisal clause, which simply addresses the issue of value, cannot render these issues moot.

Eberhardt also does not support the Court of Appeals’ conclusion that the aforementioned issues are moot, because that case merely stands for the proposition that appraisal clauses in insurance contracts are enforceable. 223 Ga. App. at 479 (2). Nothing in the policy language here or prior case law would authorize a holding that claims that fall outside the scope of actual cash value of property would be rendered moot by application of an appraisal clause.

Moreover, the Court of Appeals’ conclusion that Walker’s fraud, breach of contract, and RICO claims are rendered moot by application of the appraisal clause is contrary to law. As mentioned above, an appraisal clause can only resolve a disputed issue of value. It cannot be invoked to resolve broader issues of liability. See Yates v. Cotton States Mut. Ins. Co., 114 Ga. App. 360, 361 (151 SE2d 523) (1966). To invoke an appraisal clause to eliminate the larger issues of liability discussed above would be impermissible, as it would expand the scope of the appraisal clause beyond the issue of value. It would be tantamount to converting the appraisal clause into an arbitration clause, which is the type of clause that would be invoked to address such broader issues. Continental Ins. Co. v. Equity Residential Properties Trust, 255 Ga. App. 445, 446 (565 SE2d 603) (2002). Arbitration clauses, however, are impermissible in contracts between insurers and insureds. See OCGA § 9-9-2 (c) (3); Continental, supra, 255 Ga. App. at 446. Because the holding of the Court of Appeals expands the scope of appraisal clauses beyond that which is permitted by law, it cannot stand.

For all of the foregoing reasons, we reverse the decision of the Court of Appeals that Walker’s fraud, breach of contract, and RICO claims were rendered moot by the appraisal clause in her insurance contract with State Farm.

Judgment reversed.

All the Justices concur.

[The opinion’s two footnotes, in the order they appear in the archive text:]

Appellants Harry McGowan and Dorothy Dasher have since withdrawn their appeals, leaving Mary Walker as the only appellant and State Farm and CCC as the only appellees.

We reject State Farm’s claim that Walker could not have suffered an injury in fact by being forced to pay for an appraiser because the insurance contract provided that she would have to pay for one. Since we are required to accept the allegations of Walker’s complaint as true, we must assume for purposes of this appeal that State Farm’s alleged pre-existing fraudulent scheme forced Walker to rely on an appraisal process that would not have been necessary absent the existence of the fraudulent scheme.

What it decided

Mary Walker’s car was totaled. She sued State Farm and CCC Information Services — the vendor that supplied total-loss valuations to the carriers — alleging breach of contract, fraudulent concealment, fraud in the inducement, and violations of Georgia’s RICO Act, on the theory that the two had agreed in advance to undervalue total-loss claims. While that suit was pending, the trial court ordered the policy’s appraisal clause enforced. The appraisal produced a higher number than State Farm’s own valuation. State Farm paid it — and the trial court then dismissed the fraud, contract, and RICO claims as moot, reasoning that the appraisal had resolved everything. The Court of Appeals agreed.

The Supreme Court of Georgia reversed, unanimously. Two things came out of the opinion, and they are usually quoted separately:

1. Appraisal decides value, and only value. “[A]n appraisal clause can only resolve a disputed issue of value. It cannot be invoked to resolve broader issues of liability.” Push it past value and it stops being an appraisal clause: “It would be tantamount to converting the appraisal clause into an arbitration clause … Arbitration clauses, however, are impermissible in contracts between insurers and insureds. See OCGA § 9-9-2 (c) (3).”

2. Because appraisal decides only value, paying an appraisal award does not wipe out anything else. “While the issue of the amount of loss can be settled by the appraisal process, issues that go beyond mere diminished value or actual cash value of the lost property cannot be resolved or rendered moot by the appraisal process.” The Court was explicit that damages from a fraud “would not be limited to the amount of loss for the property,” and it counted among Walker’s damages the cost she incurred hiring her own appraiser.

Note the direction of the ruling. McGowan is a decision the policyholder won. The insurer was the party arguing for a broad reading of appraisal, because a broad reading let a check extinguish a fraud case. The Supreme Court said no, and the limit it drew is the limit carriers now quote back at policyholders.

What it did NOT decide

This is where McGowan gets stretched. Read the opinion above and you will notice what is missing from it.

• It never says that a disagreement about how much damage exists is a “coverage” question. The word “coverage” does not appear in the Court’s analysis at all. The “broader issues of liability” the Court was protecting from appraisal were tort and statutory liability — fraud, RICO, contract damages beyond the car’s value. Nothing in the opinion converts an argument over how far a covered loss extends into a liability question. That framing came later and from a different court, in a 4–3 pleading-stage decision: Lam v. Allstate (Ga. Ct. App. 2014), where three judges dissented on exactly this point.
• It is not a property or roof case. McGowan is a first-party auto total-loss valuation case. The “amount of loss” at issue was the actual cash value of one wrecked car. The Court had no occasion to consider hail, wind, shingles, or the extent of damage to a building.
• It did not narrow the policyholder’s right to appraisal. The Court reaffirmed that appraisal clauses are enforceable, citing Eberhardt for exactly that proposition. What it narrowed was the effect of an appraisal — a carrier cannot use one as a global release.
• It did not decide whether appraisal must happen before suit. Whether an appraisal clause operates as a condition precedent to filing is a separate question, addressed in Georgia under federal law in Cudd v. State Farm (11th Cir. 2024).
• It did not decide what a panel must write down, or how an award is framed. For the form of an award see Bell v. Liberty Mutual (2012); for a panel setting an “amount of loss” that coverage terms are then applied to, see Omni Health Solutions v. Zurich (11th Cir. 2021).

Why it matters to policyholders

McGowan is the controlling Georgia statement of what an appraisal is for, and it cuts in two directions. Both readings deserve to be on the page.

The carrier’s reading. Insurers cite McGowan when they want to refuse an appraisal demand: appraisal is confined to value, this dispute is really about liability, therefore no appraisal. Where a policy genuinely does not respond at all — an excluded peril, a lapsed policy, a coverage the policy never provided — that is the use of McGowan an insurer can defend, and Georgia law does keep those questions in court.

What McGowan does not license is relabeling. A disagreement about how much damage a covered storm caused is a disagreement about the amount of the loss, and calling it “coverage” does not convert it into one. Georgia’s later decisions run the other way: Clary holds that appraisers determine the cost of all repairs necessary to restore the property, Bell treats the building as one item rather than a pile of components, and Omni describes appraisal as establishing the amount of loss without regard to liability. How the demand is framed decides which lane it lands in.

The policyholder’s reading. McGowan is also the sentence that stops a carrier from using appraisal as a shield. If a claim was handled badly — an appraisal manipulated, a systematic undervaluation, a breach of the contract itself — an appraisal award and a check do not make those claims disappear. Georgia’s bad-faith penalty under O.C.G.A. § 33-4-6 lives on the liability side of the line, not the value side.

And the line itself is the useful part. Value belongs to the panel; liability belongs to the courts. When the carrier has already conceded that a loss is covered and the only remaining question is what it costs to put the property back, that is a value question — which is why, in Clary v. Allstate (2017), the Court of Appeals confirmed an award where “the appraisers undertook to determine the cost of all repairs necessary to restore the property to its pre-loss value, including mold remediation,” and rejected the argument that the real dispute was coverage. That is McGowan applied honestly.

How this plays out in practice, for a policyholder standing in front of a damaged house:

• Framing decides whether you get a panel. A demand that asks appraisers to price the full cost of repairing an admitted loss to the covered property sits inside McGowan’s value lane. A demand that asks a panel to declare that the policy covers something the insurer says it does not is asking for a ruling on liability, and McGowan says a panel cannot give it.
• Get the concession in writing first. If the carrier has paid anything at all on the loss, it has conceded that the peril is covered. That admission is what keeps the remaining argument about amount.
• Do not treat an appraisal award as the end of the claim. Under McGowan, it settles the number. Claim-handling conduct is a separate matter with a separate remedy.
• Cashing the check is not signing a release. In McGowan itself, State Farm paid the higher appraised value and the Supreme Court still let the other claims proceed. That said, what a specific release document says is its own question — read anything you are asked to sign.
• Watch the clock while all of this happens. An agreement to appraise tolls a policy’s suit-limitation period under Peeples v. Western Fire (1957), but the deadline itself can be brutally short — see White v. State Farm (Ga. 2012).

A public adjuster’s part of this is the value side: documenting the damage, building the estimate, negotiating the amount, and invoking the appraisal clause when the number is the only thing left in dispute. The liability side — bad-faith litigation, fraud claims, a RICO theory like Walker’s — is attorney work, and we refer it out.

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