Good ole’ Steve Badger and I have a lot of debates about the issues of having terms of appraisal and an appraisal memorandum guiding the appraisal process. I think it leads to more litigation after the appraisal. Badger thinks it protects the integrity of the appraisal process. There is much debate about them.
A recent federal decision offers an important reminder for policyholders, insurance claims professionals, and those involved with appraisals about the limits of appraisal protocols and the binding nature of appraisal awards under standard policy language.
In Aksharbrahma Corp. d/b/a American Motor Inn v. Nautilus Insurance Company, 1 the court ruled that a jointly drafted “Loss Appraisal Protocol” never became effective and therefore could not alter or expand the insurer’s contractual duties under the policy. The ruling reinforces that when insurers and insureds attempt to modify an appraisal process, precision in execution and compliance with any stated conditions precedent are essential. Details matter.
The dispute arose after Aksharbrahma Corp., the owner of the American Motor Inn, sustained damage to its property from a 2020 thunderstorm and a subsequent 2021 ice dam event. The insurer, Nautilus, issued several payments but disagreed with the policyholder over the scope and amount of covered loss.
The parties eventually agreed to appraisal. They eventually signed what they called a “Stipulation Regarding Loss Appraisal Protocol.” The document was intended to govern how the appraisal panel would evaluate the claim, listing in detail the questions the appraisers were to answer about each roof and interior room. The Protocol even included a diagram of the property’s seven roof sections and attempted to define how replacement cost and actual cash value would be determined.
However, the Protocol contained a clear condition precedent that it would “become effective upon execution by AMI, Nautilus, and the parties’ respective appraisers.” Although AMI, Nautilus, and AMI’s appraiser signed it, Nautilus’s appraiser refused, stating the document was “outside the scope and norm of an appraisal.” That omission proved decisive.
The court found that the missing signature meant the condition precedent was never satisfied, and that the Protocol therefore never took effect. Under Illinois law, such express conditions must be strictly fulfilled before a contract modification becomes enforceable. Without all signatures, the court said, there was no meeting of the minds and no valid amendment to the insurance contract.
AMI argued that the appraisal award later issued by the panel should be invalidated because it failed to follow the Protocol’s detailed questions and particularly its omission of findings for “Roof 7.” But the court rejected that argument, explaining that since the Protocol was never effective, the appraisers had no obligation to follow it.
The court also noted that the award on its face stated that all roofs were considered and that any not listed did not sustain recoverable damage. Under long-standing Illinois precedent, a court may not overturn an appraisal award unless there is a “gross mistake on the face of the award.” Here, there was none.
The court concluded that the appraisal award was binding under the policy’s standard appraisal clause. Nautilus had already paid the amount determined by the appraisal, less prior payments and the deductible. Accordingly, the court held that Nautilus had fulfilled its contractual obligations. The judge dismissed the policyholder’s claims for breach of contract and bad faith, emphasizing that because the insurer owed no further benefits under the policy, a statutory claim under Section 155 for vexatious and unreasonable delay could not stand.
This decision is a critical lesson: When parties seek to customize the appraisal process, the formalities of execution of a memorandum or protocol cannot be overlooked. A missing signature or unfulfilled procedural step can render an otherwise carefully negotiated protocol meaningless. The case also reaffirms that courts will give strong deference to appraisal awards absent clear evidence of fraud or manifest error.
Christina Phillips, out of our Chicago office, previously wrote about a different appraisal memo outcome in Appraiser Beware: Know the Terms of Your Appraisal Memorandum. In that blog, the case of Church Mutual Insurance Company v. Circle of Light illustrated how a court set aside an appraisal award because the pre-appraisal agreement (the “appraisal parameters”) limited the scope of the appraisal and the appraisers ignored it. There, the pre-appraisal agreement was fully signed, clearly limited the appraisal to certain issues (roofing system only, no interior damage, etc.), and established a mechanism to deal with “additional damage” or ambiguity. When the appraiser ignored those scope limits and failed to follow the mechanism set out, the court set aside the award.
Thought For The Day
“Details create the big picture.”
— Sanford I. Weill
1 Aksharbrahma Corp. v. Nautilus Ins. Co., No. 4:22-CV-04140 (C.C. Ill. Nov. 5, 2025).