Frankenmuth blocks appraisal its own policy explicitly allows, policyholders sue

Emily Johnson ; 2025-12-05 02:54:12

Policy allows appraisal even after claim denial - insurer blocks it anyway

Legal Insights

By Tez Romero

Nov 21, 2025Share

A Michigan insurer is facing a lawsuit after refusing to let policyholders appraise their storm damage claim, despite policy language explicitly allowing appraisal even when coverage is denied.

Frankenmuth Insurance Company denied hail damage claims from two Illinois property owners following the April 4, 2023 storm that hit the Chicago area. But when the policyholders invoked their right to appraisal, the insurer said no, according to a federal lawsuit filed November 18 in the Northern District of Illinois.

The dispute centers on a commercial building at 516 N. York Rd. in Bensenville, where owners Satori Properties and Cordoba Properties say the storm damaged the roof, metal siding, and other exterior components. They reported the loss in August 2024, more than a year after the storm hit.

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Frankenmuth acknowledged the building had damage but denied the claim anyway, telling the owners in December 2024 that the hail damage happened more than two years before the April 2023 storm. Ten months later, the insurer issued a second denial, this time citing late notice for damage to the exterior cladding.

That's when things got contentious. The property owners demanded appraisal in July 2025, a standard mechanism in property policies to resolve disputes over loss amounts. Frankenmuth rejected the request in August, telling them appraisal only applies to repairs the insurer has already determined are covered.

But the policy itself tells a different story. The appraisal clause says either party can demand appraisal when they disagree on the value of property or the amount of loss. More significantly, it includes this line: "If there is an appraisal, we will still retain our right to deny the claim."

That language appears to allow appraisal even when an insurer hasn't accepted coverage, directly contradicting Frankenmuth's position. The case also comes on the heels of fresh Illinois court rulings that side with policyholders on this issue.

Earlier this year, the Illinois Court of Appeals ruled in Zhao v. State Farm Fire & Cas. Co. that disputes about whether covered damage exists are appraisable issues of loss. The court also said late notice defenses don't eliminate an insured's right to demand appraisal.

The property owners are now asking a federal judge to compel Frankenmuth to proceed with appraisal. They're also seeking damages for breach of contract and penalties under Illinois law for bad faith claim handling.

Illinois statute 215 ILCS 5/155 allows judges to award either 60% of the amount owed under a policy or $60,000, whichever is greater, when insurers engage in vexatious and unreasonable conduct. The statute also provides for attorney's fees and costs.

The lawsuit alleges Frankenmuth misrepresented legal standards by falsely telling the policyholders that appraisal only applies to covered repairs, despite multiple court decisions saying otherwise. It also accuses the insurer of failing to conduct a proper investigation and refusing to settle a claim where liability was reasonably clear.

No determination has been made on the allegations.