On May 12, 2025, the Appellate Court of Illinois, Second District, upheld a lower court’s decision requiring State Farm to enter an appraisal process under a homeowners insurance policy—despite the insurer’s objection that the dispute was about coverage.
The case, Xiang Zhao v. State Farm Fire & Casualty Co., 2025 IL App (2d) 240723, began after a hailstorm struck Zhao’s home in Vernon Hills, Illinois, on April 20, 2023. Zhao filed a claim with State Farm, which responded by issuing a payment of $12,677.94 for repairs to gutters, downspouts, and window trim.
Zhao, however, believed the storm damage was far more extensive. A contractor she hired, Encompass Builders, estimated that the hail impact warranted the replacement of all windows in the home—totaling $133,817.82. On December 22, 2023, Zhao formally demanded appraisal as provided under her insurance policy.
State Farm declined, responding in a January 2, 2024 letter that the dispute involved coverage rather than the amount of loss, and that appraisal was therefore inappropriate under the policy. Zhao filed suit in March, asking the court to compel State Farm to comply with the appraisal clause.
The trial court sided with Zhao and granted judgment on the pleadings, finding that the disagreement concerned valuation, not coverage. State Farm appealed—but the appellate court affirmed.
The court noted that State Farm had already acknowledged a covered loss by paying for damage to some of the home’s exterior. That acknowledgment, it said, moved the dispute into the territory of quantifying the loss, not determining whether coverage existed. The policy’s appraisal clause applied when the parties “fail to agree on the amount of loss,” and required each side to appoint an appraiser. It also explicitly stated that entering into appraisal did not waive either party’s legal or contractual rights.
Importantly, the court rejected State Farm’s attempt to characterize the dispute as one of coverage. It clarified that questioning whether windows were damaged by hail relates to the cause and extent of loss—matters appropriate for appraisal—not to whether such property was covered under the policy in the first place.
The court also addressed State Farm’s argument that Zhao’s claim notice was untimely, concluding that such policy defenses could still be asserted later. The issue did not prevent Zhao from exercising her contractual right to appraisal.
For insurers, the ruling is a timely reminder that policy language must be interpreted according to its plain meaning. Once a covered loss is acknowledged, attempts to bypass agreed-upon appraisal procedures by reframing valuation disputes as legal ones are unlikely to hold up in court.
