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Appraisal Clause – Insurance Claim Dispute

Business owners and home owners often encounter issues when submitting a claim to their insurance company. Even when represented by a public adjuster or an attorney, it is common for there to be some type dispute between the value of the claim.

Virtually all property insurance policy contracts include an appraisal clause which may be invoked if there is a dispute between the policy holder and the insurance company regarding a coverage determination, the claim handling process, or most commonly, the settlement amount.

Often, after an insured makes a claim under their policy, the insurance company will offer a dollar amount to allow the policy holder to “become whole”. Unfortunately, the insured may find that this “calculated” amount is insufficient, or even worse, may only realize this after the replacement/repair process has started.

Contents Claims

With in the capacity of personal property claims, there is often several thousand unique items subject to damages. Especially with Residential Homeowner claims, the magnitude of scope is enormous, and the time required to document and appraise each line item is often overwhelming. This basic fact increases the chance of dispute ten-fold, as a dispute can be on any of the thousand claimed items. This, coupled with the lack of professional personal property experts available on the open market, often results in the homeowner’s own documentation verses the carrier’s internal loss prevention methods. Common sense can predict the difficulties that a policy holder will face when submitting a claim to a well versed and experienced insurance adjuster working to protect the interests of his or her employer.
Enter, the Appraisal Provision:

APPRAISAL. If you and we fail to agree on the amount of actual cash value or amount of loss, either one can demand a determination by appraisal. If either makes a written demand for appraisal, each shall select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers shall then select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, you or we can ask a judge of a court of record in the state where the resident premises is located to select an umpire. The appraisers shall then set the amount of the actual cash value and loss to each item. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the amount of the actual cash value and loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any two of these three shall set the amount of the actual cash value and loss. Each appraiser shall be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire shall be paid equally by you and us.

The above captioned quote is much like any standard appraisal clause found in an insurance policy. It is also something overlooked by the policy holder, during an impasse or dispute. When a policyholder is offered a substandard settlement offer, they often do not understand their rights under the policy contract, and may feel that they have no other choice then to accept the amount calculated by the Insurance Company. There may also be an intimidation factor, when an inexperienced policyholder is faced with disputing a corporate super power, such as the typical Insurance Carrier. Popular belief may only expose (two) distinct options; Accept the offer and move on, or further delay their life by hiring an attorney to bring suite. Obviously, this belief can counter act and disable their proactive and assertive role in accepting the true amount of loss, and nothing less.

An Alternative Method

In theory, appraisal is to be used to provide a simple, speedy, inexpensive, and fair method of determining the amount of loss only. Fire Ass’n vs. Ballard, 112 S.W.2d 532, 534 (Tex. Civ. App. – Waco 1938, no writ).

When the insured is faced with a settlement offer that they may feel is far less then needed, and they find that the company adjuster is not willing to “re-adjust” the offer, they may invoke the appraisal clause. Upon invoking this clause, the many personalities involved with the claim are now removed, and a fresh, new batch of individuals are appointed to determine the amount of loss. The “me vs. the world” or the “David vs. Goliath” feeling is now removed, and the entire claim is now transferred to a 3-person panel. Now, the insured is represented by one appraiser, and the carrier is represented by one appraiser, who will independently evaluate the loss, and calculate the amount of loss.

Quoting a Supreme Court’s opinion, “The purpose of the clause is to secure a fair and impartial tribunal to settle the difference submitted to them.”

Although there is a clear difference between Appraisal and Arbitration, many of the basic fundamentals of the appraisal process can be rooted from the Uniform Arbitration Act. An example of this is as follows:
Uniform Arbitration Act, §13-22-201 et seq., and in particular, §13-22-211 (2), which sets forth the standard for impartiality of an arbitrator, essentially as: An individual with any kind of material interest in the outcome of the Arbitration is not considered neutral.

It is my opinion, that an adjuster that either contracts or is employed by the carrier shall not be considered a disinterested party, as it can be argued that they have a substantial relationship with the party, proven by an ongoing financial relationship with that party. It is also my opinion that the public adjuster, retained by the insured, may also be argued disinterested, as they are economically interested in the final amount issued to the insured. This, and all legal issues pertaining the appraisal should be discussed with an attorney.

Mechanics of the Appraisal Process

Simply put, when the two appraisers are chosen by their respected parties, they usually make contact with each other, and complete all required documentation in order to start the process. Shortly after the initial contact, the two appraisers shall agree upon an Umpire. It is our opinion, that the two appraisers should have an Umpire in place, before any matters of the dispute are discussed. This aspect of the process, in our opinion, is one of the most important mechanics of the entire Appraisal. It shall be duly noted, that the selection of Umpire is essentially the agreement and election of the final authority in the matter of dispute. This sole individual, will have the capacity to make the final decision, after both appraisers formally present their findings and supporting documentation. If the two party appointed appraisers cannot agree on an Umpire, either party can petition the court of record to put an umpire in place.

The Appraisal before the Appraisal

It is of my practice and opinion, to assert and demand a truly disinterested and neutral individual to serve in the capacity of Umpire, per the language of the policies appraisal clause. Our independent research demonstrates that often, the carrier’s appraiser will recommend individuals who they have a healthy relationship or preexisting agreement with.

Clearly, the aforementioned traits could very well cause an individual to be bias, or at least, subject to preexisting opinions and views resulting from many years of protecting the interests of the Carrier. In addition, it is our practice, to formally reject any attempt made by the carrier’s appraiser to elect a disinterested party to act in the capacity of Umpire. Any such attempt will provoke a strict warning of compliance, with regard to the terms and conditions of the clause. Once all parties understand the due process of the appraisal, a selection of a fair and disinterested Umpire will preclude all other issues and actions at hand, and be the priority. If the parties cannot agree on an Umpire, either side shall partition the local court of jurisdiction for the appointment of an Umpire. It should be noted, that an Umpire should be very well versed in the appraisal process, as they will execute full authority over the panel.
Once the Umpire is in place, the (two) appraisers shall create a “protocol”, to guide the panel in evaluating the loss. An example of a protocol is as follows:

Agreement on scope of loss
Disputed items of scope noted
Agreement of RCV of loss, on line by line basis
Disputed values noted
Agreement of ACV of loss, on line by line basis
Disputed values noted
Confirmation of “agreed” aspects of loss
Confirmation of “open” or disputed aspects of loss
All open/disputed issues to be forwarded to Umpire

Per the protocol, each appraiser will begin the process of evaluating the loss, independently. All documentation, evidence and information available during the claim, pertaining to the loss shall be examined. Property subject to the dispute should be evaluated, witnesses and experts should be consulted, and formal presentation of Replacement Cost Value and Actual Cash Value should be determined. Often, costs associated with replacement or restoration of claimed items may not have been claimed by the insured; all costs should be evaluated and calculated during the appraiser’s evaluation. Claim documentation prepared by the policyholder should be researched and substantiated, due diligence should be conducted with regard to the accurate valuations and calculations.

It is my opinion, that neither appraiser is required to evaluate the amount of loss in the presence of the other, per the court’s opinion.

“Appraisers are generally expected to act on their own skill and knowledge. It has been held that they may reach individual conclusions….” Florida Farm Bureau Cas. Ins. Co. v. Sheaffer, 687 So.2d 1331. (very common in all other states)

With this being said, if the two appraisers find it mutually beneficial to meet at the loss site, and discuss the matters at hand, it can of course be a productive approach to reaching an agreement. As every appraisal is different, and personalities, practices, opinions and methods can clash, crash or follow a smooth process, the procedure shall be strategically executed to allow the most efficient, accurate and fair resolution. When it is impossible for the two appraisers to agree on some or all aspects of the loss, they are to regress, and submit all findings to the Umpire for ultimate decision.

It is our practice, research, support and substantiate all aspects of our findings, to allow all other parties to understand and confirm our calculations. During Appraisal, knowledge is indeed leverage.

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