Compliance Corner: A General Primer on the Insurance Claims Appraisals

Have you ever talked with someone working in another aspect of your industry and felt enriched in your craft after the conversation because of what you learned from your colleague?

As an attorney who supports vast areas of a business, I’m a little spoiled. I get to immerse myself in many aspects of an industry. To get the full experience in the dialogue with the fellow professional, it’s best to have a beginner’s level of knowledge about their role. A general primer is what is available in this Compliance Corner about the Claims Appraisal Clause; there’s much more to learn, likely from your Insurance Claims colleagues.

This topic can be divisive. As is customary, this Compliance Corner is intended to speak in generalities about the Appraisal Process for Property Claims. There will be specific issues that vary from state-to-state, as well as policy form/ contract language that differs amongst insurance companies. Nuances matter. Case law continues to evolve, regularly, and the jurisdiction and venue have a great deal of impact on interpretation of the Appraisal Clause, in addition to other factors. It is understandable that the Appraisal clause brings up strong feelings, because it is a serious process and is, for many, the last step regarding their largest asset and/ or their livelihood. For many carriers, they perceive that the uptick in appraisals is due to inappropriate reasons out of their control that drive up claims settlements. The following is for general informational purposes, and I hope it is helpful for us all as our goal is to serve consumers.

❓❓What is the Appraisal Process❓❓

If the policyholder and the insurance company disagree about the amount of the loss or the scope of the damages (in many jurisdictions) during the claim settlement, there are options:

There are numerous options at the time of claim settlement, each with their own upsides and downsides, with no two losses being the same:

👉 Insured may accept settlement;

👉 Parties may endeavor to negotiate settlement;

👉 Insured may hire a Public Adjuster;

👉 Either may invoke Appraisal;

👉 The parties may go to Arbitration;

👉 The parties may seek the counsel of an Attorney for review of claim and proposed settlement.

The Appraisal Clause is:

Policy Provision located in the Loss Settlement Section of the Homeowners Policy or a commercial insurance policy.

A form of Alternative Dispute Resolution, “ADR.”

A means for the insurance company and policyholder to potentially bypass litigation (if handled correctly) to come to a conclusion of a claim that is disputed in regards to the value of the loss;

More expedient than litigation;

Less costly than litigation;

Binding upon the parties – no appellate potential;

Not a rigid procedure.

❓❓What is Reviewed in Appraisal❓❓

Appraisal’s goal is to determine the value of the claim.

Appraisal does not address the Coverage of the claim; the parties have already agreed upon what is and is not Covered under the Policy.

For the most part, Appraisal does not speak to Causation; this is generally a topic for courts. However, there are some jurisdictions in which it is appropriate to include Causation within the Appraisal Process (i.e. did this loss cause the disputed damages).

 

❓❓Is Appraisal a New Thing❓❓

No. It has been codified in many jurisdictions and is in the Loss Settlement section of the HO3 and commercial property policies, generally. The Appraisal clause has been in policies dating back to the 1943 New York Standard Fire Policy.

For example, following is a version of the HO-3 form language:

Appraisal. If you and we fail to agree on the actual cash value, amount of loss, or cost of repair or replacement, either can make a written demand for appraisal. Each will then 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 will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers will then set the amount of loss, stating separately the actual cash value and loss to each item.

Following are a few highlights:

The Appraisal clause/ provision is invoked through a written demand;

Each Party selects their own Appraiser;

The Claims Adjuster Shall Not Be the Appraiser or Umpire: The adjuster, whether the company adjuster, independent adjuster, or public adjuster, shall not serve as an appraiser on a claim for which they served as an adjuster.  Nor shall they serve as an umpire. This would breach the Appraisal Clause’s impartiality provision.

The process requires each Party (Policyholder and Insurer) to:

1) Pay its appointed Appraiser, and

2) Bear the other expenses of the Appraisal and Umpire equally.

The Appraisers choose an Umpire. If the appraisers fail to agree, they submit their differences to the Umpire. An itemized decision agreed upon by the 2 of these 3 (Appraisal Panel) will set the amount of loss. That award will be binding to the parties.

There is not a state licensure process for Appraisers, as of this writing.

The Insurance Appraisal and Umpire Association, Inc. (IAUA) does provide training and certification for Appraisers and Umpires.

Appraisals are Increasing …

Appraisals have been a part of the process for a century. Some surmise that the increase in Appraisals has coincided with the increasing hurricane activity.

❓❓Why does it matter❓❓

Proponents of the Appraisal Process claim that it helps to avoid costly and prolonged litigation. The Appraisal Clause in and of itself mandates that the Appraiser be an objective (or “impartial,” depending upon policy language) party.