Appraisal … What is it good for?
By Mark A. Boyle
(Sung to the tune of Edwin Starr’s song ‘War, What Is It Good For?”)
Most standard homeowner’s policies (including windstorm and flood policies) and many commercial property insurance forms, contain appraisal provisions. A sample appraisal provision provides:
Appraisal-If you and we fail to agree on the amount of loss; either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. 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 court of record in the state where the "residence premises" is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.
Each party will:
a. Pay its own appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.
The theoretical purpose of an appraisal provision is to avoid litigation and use a cheaper, less formalistic method of loss valuation than a lawsuit. The real hope is that appraisal will resolve the matter more quickly than litigation.
Under these appraisal provisions, any party who is in compliance with its obligations under the policy may demand appraisal. The party demanding appraisal generally gives notice to the other party that appraisal has been demanded and the demanding party’s designated appraiser. Once an appraisal has been demanded by one party, the other party is required to designate an appraiser. Two appraisers, often informally, try to work out the amount of loss together. If the appraisers cannot agree on the amount of loss, they are required to designate a tie-breaking appraiser, generally referred to as an “umpire”. If at any stage the parties are not complying with their appraisal obligations, or the parties cannot agree on an umpire, the parties can seek court intervention to enforce the appraisal process.
The scope of what issues are subject to appraisal differs in different states. In some states, like Florida, appraisers can only determine the amount of loss – as contrasted with whether the loss is covered or excluded --. Johnson v. Nationwide Mut. Ins. Co., 828 So. 2d 1021 (Fla. 2002). Thus, if there is a dispute about whether a loss is either covered or excluded, you likely will have to go to court. A more complicated question arises where there is agreement that both covered and uncovered/excluded damages exists. Who then decides the “scope” of covered damages – the appraiser or the court? Florida law does not provide an absolutely clear answer to this question. At least one intermediate appeals court in Florida has suggested that where the insurance carrier agrees that there is a covered loss, but disagrees as to the amount; it is permissible for an appraisal panel to decide causation issues when causation is not a coverage question but rather an amount – of - loss question. In some jurisdictions, it is already clear that appraisers are entitled to determine the scope of covered damages.
If your insurance company has demanded appraisal, or if you are considering demanding appraisal and would like to discuss these issues with an attorney, please feel free to contact us at (239) 337-1303. The question of whether appraisal is good for you or your business is dependent on many factors, and generally is very fact specific.