Business owners and homeowners often encounter problems filing a claim with their insurance company. Even when you are represented by a public adjuster or attorney, it is common for there to be some type of dispute between the value of the claim.
Virtually all homeowners insurance policy contracts include an appraisal clause that can be invoked if there is a dispute between the policyholder and the insurance company regarding the coverage determination, claims 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 policyholder to “recover.” Unfortunately, the insured may find this “calculated” amount to be insufficient, or worse, may only realize this after the replacement/repair process has begun.
content claims
With the ability of personal property claims, there are often several thousand unique items subject to damage. Especially with residential homeowners claims, the magnitude of the scope is enormous, and the time required to document and evaluate each item is often overwhelming. This basic fact increases the chance of a dispute tenfold, as a dispute can be over any of thousands of 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 running counter to the carrier’s internal loss prevention methods. Common sense can predict the difficulties a policyholder will face when filing a claim with a well-versed and experienced insurance adjuster who works to protect the interests of their employer.
Enter, the Appraisal Provision:
EVALUATION. If you and we do not agree on the amount of the actual cash value or the amount of the loss, either of you may require a determination by appraisal. If either party makes a written request for an appraisal, each will select a competent and independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written request. The two evaluators will then select a competent and impartial arbitrator. If the two appraisers cannot agree on an arbitrator within 15 days, you or we may ask a court of record judge in the state where the residence is located to select an arbitrator. The appraisers will then establish the amount of actual cash value and loss for each item. If the appraisers provide us with a written report of an agreement, the agreed amount will be the amount of the actual cash value and loss. If the appraisers cannot agree within a reasonable time, they should submit their differences to the arbitrator. The written agreement signed by any of these three will establish the amount of the actual cash value and loss. Each adjuster will be paid by the party that selects that adjuster. All other costs of the appraisal and compensation of the arbitrator will be paid equally by you and us.
The quote mentioned above is very similar to any standard appraisal clause found in an insurance policy. It is also something that the policyholder overlooks during an impasse or dispute. When an insured is offered a poor settlement offer, they often do not understand their rights under the policy contract and may feel they have no choice but to accept the amount calculated by the insurance company. There can also be an intimidation factor, when an inexperienced policyholder is faced with taking on a corporate superpower, such as the typical Insurance Company. Popular belief can only expose (two) different options; Take him up on the offer and move on, or set your life back even further by hiring a lawyer to bring in the suite. Obviously, this belief can work against you and disable your proactive and assertive role in accepting the true amount of the loss, and nothing less.
an alternative method
In theory, the appraisal should be used to provide a simple, quick, inexpensive, and fair method of determining only the amount of loss. Fire Ass’n vs. Ballard, 112 SW2d 532, 534 (Tex. Civ. App. – Waco 1938, no brief).
When the insured is faced with a settlement offer that they may feel is much less necessary and finds that the company’s adjuster is unwilling to “reset” the offer, they can invoke the appraisal clause. By invoking this clause, the many personalities involved in the claim are now removed and a new group of people is named to determine the amount of the loss. The “me against the world” or “David against Goliath” sentiment is now removed and all claiming is now transferred to a 3 person panel. Now, the insured is represented by an appraiser, and the carrier is represented by an appraiser, who will independently assess the loss and calculate the amount of the loss.
Quoting the opinion of the Supreme Court, “The purpose of the clause is to ensure a fair and impartial tribunal to resolve the dispute brought before them.”
Although there is a clear difference between Appraisal and Arbitration, many of the basic principles of the appraisal process can be derived from the Uniform Arbitration Act. An example of this is the following:
Uniform Arbitration Act, §13-22-201 et seq., and in particular, §13-22-211(2), which establishes the standard of impartiality for an arbitrator, essentially as: An individual with any type of material interest in the result of the Arbitration is not considered neutral.
In my opinion, an adjuster who hires or is employed by the carrier should not be considered a disinterested party, since 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, hired by the insured, can also be argued to be disinterested, since he is financially interested in the final amount issued to the insured. This and all legal matters related to the appraisal should be discussed with an attorney.
Mechanics of the Evaluation Process
Simply put, when the two appraisers are chosen by their respected parties, they usually contact each other and fill out all the required paperwork to start the process. Shortly after the initial contact, the two evaluators will agree on a referee. It is our opinion that the two appraisers should have an arbitrator in place, before the issues of the dispute are discussed. This aspect of the process, in our opinion, is one of the most important mechanics of the entire Assessment. It should be duly noted that the selection of the Arbitrator is essentially the agreement and choice of the final authority on the matter of the dispute. This single individual will have the ability to make the final decision after both appraisers formally present their findings and supporting documentation. If the appraisers appointed by the two parties cannot agree on an arbitrator, either party may petition the court of record to appoint an arbitrator.
The appraisal before the appraisal
It is my practice and opinion to affirm and require that a neutral and truly disinterested person serve as an arbitrator, per the language of the policy evaluation clause. Our independent research shows that often the insurance adjuster will recommend people with whom you have a healthy relationship or pre-existing agreement.
Clearly, the aforementioned characteristics could very well cause an individual to be biased, or at least, subject to pre-existing opinions and views as a result of many years of protecting the Carrier’s interests. In addition, it is our practice to formally reject any attempt by the carrier’s adjuster to select a disinterested party to act as Arbitrator. Any such attempt will result in a strict compliance warning, regarding the terms and conditions of the clause. Once all parties understand the due process of the evaluation, the selection of a fair and disinterested arbitrator will exclude all other issues and actions in question and will take precedence. If the parties cannot agree on an arbitrator, either party will divide the local court of jurisdiction for the appointment of an arbitrator. It should be noted that an arbitrator must be very well versed in the judging process, as he will exercise full authority over the panel.
Once the arbitrator is in place, the (two) adjusters will create a “protocol” to guide the panel in assessing the loss. An example protocol is the following:
Agreement on extent of loss
Disputed Scope Items Flagged
Loss RCV agreement, line by line
Annotated Disputed Values
Loss ACV agreement, line by line
Annotated Disputed Values
Confirmation of the “agreed” aspects of the loss
Confirmation of “open” or disputed aspects of the loss
All open/disputed issues will be forwarded to the arbitrator
Per the protocol, each appraiser will begin the loss assessment process, independently. All documentation, evidence and information available during the claim, related to the incident, will be examined. Disputed property must be appraised, witnesses and experts consulted, and formal presentation of replacement cost value and actual cash value determined. Often, the insured may not have claimed the costs associated with the replacement or restoration of the claimed items; All costs must be evaluated and calculated during the appraiser’s evaluation. The claim documentation prepared by the policyholder must be investigated and substantiated, and due diligence must be carried out with respect to accurate valuations and calculations.
In my opinion, neither appraiser is required to assess the amount of the loss in the presence of the other, based on the opinion of the court.
“In general, appraisers are expected to act on their own skills and knowledge. It has been argued that they can reach individual conclusions…” Florida Farm Bureau Cas. In s. Co v. Sheaffer, 687 So.2d 1331. (very common in all other states)
That said, if the two adjusters find it mutually beneficial to meet at the loss site and discuss the issues 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 may clash, clash, or follow a fluid process, the procedure will be executed strategically to allow for the most efficient, accurate, and fair resolution. When it is impossible for the two adjusters to agree on some or all aspects of the loss, they must step back and present all the findings to the arbitrator for the final decision.
It is our practice to investigate, support, and corroborate all aspects of our findings to enable all other parties to understand and confirm our calculations. During the Assessment, knowledge is indeed leverage.
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