Expert Commentary

Demystifying Appraisal: Getting Through the Process

The first part of this article addressed the scope and limitations of appraisal, highlighting the fact that appraisal is supposed to address only the amount of loss, not coverage issues. In addition, the article pointed out that an appraisal award will almost always be binding, absent fraud, denial of a hearing, or misconduct of a similar nature. The discussion below will focus on ways to smooth the process and, hopefully, improve the chances for a swift and fair award.


Property Insurance
December 2007

One of the most important considerations in obtaining a fair and speedy award is selection of the party appraisers and the umpire. In selecting a party appraiser, there are three primary considerations:

  • Familiarity with the subject matter of the appraisal;
  • Familiarity with the appraisal process; and
  • Familiarity with the other side.

Knowledge of the Subject Matter

In most appraisals, the umpire, the supposedly neutral third person on the panel, will actually be the one making the decision. Therefore, for a party appraiser to be effective, he or she must be familiar with the subject matter of the appraisal. For example, if the subject matter of the appraisal is roof damage, the opinions of a forensic accountant are unlikely to carry any weight with the umpire.

Knowledge of the Process

Because most appraisals are informal affairs, it is very useful to select someone who has been through the process before. That person will know the best way to present positions to an umpire, when and how to narrow issues through negotiations with the other party-appointed appraiser, and when and how to negotiate with the umpire. If the appraisal is likely to be more formal, or the parties contemplate formal presentation of evidence, consideration should be given to whether the party-appointed appraiser has enough presence to play a meaningful role in that type of proceeding.

Knowledge of the Parties Involved

The third primary criterion for selection of an appraiser is familiarity with others in the field. To the extent that the party appraisers know and respect each other, they should be able to significantly narrow the differences to be presented to the umpire, speeding the process, and reducing cost. To the extent that the party appraisers know and are respected by the umpire, it improves their effectiveness in advocating positions and negotiating reasonable awards.

Choosing the Umpire

Under most policy appraisal provisions, the two party-appointed appraisers are supposed to select the umpire. It is more likely that the appraisers will be able to agree on an umpire before they actually sit down to try to narrow the substantive disputes. If the umpire can be selected early in the process, the appraisers can also consult with the umpire on the protocol they will follow, the nature of the hearing which will be allowed, and, sometimes, resolution of preliminary issues or even the differences between the appraisers as they come up.

This last point is particularly important in a large complex loss. In such a situation, it is beneficial to have an umpire appointed early on and keep the umpire involved and apprised from the beginning because it is much easier for the umpire to get up to speed and stay on top of things, as opposed to having everything dumped in his lap when it is time to reach resolution.

If the appraisers cannot agree on an umpire, one party petitions the court, and the umpire is appointed by whatever motions judge happens to hear the motion. The latter method is, in this author’s experience, the worst possible way to select an umpire. In most such cases, the umpire is almost invariably a friend of the appointing judge, frequently has no experience in property insurance, and almost never has any experience (much less expertise) in construction, engineering, or time element analysis.

Given how judges frequently pick umpires, selection of an umpire is fraught with a certain amount of peril, particularly in hotly disputed, complex losses. Therefore, the parties would be well advised to agree on a protocol for selection of an umpire. This should, at the least, include an agreement that no candidate for umpire be contacted by one side without the other. It would be helpful if the parties could agree on a proposed letter to a candidate advising that she is being considered, along with an agreed description of the subject matter of the appraisal, a list of the involved parties so the umpire can run a conflict check, and suggested dates and times for a joint conference call. If this procedure is followed, umpire interviews should be conducted with both appraisers on the line.

The goal should be to either select an umpire with this process, or reach agreement on a short list of qualified candidates from which a judge can be asked to select. If the judge picks from the proposed list, at least the umpire will be qualified, even if not completely satisfactory to one or both of the parties.

Defining the Scope of the Appraisal

Another key issue which should be resolved by the parties very early on in the process is precisely what is being appraised. To the extent that the parties’ adjusters have agreed on the scope of loss, and disagree principally about price, or the parties have reached agreement on the period of restoration, but disagree as to the actual business income loss, clarifying the scope of the appraisal is fairly easy. However, where scope of loss is at issue, it may be less clear precisely what is to be appraised. The sooner the parties can agree on this point, the less likely there will be wasted time and effort by the appraisers, and the sooner an award can be agreed. If the parties cannot agree, finding out earlier allows them to seek a ruling from the court. As explained in the October 2007 article, that ruling is more likely to be subject to appellate review than an award which exceeds the scope of what should have been appraised.

Many insurance companies frequently suggest that the parties prepare and sign a formal appraisal agreement and appraisal protocol. Most policies do not require either. However, to the extent that the parties or appraisers can agree on a protocol at the beginning of the process, it will be helpful and will undoubtedly speed things along. As noted above, the most important part of such an agreement is a clear statement on the scope of the appraisal. To the extent that procedures can be agreed, that, too, can prevent disputes, speeding the process and reducing expense.

Defining the Coverage Issues

To the extent that there are open coverage issues, the parties have two choices: (1) seek a ruling from the court on those issues, delaying the appraisal while awaiting the court’s ruling; or (2) agree to have the panel issue an award with separate findings for each coverage theory. The first method will slow the appraisal process because some courts are reluctant to get involved in appraisal at all, and other courts may take their time in issuing rulings. The second method will increase the cost of the appraisal, but will speed the process and, depending on the awards, may actually allow the parties to more easily settle once the appraisal is complete.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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