Appraisal Process Is Ripe For Revision

by Zelle LLP

Insurance Law360 -- June 13, 2013

Appraisal has long been utilized as a tool for resolution of disputes over the amount of loss at issue in property insurance claims. Appraisal was once an amicable, prompt and independent process to resolve claims when coverage was undisputed, and the only issue was the fair price, valuation or worth of damaged property — when the insurance company and policyholder were unable to agree on the “amount of loss.”

In recent years, however, appraisal has devolved from an efficient way for the insured and insurer to promptly resolve a disputed claim into a nonjudicial dispute resolution process devoid of procedural rules or ethical guidelines.

This devolution is largely the result of courts broadening the scope of appraisal and the emergence of a cottage industry of individuals — “professional appraisers,” “claim consultants,” public adjusters, roofing contractors and others — that game the system through the unilateral selection of a supposedly impartial umpire. The result is a process run amok that often gives rise to more disputes (and litigation) than it resolves.

How do we rein in the appraisal process? Appraisal is a creature of contract — it is dependent on the policy terms. Accordingly, the best answer may be to revise the standard appraisal provision.

Reining in the Broadening Scope of Appraisal

The scope of appraisal varies from state to state, but the recent trend has been toward broadening the scope of appraisal. Most appraisal provisions limit the scope of appraisal to disagreements over “the amount of loss.” Seemingly, this language would limit the appraisal panel to deciding the monetary value of damaged property.

In recent years, however, a number of cases have broadened the scope to allow appraisers to consider the cause of loss and other issues that have traditionally been considered coverage questions not answered in appraisals. See, e.g., State Farm Lloyds v. Johnson, 290 S.W.3d 886, 889-90 (Tex. 2009); MLCSV10 v. Stateside Enterprises Inc., No. H-10-4186 (S.D. Tex. Mar. 30, 2012); Quade v. Secura Ins., 814 N.W.2d 703 (Minn. 2012); Underwriters at Lloyd’s of London Syndicate 4242 v. Tarantino Props. Inc., No. 4:12-CV-00167-DGK (W.D. Mo. Sept. 4, 2012); AMEREX Group, Inc. v. Lexington Ins. Co., 678 F.3d 193 (2d Cir. 2012).

Because appraisal is a nonjudicial dispute resolution process with no court supervision, rules of procedure or ethical guidelines, it is arguably the wrong venue for coverage determinations. To guard against broadening the scope of appraisal in claims where coverage remains in question, the appraisal provision should better define the intended scope of the process.

The typical appraisal provision provides as follows regarding when the appraisal process may be invoked:

If we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss.

One way to better define the scope is as follows:

If the parties agree the covered property in question has sustained direct physical loss or damage from a covered cause of loss within the applicable policy period but disagree on the monetary value of repair or replacement, either may make written demand for an appraisal of the loss.

This language clarifies the intent to proceed with appraisal only where liability under the policy is not in dispute by further limiting appraisal to loss or damage that is otherwise agreed to be covered by the policy.

The typical policy also includes the following.

If there is an appraisal:

·        You will still retain your right to bring legal action against us, subject to the provisions of the Legal Action Against Us Commercial Property Conditions

·        We will still retain our right to deny the claim

To further clarify that causation and coverage issues are not within the scope of appraisal, it may be advisable to revise this language as follows:

If there is an appraisal, we will still reserve our rights consistent with all other terms and conditions of the policy, including those determining the existence of coverage for the loss.

This language simply confirms that upon completion of appraisal, determination of the existence of coverage remains within the purview of the insurance carrier or, as necessary, the courts.

Unilateral Selection of an Umpire

Property insurance policies typically require appraisers to be “impartial” or “disinterested.” In reality, however, it is rare that an appraiser disagrees with the position of the party paying their fee.

Additionally, most policies specify that if the appraisers cannot agree on the amount of loss, an umpire should be selected by agreement of the appraisers or by court appointment. However, because appraisers have essentially become advocates of their clients’ positions, appraisers seldom reach agreement without involving an umpire. For the same reasons, agreement on the umpire is likewise difficult, and court intervention is frequently required.

To make matters worse, in many jurisdictions, courts regularly grant applications or motions to appoint an umpire filed by one party before the other party receives notice of the filing or is given a chance to respond. Some appraisers even stonewall efforts to mutually agree on an umpire for the obligatory number of days specified in the policy and then race to the courthouse without notifying the other side in an effort to obtain a favorable umpire appointment. This, in turn, can result in potentially biased umpires.

The typical appraisal provision provides as follows regarding the appointment of an umpire:

In this event, each party will select a competent and impartial appraiser and notify the other of the appraiser selected within 20 days of such demand. The two appraisers will select an umpire. If they cannot agree within 15 days upon such umpire, either may request that selection be made by a judge of a court having jurisdiction.

The following revision would help to ensure the fair appointment of an impartial umpire:

In this event, each party will select a competent and impartial appraiser and notify the other of the appraiser selected within 20 days of such demand. The two appraisers will select a competent and impartial umpire. If they cannot agree upon an umpire within 15 days, then at the request of either, and after advance notice of hearing to the nonrequesting party by certified mail, selection of the umpire will be made by a judge of a court having jurisdiction.

This ensures that the nonrequesting party receives notice of the application or motion to appoint umpire and thus has the opportunity to respond accordingly. Alternatively, it could be agreed that “the parties will jointly request selection of the umpire by a judge,” ensuring that both parties are involved in the selection of the umpire.

A Global Fix?

It is indeed ironic that a process intended to streamline the resolution of property insurance claims has devolved into a process mired in litigation at almost every turn. Today, parties find themselves in disputes at the beginning, middle and end of the appraisal process, including whether appraisal is appropriate at all where causation or coverage remains in question, whether the right to appraisal has been properly invoked or waived altogether and whether an appraisal award was properly issued in compliance with the policy provisions.

The proposed revisions to the standard appraisal language set forth above will not cure all that ails the process; they simply set parameters that can make it more efficient and equitable. But some suggest that a more extreme measure is long overdue and would rectify many of the recurrent problems with appraisal, specifically, requiring complete mutuality in the invocation of the appraisal process.

The standard appraisal provision provides:

If we and you disagree on the amount of loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser and notify the other of the appraiser selected within 20 days of such demand. The two appraisers will select an umpire.

The following revisions to the typical appraisal provision would limit the right to appraisal to claims in which the parties mutually agree it is appropriate and require mutual agreement on the terms and scope of the appraisal process:

If the parties disagree on the amount of direct physical loss or damage that is otherwise agreed to be covered by the terms and conditions of this policy, the parties may mutually agree to resolve the disagreement through an appraisal process.

Each party will select a competent and impartial appraiser and notify the other of the appraiser selected within 20 days after their mutual agreement to conduct an appraisal of the loss. The terms and scope of such appraisal will be conducted pursuant to a written agreement of the parties. The two appraisers will select a competent and impartial umpire.

A similar provision was recently enforced in Citizens Property Ins. Corp. v. Casar, No. 3D11–2843 (Fla.App. 3 Dist. Jan. 2, 2013). In Citizens, the court considered whether the insurer was required to enter into appraisal where the insured had demanded appraisal, but the parties had not been able to agree to the terms of appraisal. The appraisal provision provided:

If you and we fail to agree on the amount of loss, either may request an appraisal of the loss by presenting the other party with a written request for appraisal of the amount of loss. If the other party agrees in writing to participate in appraisal, then appraisal shall proceed pursuant to the terms of a written agreement between the parties.

Id. at *1.

The court noted that appraisal is a creature of contract and thus “what is appraised and whether a party can be compelled to appraisal depend on the contract provisions.” Id. Upon the insured’s demand for appraisal, the insurer responded by presenting an agreement for appraisal. Id. at *2. But the proposed agreement was rejected by the insured. Id. The court held that because the insurer had complied with the policy terms, there was no basis to compel the insurer into appraisal. Id.

Allowing appraisal to be invoked only by written mutual agreement of the parties would likely avoid many disputes inherent in the current process. For instance, requiring mutual agreement to enter into appraisal would end disputes as to whether a claim presents an appraisable issue and allow the parties to limit the scope of appraisal to those claims where coverage is not in dispute (or, conversely, to also appraise causation and coverage issues, should the parties so desire).

As in Citizens, if either party did not agree that appraisal was appropriate for the claim in question or the scope of appraisal remained in dispute, appraisal would not be required.

Similarly, mutual agreement to enter into appraisal would also end disputes and related litigation regarding potential waiver of the right to appraisal. Whether a party has waived its right to appraisal becomes a nonissue if both parties must agree to enter into appraisal at the outset. Presumably, if one party believes the other has waived its right to appraisal, it can simply refuse to enter the appraisal process.

Finally, requiring mutual agreement of the parties on the scope and terms of appraisal as a threshold issue would likely serve to lessen the number of post-appraisal attacks on appraisal awards on the basis that they were not made in compliance with the policy terms.

Requiring complete mutuality in the invocation of the appraisal process would obviously preclude parties from compelling appraisal, which is occasionally needed to avoid hostile litigation.

But after weighing the alternatives, requiring mutual agreement may, in fact, be the best path to achieve the ultimate goal of the appraisal process — to fairly, promptly and efficiently resolve disputed claims.

As long as there is appraisal, there will likely be disputes arising from it. However, a few simple revisions to the standard appraisal language should eliminate most of the commonly occurring disputes. These revisions will also avoid the more extreme and unfortunate step of altogether deleting the appraisal provision from property insurance policies as a means of reining in a process run amok.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Zelle LLP | Attorney Advertising

Written by:

Zelle  LLP

Zelle LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.