Insurance Appraisal Compendium

What is Insurance Appraisal?

Insurance appraisal provides an agreed method to settle claim damages disputes resulting in a valuation of loss damages as defined by the insurance policy. Appraisal provisions are required by statute in many jurisdictions and are included within most property insurance policies. When negotiating settlement, if the parties are unable to reach consensus either may demand appraisal and the terms of the contract state that the other party is bound to participate.

As an alternative dispute resolution process insurance appraisal is beneficial to both parties, serving to promptly resolve the claim, by avoiding litigation and its associated costs: hiring attorneys, filing suit, retaining experts, engaging in discovery, and having a judge or jury determine the loss value.

Insurance appraisal differs from arbitration: appraisal is an informal method limited to determining the loss amount; arbitration is a quasi-judicial method for resolving damages and/or other issues (e.g., liability) that includes party notice, hearings, and witness testimony.

Appraisal, n. (1817) 1. The determination of what constitutes a fair price; valuation; estimation of worth. 2. The report of such a determination. Black’s Law Dictionary 43 (4th pocket ed. 2011)

Appraisement. 1. Appraisal. 2. An ADR method used for resolving the amount or extent of liability on a contract when the issue of liability itself is not in dispute. But like arbitration, appraisement is not a quasi-judicial proceeding but instead an informal determination of the amount owed on a contract. Black’s Law Dictionary 43 (4th pocket ed. 2011)

Homeowner Insurance Appraisal Clause

HO 03 – ISO Form HO 00 03 10 00

“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 and impartial 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:

1. Pay its own appraiser; and

2. Bear the other expenses of the appraisal and umpire equally.

Additional Insurance Appraisal Clause Examples

1943 NY Standard Fire Insurance Policy

The 1943 New York Standard Fire Policy (“the Standard Fire Policy”), or a statutory version with little difference, is used in many states, including Arizona, California, Georgia, Idaho, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Nebraska, New York, and West Virginia.

“Appraisal. In case the insured and this Company shall fail to agree as to the actual cash value of the loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on the request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.”

Massachusetts General Laws ch. 175, § 100

Massachusetts uses the term “reference” rather than “appraisal” to describe the proceedings. Massachusetts courts have found insurers may invoke reference as well. E.g., Kiley v. Metro. Prop. & Cas. Insurance Co., 159 F. Supp. 3d 135, 143 (D. Mass. 2016) (the reference statute “does not limit the right to invoke the provision to the insured”).

Section 100. If a claim is presented under any policy of fire insurance issued on property or interests in the commonwealth in the standard form set forth in the preceding section, and if the parties fail to agree as to the amount of loss, the company shall, within ten days after receiving a written demand from the insured for the reference of the amount of loss to three referees as provided in such policy, submit in writing the names and addresses of three persons to the insured, who shall, within ten days after receiving such names, notify the company in writing of his choice of one of the said persons to act as one of said referees.

The insured shall submit in writing the names and addresses of three persons to the company, which shall, within ten days after receiving such names, notify the insured in writing of its choice of one of said persons to act as one of said referees.

If, at the expiration of ten days from the choice of the second referee, the two referees chosen as hereinbefore provided, shall not have agreed upon and selected a person to act as the third referee, then either of the said referees or parties may make written application on oath to the commissioner in such form as he may prescribe, for the appointment of the third referee and the commissioner shall, after such summary inquiry or hearing, if any, as he may deem expedient, appoint a person to serve as the third referee and shall notify such person and the parties in writing of such appointment.

American Association of Insurance Services (AAIS Form) FL-3 Ed. 1.0

Appraisal — If you and we do not agree on the amount of the loss, the actual cash value of the property or the cost to repair or replace the property, either party may demand that these amounts be determined by appraisal.

If either party makes a written demand for appraisal, each will select a competent independent appraiser and notify the other of the appraiser’s identity within 20 days after the receipt of the written demand. The two appraisers will select a competent, impartial umpire. If the two appraisers are unable to agree upon an umpire within 15 days, you or we can ask a judge of a court of record in the state where the property is located to select an umpire.

For each building item and each item of personal property, the appraisers will determine:
a. the amount of the loss;
b. the actual cash value of the property; and
c. the cost to repair or replace the property.
Each amount will be stated separately.

If the appraisers submit a written report of an agreement to us, the agreement will establish these amounts. If the appraisers fail to agree within a reasonable time, they will submit only their differences to the umpire. A written agreement by two of these three will establish the amounts stated above.

Each appraiser will be paid by the party selecting that appraiser. The compensation of the umpire and other costs of the appraisal will be shared equally by you and us.

If we make the written demand for an appraisal, we will pay:
a. the reasonable and necessary cost for your appraiser; and b. your share of the cost for the umpire.

Citizens Property Insurance Homeowners Form CIT HO-3 02 16
  1. Appraisal.
    Appraisal is an alternate dispute resolution method to address and resolve disagreement regarding the amount of the covered loss.
    a. If you and we fail to agree on the amount of loss, either party may demand an appraisal of the loss. If you or we demand appraisal, the demand for appraisal must be in writing and shall include an estimate of the amount of any dispute that results from the covered cause of loss.
    The estimate shall include a description of each item of damaged property in dispute as a result of the covered loss, along with the extent of damage and the estimated amount to repair or replace each item.
    b. In this event, each party will choose a competent appraiser within 20 days after receiving a written demand from the other.
    c. 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.
    d. If they fail to agree, the two appraisers will choose a competent and impartial 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 located in the county described in the “Location of Residence Premises” of your Declarations.
    e. The two appraisers will submit their differences to the umpire. A decision agreed to by any two will set the amount of the loss.
    f. The appraisal award will be in writing and shall include the following:
    (1) A detailed list, including the amount to repair or replace, of each specific item included in the award from the appraisal findings;
    (2) The agreed amount of each item, its replacement cost value and corresponding actual cash value; and
    (3) A statement of “This award is made subject to the terms and conditions of the policy.”
    g. Each party will:
    (1) Pay its own appraiser, including their costs associated with producing the estimate described in 2.a. above; and (2) Bear the fees and expenses of the appraisal and umpire equally.
    h. You, we, the appraisers and the umpire shall be given reasonable and timely access to inspect the damaged property, in accordance with the terms of the policy.
    i. If, however, we demanded the mediation in 1. above and either party rejects the mediation results, you are not required to submit to, or participate in, any appraisal of the loss as a precondition to action against us for failure to pay the loss.
COMMERCIAL PROPERTY ISO CP 00 10 10 12

Appraisal
If we and you disagree on the value of the
property or 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. The two
appraisers will select an umpire. If they cannot
agree, either may request that selection be
made by a judge of a court having jurisdiction.
The appraisers will state separately the value
of the property and amount of loss. If they fail
to agree, they will submit their differences to
the umpire. A decision agreed to by any two
will be binding.

Each party will:
a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal
and umpire equally.

If there is an appraisal, we will still retain our
right to deny the claim.

National Flood Insurance Program Dwelling Form Standard Flood Insurance Policy F-122 Oct 2015

APPRAISAL. If you and we fail to agree on the actual cash value or, if applicable, replacement cost of your damaged property to settle upon the amount of loss, then either may demand an appraisal of the loss. In this event, you and we will each choose a competent and impartial 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 covered property is located. The appraisers will separately state the actual cash value, the replacement cost, and the amount of loss to each item. 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 actual cash value and loss, or if it applies, the replacement cost and loss.

Each party will:

  1. Pay its own appraiser; and
  2. Bear the other expenses of the appraisal and umpire equally.
Old Saucelito Land & Dry Dock Co. v. Commercial Union Assur. Co., 66 Cal. 253 – 1884

The insurance policy referenced in this case from 1884, included among its conditions and stipulations:
“That in case of difference of opinion as to the amount of loss or damage, such difference should be submitted to the judgment of two disinterested and competent men, mutually chosen, who, in case of disagreement, shall select a third, whose award shall be conclusive and binding on the parties,”

Insurance Appraisal Process Overview

  • Good faith efforts fail to resolve disputed valuation.
  • Parties have fulfilled all contractual and statutory preconditions to appraisal.
  • Either party may invoke appraisal by written demand.
  • Each party selects an appraiser, each must agree to the other’s selection.
  • Appraisers select an umpire, court appointed if they cannot agree.
  • The insurer’s appraiser, the insured’s appraiser and the umpire comprise the Appraisal Panel
  • Each party pays its own appraiser and shares the cost of the umpire and other appraisal expenses.
  • Insurer and insured submit their claim documents, estimates, reports to the appraisal panel.
  • Appraisal panel may inspect the loss site.
  • The appraisal panel may collectively or individually seek expert opinion.
  • Appraisers individually appraise the loss then attempt to agree to the loss amount.
  • On issues where they fail to agree, they submit their differences to the umpire.
  • Award in writing when any 2 members of the appraisal panel agree on the loss amount.
  • In some policies, if the insurer demands the appraisal or if the insured’s appraised loss value is agreed upon by the appraisal panel the insurer pays all fees.

Prior to Insurance Appraisal

Good Faith Effort

The parties should make a good faith effort to resolve their differences with each having performed any pre-appraisal statutory and policy requirements prior to seeking appraisal.

Duties per the Policy

Insured duties: give prompt notice of loss, protect property from further damage, cooperate during loss investigation, show the damaged property, document the damage and the amount of loss claimed, and, if requested, submit to and sign an examination under oath and submit a signed, sworn proof of loss including specified information.

Insurer duties: Insurance companies owe a duty of good faith and fair dealing to policyholders. This would include timely investigation, notification of coverage, and handling of claims. In the adjustment of the loss, determine the value of repair and lost or damaged property, provide timely notice of intentions and make reasonable offers of settlement.

Due Diligence

One might consider a third-party review of the disputed valuation for an opinion on the accuracy of the differing valuations. This information may prove further negotiation advisable prior to initiation of the appraisal process. Ultimately, the third party may become one’s appointed appraiser if one decides to proceed.

Duties Homeowner Example ISO HO 00 03 10 00

Homeowner

Duties After Loss
In case of a loss to covered property, we have no duty to provide coverage under this policy if the failure to comply with the following duties is preju¬dicial to us. These duties must be performed ei¬ther by you, an “insured” seeking coverage, or a representative of either:

  1. Give prompt notice to us or our agent;
  2. Notify the police in case of loss by theft;
  3. Notify the credit card or electronic fund transfer card or access device company in case of loss as provided for in E.6. Credit Card, Electronic Fund Transfer Card Or Access Device, For¬gery And Counterfeit Money under Section I – Property Coverages;
  4. Protect the property from further damage. If repairs to the property are required, you must:
    a. Make reasonable and necessary repairs to protect the property; and
    b. Keep an accurate record of repair ex¬penses;
  5. Cooperate with us in the investigation of a claim;
  6. Prepare an inventory of damaged personal property showing the quantity, description, ac¬tual cash value and amount of loss. Attach all bills, receipts and related documents that jus¬tify the figures in the inventory;
  7. As often as we reasonably require:
    a. Show the damaged property;
    b. Provide us with records and documents we request and permit us to make copies; and
    c. Submit to examination under oath, while not in the presence of another “insured”, and sign the same;
  8. Send to us, within 60 days after our request, your signed, sworn proof of loss which sets forth, to the best of your knowledge and belief:
    a. The time and cause of loss;
    b. The interests of all “insureds” and all others in the property involved and all liens on the property;
    c. Other insurance which may cover the loss;
    d. Changes in title or occupancy of the prop¬erty during the term of the policy;
    e. Specifications of damaged buildings and detailed repair estimates;
    f. The inventory of damaged personal prop¬erty described in 6. above;
    g. Receipts for additional living expenses incurred and records that support the fair rental value loss; and
    h. Evidence or affidavit that supports a claim under E.6. Credit Card, Electronic Fund Transfer Card Or Access Device, Forgery And Counterfeit Money under Section I – Property Coverages, stating the amount and cause of loss.

Duties Business Owner Example ISO BP 00 03 07 13

Business Owner

Duties In The Event Of Loss Or Damage
a. You must see that the following are done in the event of loss or damage to Covered Property:
(1) Notify the police if a law may have been broken.
(2) Give us prompt notice of the loss or damage. Include a description of the property involved.
(3) As soon as possible, give us a description of how, when and where the loss or damage occurred.
(4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim. This will not increase the Limits of Insurance of Section I – Property. However, we will not pay for any subsequent loss or damage resulting from a cause of loss that is not a Covered Cause of Loss. Also, if feasible, set the damaged property aside and in the best possible order for examination.
(5) At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of loss claimed.
(6) As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.
Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.
(7) Send us a signed, sworn proof of loss containing the information we request to investigate the claim. You must do this within 60 days after our request. We will supply you with the necessary forms.
(8) Cooperate with us in the investigation or settlement of the claim.
(9) Resume all or part of your “operations” as quickly as possible.
b. We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured’s books and records. In the event of an examination, an insured’s answers must be signed.

Demand for Appraisal

The written request for appraisal will typically include a statement regarding the disagreement on the amount of loss, the policy appraisal clause, the values to be appraised – concise but specific, your appraiser’s name and contact information. More complex cases may include a sample appraisal memorandum or protocol.

The policy may state specifics as to the timing of the demand, if not, the demand should be within a reasonable time given the circumstances of the case; commencing with the filing of proof of loss or when it becomes clear parties are at an impasse.

Example – Simple Demand Insured to Adjuster

Dear Ms. Fairadjuster,
I disagree with Founding Fathers Mutual as to the personal property damages amount in the above-referenced loss and claim.

Date: April 24,2021
VIA E-MAIL & U.S. MAIL

Insurer : Founding Fathers Mutual
Re: Claim # : 987654321
Policy # : HO-09271722
Loss Location : 30 Germania St, Boston, MA 02130
Cause of Loss: Fire
Date of Loss : 01/27/2021

Dear Ms. Fairadjuster,

I disagree with Founding Fathers Mutual as to the personal property damages amount in the above-referenced loss and claim.
Pursuant to the terms of our policy, we hereby make this written demand for appraisal.

As our appraiser, we name: Benjamin Franklin
His contact number is 617-555-1111. His email address is Ben.Franklin@phillygazette.com.

We would ask that your appraiser contact our appraiser directly so the two may select an umpire as soon as possible.

Thank you for your attention.

Very truly yours,

Samuel Adams

Appraiser Selection – Qualifications

Appraiser qualifications, typically required by statute and the insurance policy, include competence and impartiality. Qualification requirements in insurance appraisal clauses and statutes appear in a variety of combinations; one may find reference to: “competent appraiser”, “competent and impartial”, “disinterested “, “competent and disinterested”, “independent appraiser”, “competent, disinterested and independent”.

Illustrating the simplest combination of “competent appraiser”:
“Competent” Duly qualified; answering all requirements; adequate; suitable; sufficient; capable; legally fit. Levee Dist. v. Jamison, 176 Mo. 557, 75 S. W. 679. Black’s Law Dictionary Online Legal Dictionary (2nd Ed.)

“Appraiser” A person appointed by competent authority to make an appraisement, to ascertain and state the true value of goods or real estate. Black’s Law Dictionary (2nd ed. online)

Common sense would point to an individual with sufficient knowledge and expertise to make an informed decision as one competent to serve.

Consequent to the competence requirement, Appraiser and Umpire candidates would include subject matter experts, attorneys, contractors, adjusters (independent, public, or retired), and retired judges.

As a practical matter, in specialized cases, one should consider the use of an expert with extensive experience and knowledge in the insurance appraisal subject matter. In complex cases, with a variety of issues in dispute, one of or both of the parties may find it necessary to involve appraisers from multiple disciplines to appraise disputed parts of the claim separately. An example would be commercial loss involving disputed damages involving the building, fixtures, specialized machinery and equipment, inventory held for sale, manufactured goods in progress, as well as business interruption.

Defining other qualification factors:
Independent: 1. Not subject to the control or influence of another. 2. Not associated with another (often larger) entity. 3. Not dependent or contingent on something else. Black’s Law Dictionary 376 (4th ed. 2011); “not subject to control, restriction, modification, or limitation from a given outside source,” Black’s Law Dictionary 770 (6th ed.1990)
Impartial: unbiased; disinterested. Black’s Law Dictionary 366 (4th pocket ed. 2011).
Impartial: The term used for something unbiased, fair and unprejudiced. Black’s Law Dictionary Online Legal Dictionary (2nd ed.).
Impartial: not favoring one side more than another; unbiased and disinterested; unswayed by personal interest. Black’s Law Dictionary (10th ed. 2014)
Disinterested: free from bias, prejudice, or partiality; not having a pecuniary interest. Black’s Law Dictionary 238 (4th pocket ed. 2011)

Qualification Case Examples

The following case examples show how appraiser qualifications have been interpreted in various jurisdictions including views of impartiality where one must act fairly, without bias but may advocate for their side as legally appropriate. Some states require appraisers be disinterested and have no financial interest in the outcome of the matter at hand and other states where a contingency fee arrangement does not prevent an appraiser from being independent.

This site and the case examples presented are for general information purposes and are not intended to be nor should be taken as legal advice. When anticipating an insurance dispute, it is advisable to consult with an attorney to review the claim facts and circumstances, policy language, applicable precedent cases, and the state and federal laws.

Generally Accepted Umpire to be Competent, Impartial, Honest
Pennsylvania Lumbermens Mutual Insurance Company V. Buettner Brothers Lumber Company, Inc., Dist. Court, (N.D. Ala. May 11, 2012) — The parties requested that the court appoint a neutral to umpire an appraisal dispute, both proffered umpire candidates and submitted objections to those submitted by the opposing party. The court, where the policy did not outline any umpire selection, noted that it is a generally accepted insurance principle that an umpire should be impartial, honest, competent, and should not reside an unreasonable distance from the scene of the loss. The court rejected the both parties umpire candidates, and appointed a certified real estate appraiser to serve as umpire.
https://scholar.google.com/scholar_case?case=4121809123074117991

Competent – Expert not Required
Rosell v. United Automobile Ins., 836 So. 2d 1061 (Fla. 3d Dist. App. 2003) – held that the policy terms required a “competent and disinterested appraiser” and that though “[T]he policy does not require that an insured select an expert as an appraiser” “[T]here was insufficient evidence to establish that the designated attorney was competent to serve in the capacity of appraiser.”
https://scholar.google.com/scholar_case?case=5550713812507698697
Degree of Expertise Required – past associations okay xxx
Cincinnati Specialty Underwriters Ins. Co. v. C.F.L.P. 1, LLC, 2015 (W.D. Ky. September 30, 2015) Insurer filed motion for appointment of an umpire and offered 3 candidates. The insured objected to those candidates as being biased with having ties to the insurance industry and in turn proposed that a retired judge or other mediator would be the appropriate choice. The court reasoned that in this case a degree of expertise would necessary in order to assess the cause of damage and amount of loss. The Court stated that an appraiser’s past association with insurance companies does not automatically disqualify him from serving as an umpire and decided to choose from among the candidates proposed by the insurer.
https://scholar.google.com/scholar_case?case=3912416996020200710

Appraiser should be indifferent between the parties

Pool v. Hennessy, 39 Iowa 192, 194 (1874) – Here the court set aside an appraisal award on the basis that after the award was made, plaintiff discovered the defendant’s appraiser was defendant’s brother. “The object and purpose in providing for an appraisement, in the mode mentioned in the leases, it is manifest was to secure a fair and just valuation of the leased premises as a basis for the second five years of the term. This purpose could be attained only by the selection of fair and impartial persons as appraisers. The person to be selected by the respective parties ought not to be respectively the agent of the parties. If this were allowed it would be the same in effect as the parties themselves, acting in their own behalf as appraisers, for what a man does by his agent he does by himself. The persons selected as appraisers should be indifferent between the parties.”

Impartial Advocate
Allstate Indem. Co. v. Gaworski, 552 S.W.3d 180, 183 (Mo. Ct. App. 2018 ) – The court affirmed that: “An appraiser is not required to be entirely impartial. Instead, they may act as advocates for their respective parties without violating their commitments.”
https://scholar.google.com/scholar_case?case=2189228442136943795
Melton Bros. v. Philadelphia Fire & Marine Ins. Co., 104 N.J. Eq. 153, 144 A. 726 (1929) An award “is not invalidated because the appraiser is merely zealous for what he conceives to be the rights of the party’ who nominated him.” Appraiser was still competent and disinterested.
https://cite.case.law/nj-eq/104/153/

Biased appraiser still competent
Citizens Property Insurance Corp. v. M.A. & F.H. Properties, Inc., 948 So.2d 1017 (Fla. 3d DCA 2007) – Affirmed denial of insurer’s motion to disqualify the homeowner’s appraiser. Holding that “competence is not synonymous with neutrality or independence” and affirmed that insureds’ appraiser was not disqualified as incompetent on basis of his unquestionable personal bias against insurer where the insurance policy directed only that each of the parties select a “competent” appraiser and did not define the word “competent”. Bias alone is not enough to establish lack of competence.
https://scholar.google.com/scholar_case?case=7526686114739793850


Impartial = No Advocacy
Owners Ins. Co. v. Dakota Station II Condominium Assoc., Inc., Case No. 17SC583, 2019 WL 2571645 (Colo. June 24, 2019) – The Colorado Supreme Court held: “[W]e turn to the language of the insurance policy’s appraisal provision. Based on the plain meaning of the word impartial, we conclude that the policy requires appraisers to be unbiased, disinterested, and unswayed by personal interest. They must not favor one side more than another. This means no advocacy on behalf of either party.”
https://scholar.google.com/scholar_case?case=14780785300487496235

Attorney Not Disinterested
Fla. Ins. Guaranty Ass’n v. Branco, 148 So. 3d 488, 496 (Fla. Dist. Ct. App. 2014) Affirming that the insured’s attorney did not qualify as disinterested. “The policy provision, which requires a “disinterested appraiser,” expresses the parties’ clear intention to restrict appraisers to people who are, in fact, disinterested. Given the duty of loyalty owed by an attorney to a client, we conclude that attorneys may not serve as their clients’ arbitrators or appraisers when “disinterested” arbitrators or appraisers are bargained for.”
https://scholar.google.com/scholar_case?case=951923090659696097

Award stands – Attorney not interested in result – had insurer prior relationship
Dawes v. Continental Ins. Co. of City of New York, 1 F. Supp. 603, 605 (E.D. La. 1932) Plaintiff seeking to set aside award on the basis that “[T]he appraiser selected by the defendant was not disinterested in that he had been selected at different times by this defendant and other insurance companies to act as appraiser in cases similar to this.” The Court found: “However, there is not the slightest evidence in this record to impugn his honesty or integrity, or to indicate that he acted from improper motives in making this award, or that he had any interest in the result; on the contrary, the evidence speaks for his competency to act in such capacity and this question is dismissed without further consideration.”
https://scholar.google.com/scholar_case?case=12607669904903236030

Award voided – Appraiser w concealed interest
Central Life Insurance Co. v. Aetna Casualty & Surety Co., 466 N.W.2d 257, 261 (Iowa 1991) The Iowa Supreme Court held: that “The appraisers do not violate their commitment by acting as advocates for their respective selecting parties. However, appraisers should be in a position to act fairly and be free from suspicion or unknown interest. [A]ppointment of an appraiser with a concealed pecuniary interest in the outcome is a sufficient ground for voiding the award.”
https://scholar.google.com/scholar_case?case=14979124218016474122

Must Prove Interest to Disqualify
Giddens v. Board of Educ., 75 NE 2d 286 – (IL. 1947): Affirming “[A]n interest or bias to disqualify may be small, but it must be direct, definite and capable of demonstration, rather than remote, uncertain or speculative.”
https://www.courtlistener.com/opinion/3423808/giddens-v-board-of-education/

Defining an Interested Appraiser
Young v. New York Underwriters Ins. Co., 207 N.C. 188, 176 S.E. 271 (N.C. 1934) – the court held that an interested appraiser is “one who is partial, unfair, arbitrary and dominated by bias and prejudice for or against the parties or the property in question, or both, or who has some pecuniary interest in the result of the performance of the duties of appraiser”. Evidence that insurer’s appraiser had previously acted as appraiser for insurance companies is insufficient to show interest. The court further held that the parties were contractually bound by the results of an appraisal process.
https://casetext.com/case/young-v-insurance-co-4

Lawler v. Insurance Companies, 143 Me. 40, 44 (Me. 1947): “… the insurance statute and the insurance contract require that the referee shall be ‘disinterested’ not only in the narrow sense of being without relationship and pecuniary interest, but also in the broad, full sense of being competent, impartial, fair and open minded, substantially indifferent in thought and feeling between the parties, and without bias or partisanship either way.”
https://www.anylaw.com/case/lawler-v-insurance-companies/supreme-judicial-court-of-maine/08-28-1947/27O0TGYBTlTomsSBqYMG

No pecuniary interest
Harris v. American Modern Home Ins. Co., 571 F. Supp. 2d 1066 – Dist. Court, ED Missouri 2008. An insured’s appraisal was found to be void because the insured hired an appraiser and agreed to give the appraiser 15% of the final appraised value. Under Missouri law, an appraiser must not be interested, biased or prejudiced.
https://scholar.google.com/scholar_case?case=8657222683606938251

Schipper & Block v. Carson Pirie Scott & Co., 256 NE 2d 854 – Ill: Appellate Court, 3rd Dist. 1970: Disinterested is defined as: “Not having any interest in the matter referred to or in controversy; free from prejudice, partiality; impartial or fair-minded; without pecuniary interests; not previously interested; not biased or prejudiced.” 27 CJS 314. The term “distinterested” does not simply mean a lack of pecuniary interest but it requires the appraiser to be one not biased or prejudiced.
https://scholar.google.com/scholar_case?case=11466906909717117742

Harowitz v. Concordia Fire Ins. Co., 129 Tenn. 691 (1914) – The court found that a disinterested appraiser is one who lacks a pecuniary interest in the outcome of the appraisal and is not biased or prejudiced.

Otherwise competent or independent
Hozlock v. Donegal Companies/Donegal Mut. Ins. Co., 745 A.2d 1261, 1264 (Pa. Super. Ct. 2000). – Affirming that the existence of a contingency fee agreement does not render an otherwise “competent” appraiser unfit when the policy appraisal clause merely requires the appraisers to be “competent”.
https://scholar.google.com/scholar_case?case=4189894380187761300

White v. State Farm Fire & Cas. Co., 293 Mich. App. 419, 428, 809 N.W.2d 637, 641 (2011) The appeals court held “that a contingency-fee agreement does not prevent an appraiser from being “independent”.
https://scholar.google.com/scholar_case?case=13300316714438985155


Florida Contingency Evolution
Galvis v. Allstate Ins. Co., 721 So.2d 421 (Fla. 3d DCA 1998) – A contingency-fee appraiser appointed by the insured is fully qualified under the clause “competent and disinterested appraiser” in the policy.
https://scholar.google.com/scholar_case?case=2923215278957802052

Rios v. Tri-State Ins. Co., 714 So.2d 547, 549 (Fla.Dist.Ct.App.1998). The appraisal clause in that case called for “competent, independent” party-appointed appraisers. The court held that the use of the word “independent” in the policy did not prohibit a party from paying his appraiser with a contingency fee though an appraiser who is appointed on a contingency-fee basis should disclose this type of compensation (relying on the then-current version of the Code of Ethics for Arbitrators in Commercial Disputes, “promulgated jointly” by the American Arbitration Association and American Bar Association). Since Rios, the Florida Supreme Court has held that appraisal is not arbitration and that “the formal procedures of the Arbitration Code” do not govern an appraisal.
https://scholar.google.com/scholar_case?case=7322689963024367694

Florida Insurance Guaranty Assoc., v. Branco, 39 Fla. L. Weekly D2020a (Fla. Dist. Ct. App. 5th Dist. Sept. 19, 2014) questioned the “continued viability of the holding” in Rios v. Tri-State Insurance Co., 714 So. 2d 547 (Fla. 3d DCA 1998). While Rios allowed appointment of an appraiser whose compensation was based on a percentage of the eventual appraisal award, the Court noted that Rios was based on an arbitrators code of ethics that has since been revised. The prior code did not address neutrality of arbitrators; however, the revised code contained a presumption of neutrality, which applies unless the parties’ agreement, the rules, or laws provide otherwise. AND see Valenti above
https://scholar.google.com/scholar_case?case=5972352157939135784

State Farm Florida Insurance Company v. Valenti, 285 So.3d 958 (Fla. 4th DCA 2019); State Farm Florida Insurance Company v. Crispin, 290 So.3d 150 (Fla. 4th DCA 2020) In this case the appraisal clause referenced “qualified, disinterested appraiser“. When a policyholder’s public adjuster is entitled to collect a contingency fee or percentage based on recovered insurance proceeds, the public adjuster may not serve as a “disinterested appraiser.”
https://scholar.google.com/scholar_case?case=5341692469767996860

State Farm Fla. Ins. Co. v. Sanders, 44 Fla. L. Weekly D1901 (Fla. 3d DCA July 24, 2019) (finding the insured’s public adjuster could not act as a disinterested appraiser under the insurance policy where the public adjuster, by separate contract, would receive 10% of any insurance recovery)
https://casetext.com/case/state-farm-fla-ins-co-v-sanders

Prior relationship not substantial
Michael v. Aetna Life & Casualty Ins. Co., 88 Cal.App.4th 925, 106 Cal.Rptr.2d 240 (2001). Award upheld. Insurer’s appraiser was statutorily required to disclose any facts which might cause a reasonable person to doubt he could act impartially, but limited prior work for insurer and insurer’s business with other members of appraiser’s accounting firm lacked continuous or substantial quality that would require disclosure.
https://scholar.google.com/scholar_case?case=3150038332697907995

Award vacated – undisclosed relationship
Weinger v. State Farm Fire & Cas. Co., 620 So. 2d 1298 – Fla: Dist. Court of Appeals, 4th Dist. (1993) Insured, on appeal, moved to vacate an appraisal award due to the bias of the court appointed umpire. Though policy terms indicated “competent, impartial umpire”, it was subsequently discovered that a considerable portion of the umpire’s annual collected fees were derived from his relationship with the insurer. The court found: “Failure to disclose such an association undermines the appearance of propriety and the confidence of the fairness of the proceedings and requires the vacation of the award.”
https://scholar.google.com/scholar_case?case=15044815140930628652&q

Prior business renders appraiser interested
Tamko Bldg. Prods., Inc. v. Factual Mut. Ins. Co., 890 F. Supp. 2d 1129, 1140 (US District Court E.D. Mo. 2012) Appraisal award voided, appraiser’s prior business dealings render him interested. (“frequently or habitually employed by insurers as an appraiser and … by his conduct [making] it clear that he understands that he is acting in their interests.” Id. An appraiser may also become biased by having a financial interest in the outcome of the appraisal, even if indirectly.”)
https://scholar.google.com/scholar_case?case=12723621416457716805

Past business relationship must be substantial
Mahnke v Superior Court 190 Cal. App. 4th 565, 103 Cal. Rptr.3d 297 (2009): Reversing Superior Court’s disqualification of insured’s appraiser. Past business relationship must be substantial enough to make appraiser biased. “Imposing overly rigorous standards on party-selected appraisers in informal proceedings under Insurance Code section 2071 would be both shortsighted and naive about the realities of modern litigation practices. Viewed as a whole, Mr. A’s resume demonstrates that he possesses experience qualifying him to act as a “competent” appraiser and that his broad client base distinguishes him from those professionals who regularly perform services for particular clients (or attorneys) and become financially dependent on them. Viewed from the standpoint of a reasonable member of the public, we see nothing that warrants Mr. A’s disqualification.”
https://scholar.google.com/scholar_case?case=1887510658583843879


Award affirmed – prior relationship dated
Sheehan v. Nationwide Ins. Co., 779 A.2d 582, 585 (Pa. Super. Ct. 2001) (“Here where the nature of the contact with one of the parties occurred over 23 years ago while the arbitrator was an associate in a firm, we cannot rule that there existed evident partiality or corruption by the arbitrator which would justify vacating the award.”)
https://scholar.google.com/scholar_case?case=3084903708584319664

Award vacated – opposing party objects to prior relationship
Bole v. Nationwide Ins. Co., 379 A. 2d 1346 – Pa: Supreme Court (1977) – Award vacated, insurer’s appraiser “[S]hould have disqualified himself in light of the contract calling for disinterested arbitrators, failure to do so under these circumstances is a denial of a fair hearing.” “[W]hen a contract calls for “disinterested” arbitrators, prior representation of one of the parties by a designated arbitrator will disqualify that arbitrator upon objection of the opposing party.”
https://scholar.google.com/scholar_case?case=9590442325944645721

Award vacated – appraiser’s concurrent work satisfies impression of possible bias
Gebers v. State Farm General Ins. Co., 38 Cal. App. 4th 1648 – Cal: Court of Appeal, 1st Appellate Dist., 4th Div. 1995: “[T]he appraiser selected by State Farm was currently retained by State Farm as an expert witness in two pending court actions. This ongoing litigation work is a direct pecuniary interest which casts considerable doubt on the appraiser’s ability to act impartially. Plaintiffs’ uncontradicted evidence on this point is more than ample to satisfy the “impression of possible bias” test.”” The presence of an interested appraiser requires that the judgment entered on the confirmed award must be reversed, and a new appraisal conducted.”
https://scholar.google.com/scholar_case?case=8151635487248954511

Rios v. Tri-State Ins. Co., 714 So.2d 547, 549 (Fla.Dist.Ct.App.1998). The appraisal clause in that case called for “competent, independent” party-appointed appraisers. The court held “that this language calls for the appointment of an outside appraiser, unaffiliated with the parties. This means that a party cannot appoint himself, herself, or itself, see Finkelstein v. Smith, 326 So.2d 39, 40 (Fla. 1st DCA 1976), nor can a party appoint the party’s employee. If a firm is designated to do the appraisal, it must be unaffiliated with the appointing party, that is, it cannot be a firm in which the appointing party has an ownership interest.”
https://scholar.google.com/scholar_case?case=7322689963024367694

Insurance Appraisal vs Arbitration

As stated earlier, insurance appraisal differs from arbitration: appraisal is an informal method limited to determining the loss amount; arbitration is a quasi-judicial method for resolving damages and/or other issues (e.g., liability) that includes party notice, hearings, and witness testimony.

In drafting an Appraisal Memorandum or Protocol, the parties may agree to pursue some of the more formal arbitration activities especially in complex cases.

Insurance AppraisalArbitration
InformalFormal
Each party appoints an appraiserThe parties present their cases
Appraisers appoint umpireThe parties appoint one or three arbitrators
Independent investigation of facts and valuation
Upon agreement of the partiesFormal hearings
Upon agreement of the partiesNotice to parties
Upon agreement of the partiesWitness testimony
Limited to value – no causation – no coverageEntire dispute
Exceptions to the above – differentiation of damages per cause
Binding-may or may not be bindingBinding
Award may be vacated under broad circumstancesAward may be vacated under narrow circumstances
Any two members of the appraisal panel may come to agreementNeutral arbitrators decide

26 states recognize differences between insurance appraisal clauses and arbitration agreements. In 12 states and Washington DC, courts have ruled that appraisal is a form of arbitration, in those, the state’s arbitration act may direct the appraisal procedure. In some of the remaining states there are rulings both ways.

Campbell v. Mich. Mut. Hail Ins. Co., 240 Mich. 167, 215 N.W. 401 (1927). A hail-storm damaged the insured’s crop of peas, and the insured and insurer submitted their dispute to arbitration, as per the insurer’s by-laws, rather than for an appraisal. Comparing the role of an arbitrator versus the role of an appraiser, the court observed, “Unless otherwise provided, appraisers can act on their own knowledge and investigation, are not required to have hearings or take evidence or even receive the statements of the parties. As long as they act honestly and in good faith, they have a wide discretion as to their methods of procedure and sources of information.” Upheld the court’s decree that the award was constructively fraudulent under the facts shown and was in violation of defendant’s own by-laws.

Response to Appraisal Demand

In response to a demand for appraisal one will either acknowledge that appraisal is appropriate or disagree stating the reasons that appraisal proceedings should not be held at this time. If in agreement, you may seek to further qualify the issues to be appraised, you would name your appraiser with their contact information. At this stage one might include a suggested appraisal memorandum to be agreed upon or modified as negotiated in further communications.

Reasons the insurer would deem the matter not appropriate for appraisal typically center around incomplete insured’s loss duties: lack of loss damage documentation, requiring examination under oath, and/or submission of signed, sworn proof of loss. Other cases where one would object to appraisal would include where the insurer denies liability, where one party considers the demand to be untimely, or where either party is pursuing litigation and determination of value through the courts.

Example: Adjuster to Insured — Declining Appraisal Demand

Example: Adjuster to Insured — Response Accepting Appraisal

Appraisal Umpire Selection

If the appraisers come to an agreement, the umpire may not be involved at all or they may assist in finalizing an appraisal protocol and can help appraisers negotiate the process.

The umpire should be a knowledgeable neutral party selected from a list of multiple names submitted by one or both of the appraisers. Typical umpire candidates include subject matter experts, attorneys, contractors, independent or retired adjusters, and retired judges.

In many cases, the appraisal clause sets a time requirement for umpire selection.

“The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on the request of the insured or this Company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located.” (1943 NY Standard Fire Insurance Policy)

Though the appraisers may ultimately reach agreement with no need to involve the 3rd party, in all cases, it is advisable that they agree to an umpire as their 1st action as it may prove more difficult later in the process as they air their loss valuation differences.

If the appraisers fail to agree upon an umpire, appointment by the court can be solicited in a variety of ways. 

One of the parties may make informal application to the court with no notice to the other party.

Here the other party is disadvantaged as having no notice or input in the matter of selection.

One of the parties may formally file suit.

Here each party enjoys equal benefit of due process right to notice and opportunity for hearing before the court makes an umpire appointment.

The parties may jointly apply to the court either informally or formally.

Here each party has equal benefit as noted above.

Consequently, it is advisable to include a clause in the appraisal memorandum such as: “If the appraisers cannot agree upon an umpire within 15 days, we are to jointly request that the choice be made by a judge of a court of record in the state where the “residence premises” is located.”

Example: Joint Umpire Solicitation

Umpire Acceptance

Once an umpire is nominated, the nominee reviews the issues and parties involved for any conflict of interests and notifies parties of any potential issues or concerns.

As a form of contractual arbitration, an insurance appraisal is governed by CA Civil Procedure. “In any arbitration pursuant to an arbitration agreement, when a person is to serve as a neutral arbitrator, the proposed neutral arbitrator shall disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial”. (California Code, Code of Civil Procedure – CCP § 1281.9)

There should be no ex parte contact with the umpire by either the parties or the appraisers.

Ex parte, adj, Done or made at the instance and for the benefit of one party only, and without notice to, or argument by, any person adversely interested; of or relating to court action taken by one party without notice to the other, usu. for temporary or emergency relief . Despite the traditional one sidedness of ex parte matters, some courts now require notice to the opposition before what they call an “ex partake hearing. – ex parter, adv. Black’s Law Dictionary 291 (4th pocket ed. 2011)

Example: Appraisers Declaration — Umpire Appointment

Disqualification of Appraiser or Umpire

Considering the qualifications noted earlier, if information becomes known compromising an appraiser or umpire candidate’s qualification to serve it would behoove one to seek disqualification as proceeding with appraisal after receiving such knowledge waives right to seek overturn of the award based on disqualification. If a party appoints an unqualified appraiser to serve their interests they may even be viewed as having waived their right to appraisal.

As noted earlier, each party selects their own appraiser, but if one disagrees with another other’s selection there is no disqualification procedure outlined in the Policy. The first approach would be to send notice of the basis of disqualification to other party and request a substitute be selected. If the parties are not able to come to agreement, they next would involve a court to settle the appointment dispute.
More on this issue later, in Grounds for Challenge.

Insurance Appraisal Memorandum or Protocol – Overview

Though typically not required by the policy language, it may be prudent to draft a Memorandum or Protocol to help insure dispute resolution. At a minimum one would state the disagreement, include the policy appraisal clause, define, in concise but specific terms, the values to be appraised, and the panel participant names including contact information. Signees would include the parties, the appraisers, and the umpire. The panel signatures may include an oath as to individuals’ qualifications and acknowledgement of duties.

More on this after we consider the possible limitations to appraisal, various appraisal procedure options, and award considerations.

Scope of Appraisal Limitation

In one fashion or another, appraisal clauses reflect a simple if, then proposition:

IF the parties “fail to agree as to the amount of loss”
THEN “a decision agreed to by any two will set the amount of the loss”

How much? The amount or extent of loss is factual and can be determined by appraisal.
Whether it is covered? Questions of law, coverage issues and contract language interpretation are decided by the courts.

In some cases, appraisers may consider coverage as when whether the damage was caused by covered peril or by some other means thus allowing allocation of damages between covered and excluded causes.

Once the appraisal panel concludes its work, coverage issues may be further litigated.

This site and the case examples presented are for general information purposes and are not intended to be nor should be taken as legal advice. When anticipating an insurance dispute, it is advisable to consult with an attorney to review the claim facts and circumstances, policy language, applicable precedent cases, and the state and federal laws.

Hamilton v. Liverpool, London & Globe Ins. Co., 136 US 242 – US Supreme Court 1890 – “The appraisal, when requested in writing by either party, is distinctly made a condition precedent to the payment of any loss, and to the maintenance of any action. Such a stipulation, not ousting the jurisdiction of the courts, but leaving the general question of liability to be judicially determined, and simply providing a reasonable method of estimating and ascertaining the amount of the loss, is unquestionably valid, according to the uniform current of authority in England and in this country.”
https://scholar.google.com/scholar_case?case=1697023970361971715

Munn v. Natl. Fire Ins. of Hartford, 115 So. 2d 54 – Miss: Supreme Court 1959: held “that the appraisers have no power to determine the cause of the damage. Their power is limited to the function of determining the money value of the property which may be damaged by the storm.”
https://scholar.google.com/scholar_case?case=5072056978389877256

Wells v. American States Preferred Ins. Co., 919 S.W.2d (Tex. App.1996), held “[T]he appraisal panel has no authority to determine the cause of the loss, only the amount of the loss”.
https://scholar.google.com/scholar_case?case=18274824022677983098

Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142 (Tenn. App. 2001) – the court upheld the trial court conclusion that the appraisers had not been empowered to determine whether parts of the claimed damage had been caused by a peril covered by the policy. “Insurance appraisals are generally distinguished from arbitrations. . . . [A]n arbitration agreement may encompass the entire controversy between parties or it may be tailored to particular legal or factual disputes. In contrast, an appraisal determines only the amount of loss, without resolving issues such as whether the insurer is liable under the policy.”
https://scholar.google.com/scholar_case?case=4023483552507739713

Johnson v. Nationwide Mut. Ins. Co., 828 So.2d 1021 (Fla. 2002): holding “It is well settled that appraisal does not determine liability under a policy. Liability depends on a judicial determination.” holding “that causation is a coverage question for the court when an insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is covered loss, the amount of which is disputed.”
https://scholar.google.com/scholar_case?case=7216792464412402915

Rogers v. State Farm Fire Cas. Co., 984 So.2d 382, 392 (Ala. 2007) holding “an appraiser’s duty is limited to determining the “amount of loss” — the monetary value of the property damage — and that appraisers are not vested with the authority to decide questions of coverage and liability; we thus adopt that holding as our rule of law. Questions of coverage and liability should be decided only by the courts, not appraisers.”
https://scholar.google.com/scholar_case?case=16367104542015168841

American Cent. Ins. Co. v. District Court, 125 Minn. 374, 147 N.W. 242 (Minn. 1914) : “In the case at bar the appraisers must determine many matters other than the mere value of specific property produced before them for examination and appraisal. They must determine the quantity of property covered by the policy and on hand at the time of the fire, the quantity destroyed, the quantity damaged, whether the damage resulted from causes covered by the policy or from other causes not covered thereby, and various other questions, both of law and fact, upon which the parties may differ. appraisers cannot determine the general question of liability, “questions of law or fact, which are involved as mere incidents to determination of the amount of the loss or damage, do not go to the root of the action” and are, therefore, part of a reasonable method of estimating and ascertaining the amount of the loss

CIGNA Ins. Co. v. Didimoi Prop. Holdings, NV, 110 F. Supp. 2d 259 – US District Court, D. Delaware 2000: “the Court believes that under the circumstances of this case, including the plain language of the policy, a determination of amount of loss under the appraisal clause includes a determination of causation. Coverage questions, such as whether damage is excluded for reasons beyond fire damage, are legal questions for the Court as this case progresses. However, the Court believes that whether a particular item was damaged as a result of fire or firefighting efforts is appropriately reserved for the appraisal process.”
https://scholar.google.com/scholar_case?case=8690864315694388017

State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009) – the Supreme Court of Texas held that “when an indivisible injury to property may have several causes, appraisers can assess the amount of damage and leave causation up to the courts,” and “[w]hen divisible losses are involved, appraisers can decide the cost to repair each without deciding who must pay for it.”
https://scholar.google.com/scholar_case?case=2022217208194869971

St. Charles Par. Hosp. Serv. v. United Fire Casualty, Civil Action No. 07-5924, 16 (E.D. La. 2010)” “an appraiser’s job is not to determine policy coverage or liability, but that causation must be considered in order to determine the scope of the loss that must be measured.” “Any decisions of causation contained in the award may still be challenged, and neither defendant nor the Court is bound by them.”
https://scholar.google.com/scholar_case?case=11853845676252492981

Quade v. Secura Ins., 814 NW 2d 703 – Minn: Supreme Court 2012 – “[I]n the insurance context, an appraiser’s assessment of the “amount of loss” necessarily includes a determination of the cause of the loss, and the amount it would cost to repair that loss.” “Coverage questions, such as whether damage is excluded because it was not caused by wind, are legal questions for the court as this case goes forward.”
https://scholar.google.com/scholar_case?case=6290921119834676796

Mapleton Processing, Inc. v. Soc’y Ins. Co., No. C12-4083-LTS, 38 (US District Court N.D. Iowa Jul. 10, 2013) held “[T]he courts, and not the appraisers, must resolve coverage defenses and causation disputes. But this does not mean there is no role for appraisal when those disputes arise. A well-constructed appraisal, containing appropriate line items, can resolve “dollar amount” issues while reserving liability questions for the jury and/or the judge.”
https://casetext.com/case/mapleton-processing

Eagle Fire Co. of New York v. Snyder, 392 F.2d 570 (10th Cir. 1968). – “Under Oklahoma law, contract of fire insurance is one of indemnity whereby insurer agrees to protect insured against certain stated types of loss to extent of coverage stipulated in policy, and when the insured property is totally destroyed, liability under policy is actual cash value thereof at time of loss, and such value is to be determined by relevant factors, including original cost, replacement cost, age of insured property, condition in which it has been maintained, and location, use and profit likely to accrue therefrom.”
https://scholar.google.com/scholar_case?case=6611341777847460724

Taven Apartments Limited Partnership v. State Farm Fire & Casualty Company, US Dist. Court, ED Missouri 2017: The insurer denied demand for an appraisal on the basis that a “like kind and quality” dispute between the parties was related to coverage and could not be resolved by an appraisal. Insureds’ motion to compel appraisal was granted “[T]he dispute is centered on the valuation and cost of damages, repairs, and construction, which constitutes a “disagree[ment] on the value or the amount of loss.” Therefore, based on the plain language of the Appraisal Endorsement, the Court will grant Plaintiff’s motion to compel participation in the appraisal process.”
https://scholar.google.com/scholar_case?case=14721060200361737633

Insurance Appraisal Procedure Overview

Let’s assume that the scope of the appraisal, how value is defined by statute or the policy e.g., ACV, RCV has been determined at the outset and shared and that the appraisal panel is fully aware of its duties and responsibilities and has taken an oath to that effect.

The appraisers obtain both parties’ documentation of the loss including the differences and the undisputed portions of the loss. This may include photos, expert reports and estimates in support of each party’s position.

As an informal procedure, appraisers act upon their own skill and knowledge and the Appraisal Panel determines their own procedures. They may or may not elect to inspect the property in question, they may seek additional information from one party or the other for all to consider. Jointly or individually, they may deem additional experts necessary to assist in the analysis of loss valuation e.g., engineers, cause and origin, forensic accountants. If a joint decision, the parties spilt those costs, if an independent decision, the cost is borne by that party, but the results are shared with the panel.

Each appraiser independently investigates and determines the value of the loss upon consideration of broad evidence – the facts and circumstances that would logically tend to the formation of a correct estimate of the insured loss. The parties should exercise no control nor attempt to influence the appraiser’s position on the loss appraisal. Communication should be provided to all and be limited to the factual information and questions as to overall status of the process.

Typical Appraisal Scenarios

Scenario A: Panel meets to deliberate and render award, with or without appearance of the parties, this may involve a loss site inspection.

Scenario B: Appraisers inspect loss individually, exchange individual reports – sharing with umpire, if appraisers cannot agree umpire rules.

Scenario C: Parties conduct hearing with attorneys present before the Appraisal panel, hearing is recorded, evidence is submitted, and testimony is taken, panel then issues ruling based on the evidence & testimony.
Other, more detailed, approaches may be found in the link xxxxxxxxxLINK HERE >>>> Appraisal Memorandum Details

Appraisal Memorandum – Components for Consideration

Parties to the Insurance Appraisal

The insurance company and the named insured.
Insurer Policy and Claim #’s.
Cause of loss, location and date of loss.

Policy Appraisal Provision

The parties agree that this Appraisal Protocol shall govern the appraisal proceedings.
Insert policy appraisal provision, quoted in its entirety.
Insert any statute applicable to the jurisdiction.

Appraisal Expenses

Each party shall pay all the compensation and expenses of their appraiser.
One-half of the umpire’s compensation and expenses shall be paid by the insured and one-half paid by the insurer.
Each party shall pay its own costs incurred to prepare or present its case at the proceeding.
Each of the parties shall pay one half of any additional appraisal expenses.

Appraisal Panel

Names of respective Appraisers.
Appraisers are to name an Umpire, have named an Umpire or are to jointly apply to the court for an umpire appointment.
Hold harmless example: “To the extent permitted by law no party will assert any claims against the appraisal panel members, or their respective firms, seeking to hold them liable for any act or omission in performance of their duties as umpire or appraiser.”
Confidentiality: Appraisal panel deliberations are confidential and exempt from depositions or suit in case the Award is challenged or a bad faith claim is filed.

Definitions

Definitions as per the policy: E.g. Replacement cost, actual cash value, period of restoration

Scope of Appraisal

Items to be Appraised: List appraisal items in sufficient detail to insure an unambiguous award.
Specify how policy sub-limits are to be addressed, Eg
Basis of the Appraisal, i.e. Actual Cash Value, Replacement Cost or both.
Specify issues that are out of scope: The appraisal panel shall have no authority to decide questions of law, nor should the panel attempt to resolve any issue of coverage, policy exclusions, compliance with the policy terms and conditions, or any issue concerning the limits of insurance available under the policy. A court having jurisdiction over this matter shall address all such issues.
Causation as it may apply to extent of damages: E.g. State separately the value of the physical loss caused directly by the storm of xx/xx/xxxx. State separately the value of the physical loss caused directly or indirectly wear and tear, or neglect, as defined herein.

Claimed Damages — Materials and Evidence

The parties agree that the claims previously submitted prior to this agreement, together with supporting documentation, will be provided to the appraisal panel within xx days of the execution of this agreement. Neither party is to submit any new opinions of value at any point during the appraisal process.

No Ex Parte Communications

Neither appraiser is to initiate any ex parte communications with the Umpire. When contacting the Appraisers, the Umpire is to copy both appraisers simultaneously on any correspondence or by scheduled conference with both appraisers in attendance.

Appraisal Panel Endeavors

After separately appraising the amount of loss, the appraisers shall meet to attempt to resolve differences and to narrow the remaining disputed items to be addressed with the umpire. Where they agree, their agreement shall be noted as the result of the appraisal on that issue.

By agreement of both appraisers, or at any time either appraiser decides that further discussions between the appraisers concerning their disputes and differences are no longer beneficial, the appraisers, or either appraiser, may demand participation of the umpire.

The appraisers appointed by each of the parties will be permitted to submit to the Umpire the written documents that they wish to be considered by the Umpire in the appraisal process within the time set by the Umpire. All counsel and the opposing appraiser are to be copied simultaneously, with any and all reports, emails, letters, transmittals, documents, photographs, and/or other attachments submitted by an appraiser to the Umpire.

The written submissions by the appraisers for each party to the Umpire may consist of reports, estimates, photographs and/or other documents illustrating the scope of damages found and the cost of repair of those damages, and a statement of the appraiser’s findings and conclusions regarding the scope and repair of damages related to this case, exclusively.

Under no circumstances should the appraisers’ submissions to the Umpire include any documents which consist of, reference and/or include legal opinions; legal advice; treatises; narrative reports; cases; statutes or laws; legal documents; handouts; presentations or papers prepared by any law firm or attorney, and/or comments by the appraisal [sic] regarding counsel of record or matters outside the scope of damage and cost of repair.
Questions of law and coverage issues shall be resolved by motions filed with the court having jurisdiction over this matter.

In the somewhat informal approach, the procedures to be used to resolve any item in dispute is to be determined by the appraisal panel.
In more complex matters the panel may decide that an evidentiary hearing is necessary. Consequently, it may be prudent to outline that procedure within the Appraisal Memorandum.

Appraisal Hearing Procedure

The appraisal panel may require, or the parties may agree, to an appraisal hearing with a presentation of evidence. The insured and the insurer may offer evidence concerning the loss. Either party may enlist experts to testify before the panel.

The procedure may be defined within the appraisal memorandum or may be determined by the appraisal panel independently.

If there is a contested evidentiary hearing, it shall be a trial format with live testimony or deposition testimony to the extent it would be permissible under the Federal Rules of Civil Procedure. The Panel is relieved of all judicial formalities and may abstain from following the strict rules of evidence and civil procedure. The proceeding shall be recorded in a manner agreed to by the parties.

Sample Insurance Appraisal Hearing Outline

Subpoenas for the attendance of any testifying witness at the proceeding before the umpire shall be issued pursuant to order of the District Court.

Time Limits may be Set by the Panel.

Inform witnesses that all testimony must be given under oath and swear-in all witnesses who plan to testify.

Policyholder will present their case first, followed by the Insurer. Rebuttal, if any, will be determined by the panel.

Each Party may present an opening statement.

Witness testimony shall be as follows:

Direct examination.
Cross examination.
Re-direct examination.
Party appraiser questions.
Opposing party appraiser questions.
Umpire questions.

Each Party May will be Permitted a Closing Argument.

The appraisal panel will retire elsewhere, deliberate, render a decision, and complete and distribute the Appraisal Award form.

Appraisal Award within the Memorandum

Written agreement signed by any two of the three appraisal panel members shall set the amount of the loss.

Once the appraisal is completed, and an award, if any, is determined, the appraisers and umpire will complete an Appraisal Award form, to be sent simultaneously to all parties. The award form will include the following: insert the desired particulars from the Scope of Appraisal.

Statement that the Award is a comprehensive Award and the application of advanced payments, policy provisions is the responsibility of the insurer.

Example: Appraisal Memorandum

Appraisal Conclusion — The Award

The appraisal panel concludes its work when two of the three panel members arrive at an agreement on the value of the loss. Typically, the carrier would then interface the award with the policy, account for any prior payments made and then would make payment of any remaining difference though there are instances where coverage issues may be further litigated.

The format of the award may have been agreed upon at the outset of appraisal within the Appraisal Memorandum.
Award itemization versus lump-sum valuation varies by policy and statue. Circumstances dictate where it may be advisable for the parties to agree to the level itemization as part of the Appraisal Memorandum.

Itemization Examples
Replacement cost vs actual cash value: in support of the replacement cost endorsement, many appraisal valuations will include both actual cash value and replacement cost. Recall that typical loss settlement conditions for the RC endorsement include: “We will pay no more than the actual cash value of the damage until actual repair or replacement is complete.” Personal property would be itemized at the line-item level to allow for differentiation when an insured presents a follow up claim for recoverable depreciation.

Repair versus Replace
Accommodates policy instances covering the lesser of the cost to repair or to replace

Building Code Impact
Repair/replacement cost increases due to enforcement of building codes and laws

Causation
Allowing potential coverage issues to be resolved by the court

Itemization Requirement Examples

This site and the case examples presented are for general information purposes and are not intended to be nor should be taken as legal advice. When anticipating an insurance dispute, it is advisable to consult with an attorney to review the claim facts and circumstances, policy language, applicable precedent cases, and the state and federal laws.

1943 NY Standard Fire Insurance Policy: “The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized,…”

American Association of Insurance Services (AAIS Policy Form) FL-3 Ed. 1.0: “For each building item and each item of personal property, the appraisers will determine…”

Citizens Property Insurance Homeowners CIT HO-3 02 16: “The appraisal award will be in writing and shall include the following: (1) A detailed list, including the amount to repair or replace, of each specific item included in the award from the appraisal findings; (2) The agreed amount of each item, its replacement cost value and corresponding actual cash value;”

Mt. Hawley Ins. Co. v. Harrods Eastbelt, Ltd., US Dist. Court, SD Texas 2020: The Insurer asked the Court to require the appraisers to “state the amount of loss separately for each portion of the property in dispute and for each major building component.” The Court enforced the appraisal provision of the Policy as written, that the appraisers “state separately the value of the property and amount of loss”, declining to require an appraisal format beyond that required by the Policy.
https://scholar.google.com/scholar_case?case=4739094144276132965

Mapleton Processing, Inc. v. Soc’y Ins. Co., No. C12-4083-LTS, 38 (US District Court N.D. Iowa Jul. 10, 2013) held “[T]he courts, and not the appraisers, must resolve coverage defenses and causation disputes. But this does not mean there is no role for appraisal when those disputes arise. A well-constructed appraisal, containing appropriate line items, can resolve “dollar amount” issues while reserving liability questions for the jury and/or the judge.”
https://casetext.com/case/mapleton-processing

Phoenix Assurance Company of New York v. Singer, 331 F. 2d 10, Court of Appeals, 8th Circuit (1964) – In this case, the policy provided, $40,000 coverage for the home, the defendant’s appraiser and the umpire agreed to fire loss damages of $38,500 entered as item 1 on the award. “…the award made upon the form provided by the plaintiff complies with the policy provisions and with the arbitration agreement signed by the parties which requires separately showing actual cash value and loss on each item. We agree that the word “item” refers to items as listed in the policy and not to a detailed specification of all of the minute elements of damage giving rise to the total damage with respect to each item listed on the policy.”
https://scholar.google.com/scholar_case?case=5341130721622835479

Commercial Union Insurance Company v. Ryals, 355 So. 2d 684 (Ala. 1978) – The Supreme Court upheld the trial court finding that the reference to actual cash value and loss to each item meant actual cash value and loss to the building as an item, rather than to each item comprising the building. The policy contained an appraisal provision stating in part: “The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; . . . An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss. . .”
https://scholar.google.com/scholar_case?case=11069831448036183865

Pineda v. STATE FARM FLORIDA INS. CO., 47 So. 3d 890 – Fla: Dist. Court of Appeals, 3rd Dist. 2010 – Insurer petitioned the court for an umpire selection additionally requesting an award form to incorporate a line-by-line item estimate of each damage area. The insureds counterclaimed seeking a declaration that the Circuit Court was not authorized to require an itemized appraisal. The Circuit Court found in favor of the insureds that the policy did not require a line-by-line appraisal but denied the insureds’ request for attorney’s fees. Upon appeal, the Third DCA held that the insureds were entitled to an award of attorney’s fees for successfully defeating the insurer’s request that the trial court direct the umpire to provide an itemized appraisal of hurricane damages.
https://scholar.google.com/scholar_case?case=1122518787525394364

Example: Insurance Appraisal Award

Appraisal: how binding is binding? Grounds for Challenging an Award

Insurance appraisal may or may not be binding dependent on jurisdiction, evidence of party agreement, and/or specific policy language waiving right to sue. In some jurisdictions, appraisal binds only the invoking party.

Overturning an appraisal award generally will require one to produce evidence showing partiality, collusion, fraud, duress, mistake in fact or law, failure to consider pertinent evidence, award not in compliance with the policy or other impeaching circumstances.

The policy may or may not make appraisal a condition precedent to suit. In some cases, the appraisal demand may be made after litigation has begun. A policyholder may be precluded from suit if they have acted to cause the failure of the appraisal procedure.

An appraisal panel exceeding its powers, where the panel lacks authority, is another situation where an award challenge may have merit. Examples includes an award made that is not in compliance with the policy, an umpire issuing an award without hearing from both appraisers or an award based on deciding coverage, liability or causation. Refusing to postpone hearings or meetings for good cause or refusing evidence which prejudices one of the parties would be another issue for challenge.

Awards Challenges Case Examples

This site and the case examples presented are for general information purposes and are not intended to be nor should be taken as legal advice. When anticipating an insurance dispute, it is advisable to consult with an attorney to review the claim facts and circumstances, policy language, applicable precedent cases, and the state and federal laws.

Binding Unless Unfair or Unjust

Atlas Construction Co. v. Indiana Ins. Co., 160 Ind. App. 33, 309 N.E.2d 810 (Ind. Ct. App. 1974). Affirming “The award was not tainted by fraud, mistake or misfeasance and was therefore appropriately made” In Indiana, an appraisal is binding unless it can be demonstrated that the appraisal was unfair or unjust. Indiana courts have the discretion to set aside an appraisal award if it is “tainted with fraud, collusion or partiality for appraisers.”
https://scholar.google.com/scholar_case?case=12587553743499446069

Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868 (7th Cir. 2000). Applying Indiana law, the court held that an insured is bound by the appraisal award if both the insured and the insurer voluntarily submit to an appraisal as provided by the insurance policy, unless the insured can show evidence that the appraisal was “infected with unfairness or injustice.”
https://scholar.google.com/scholar_case?case=1886376462267455070

Philadelphia Indemnity Insurance Company v. We Pebble Point, No. 1:2013cv01453 – Document 29 (US District Court S.D. Ind. 2014)- Recommending the appraisal award be set aside -“[T]he court is convinced that the appraisal award here must be set aside. Reasonable factfinders could conclude that the facts here establish partiality or bias; others might characterize it as misfeasance, others still as arbitrariness. But regardless of the specific label, the court finds inescapable the conclusion that the appraisal process was grossly flawed and tainted by inappropriate conduct manifestly unfair.”
https://www.govinfo.gov/content/pkg/USCOURTS-insd-1_13-cv-01453/pdf/USCOURTS-insd-1_13-cv-01453-1.pdf

Binding – Mistakes Not Enough

N.C. Farm Bureau Mut. Ins. Co. v. Harrell, 148 N.C. App. 183, 557 S.E.2d 580 (2001), disc. review denied, 356 N.C. 165, 568 S.E.2d 606 (2002) – the court upheld an umpire’s appraisal award that awarded the insured money for damage to farm equipment as well as the equipment itself. The court noted that if the contractual appraisal provisions of an insurance policy were followed, an appraisal award is presumed valid and is binding absent evidence of fraud, duress, or other impeaching circumstances. The court held that the insurance policy provisions indicated that the umpire followed the correct procedures for a disputed claim. The court concluded that the umpire’s reasoning was logical and that mistakes by appraisers, like those made by arbitrators, are insufficient “to invalidate an award fairly and honestly made.”
https://scholar.google.com/scholar_case?case=8047789720528634201

Nonbinding Due to Partiality

National Fire Ins. Co. v. Bennett, 36 Ga. App. 586, 137 S.E. 570 (1927) – the court held that, the appraiser was neither disinterested nor impartial, the trial court properly rejected the appraisal award as evidence because the law, the insurance contract, and the oath taken by the appraisers all contemplated that the appraiser should have been disinterested and impartial.

Weinger v. State Farm Fire & Cas. Co., 620 So.2d 1298 (Fla. 4th DCA 1993) – An arbitrator must disclose any dealing that might create an impression of possible bias. An arbitrator’s failure to disclose an association that might create an impression of possible bias undermines appearance of propriety and confidence in fairness of proceedings and requires the vacation of an award. The general rule of impartiality should be applied to appraisers selected as well as umpire.
https://scholar.google.com/scholar_case?case=15044815140930628652

Lack of Authority – Exceeding Authority

North River Ins. Co. v. Adams, 300 S.W. 185 (Tex. Civ. App. 1927) – Finding an appraiser’s acts in excess of the authority conferred upon him by the appraisal agreement is not binding on the parties. “any act of said appraisers extending beyond the purpose for which they were selected and authorized to act would not be binding upon the parties, unless same had thereafter, with the full knowledge of all of the surrounding circumstances, been ratified or adopted by them.”
https://casetext.com/case/north-river-ins-co-v-adams

Reliance Ins. Co. v. Bowen, 54 S.W.2d 597, (Tex. Civ. App. 1932) – “”The terms of submission to appraisers, referees, or arbitrators, if they are lawful and properly within the policy requirements, must at least be substantially complied with, in order to render any award made by them binding, since such terms determine the extent and limits of the powers and authority conferred upon them, and if the award shows especially upon its face, an exceeding of authority, or a failure to act in a vital particular, or fails to conform to such requirements as to the matters submitted, it will not be sustained. So, an award will not be sustained where the arbitrators refused to find or appraise the `sound value’ as it was before the fire, for which purpose the submission was made; and in such case the insurer cannot successfully insist that insured must have a valid award made before bringing suit.” 7 Cyclopedia of Insurance Law (Couch) 5664, § 1618.”
https://casetext.com/case/reliance-ins-co-v-bowen

Mistake Of Fact Or Law

Jefferson Ins. Co. v. Superior Court, 475 P. 2d 880 – Cal: Supreme Court 1970: Found that the respondent court act properly in vacating the appraisal award because the appraisers based the award on a misconception of the law. “[T]he appraisers exceeded their powers by erroneously deciding a question of law (the meaning of “actual cash value”), which they had not been authorized to decide.”
https://scholar.google.com/scholar_case?case=12339057347256644567

Refusing to Hear Evidence — Timing

Gervant v. New England Fire Ins. Co., 306 NY 393 – NY: Court of Appeals 1954: It was claimed that the umpire and appraiser selected by the insurance company only considered evidence of replacement cost less depreciation in making the award and flatly refused to consider other pertinent evidence presented by plaintiff’s appointed appraiser bearing on the “actual cash value” of the premises. Based on the failure of the umpire and the company’s appraiser to hear and receive evidence the award was vacated.
https://scholar.google.com/scholar_case?case=2831125326831577436

Grimes v. Home Ins. Co. of N.Y., 217 N.C. 259, 7 S.E.2d 557 (N.C. 1940) – the court held that where plaintiff had neither notice nor opportunity to argue his position before the appraisers, the appraisal was invalid and that the matter in controversy be again submitted to the appraisers.
https://www.propertyinsurancecoveragelaw.com/files/file/Old%20Grimes%20case-%20yes%20fraud%20in%20appraisal%20(T0828302).PDF

Independence

Tamko Bldg. Prods., Inc. v. Factual Mut. Ins. Co., 890 F. Supp. 2d 1129, 1140 (US District Court E.D. Mo. 2012) Appraisal award voided, in concluding the insurer’s appraiser to be interested as a matter of law, in addition to the appraiser’s prior business dealings with the insurer the interaction between the appraiser and insurer were considered. “It is undisputed that Hagen sought advice from Factory Mutual on whom he should select as an umpire; submitted his draft presentation for the appraisal hearing to Factory Mutual, after which Factory Mutual performed edits on that document; and sought approval on whether he should agree to the amount calculated by Rosenthal. The combined effect of these communications demonstrate that Hagen was not acting as a fair and disinterested appraiser.”
https://scholar.google.com/scholar_case?case=12723621416457716805

Summary

Insurance appraisal can provide an expedient and cost-effective method for dispute resolution but State by State and contractual term variance bear close scrutiny when considering whether to invoke an appraisal demand.

“Authorities and industry practice demonstrate that when a valuation dispute arises under a property insurance policy, the appraisal remedy can be far less simple than it seems. In some cases, litigation may be necessary over details of the appraisal and/or coverage issues, which can defeat the appraisal remedy’s purpose of creating an expedited alternative to a judicial decision on valuation. But with some valuation disputes, appraisal can be an efficient and effective procedure for resolving valuation disputes. Policyholders should give careful consideration to when and how to invoke and structure the appraisal remedy.” (The National Law Review: An Appraisal Of The Appraisal Remedy In Property Insurance Tuesday, November 19, 2019)

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