Appraisals Better Be Won Because They are Difficult to Overturn--Even if Unfair in Result or Procedure
Imagine entering into a contract to build a structure to specifications with your fee, the fair value, to be determined at the completion of the project. If a disagreement over the value could not be resolved, each side selected a “competent” person to determine the fair value. If the chosen persons could not agree, a third person enters the evaluation, and an agreement of any two of the three bound you as to the amount you would receive. You have no right to depositions, to testify, to critically analyze the opposing experts or even have experts appear live to explain to the three why you are right and the other side wrong. Sounds crazy, but this is the binding process of appraisal common in the property insurance disputes. Many Courts uphold it as a fair process to resolve differences. My advice to policyholders: WIN THE APPRAISAL ANY LEGAL WAY YOU CAN BECAUSE THERE IS LITTLE LIKELIHOOD OF OVERTURNING A BAD APPRAISAL AWARD.
A recent case supporting my position is Farmers Auto. Ins. Ass'n v. Union Pacific Ry. Co.,
--- N.W.2d ----, 2009 WI 73, 2009 WL 1976043 (Wis., July 10, 2009). There, a policyholder argued that the appraisal panel came to a wrong conclusion and wanted to prove the mistake by taking the depositions of the appraisal panel. I have no idea how else you would prove they made a mistake without first obtaining the evidence. While I know many property insurance appraisers claim their depositions cannot be taken because they are like jurors, that argument is inherently flawed because the evidence and procedures of the admitted evidence are public in a jury trial and only the deliberations are private. Indeed, the jury in their deliberations are instructed as to the law they must follow when cosidering the evidence. In property insurance appraisals, there is no formal process (in many states), they are not public, and there are no instructions as to what is to be done to accurately determine the value as well as define what "value" even means.
Yet, the Wisconsin court found the policyholder had no right to discovery to prove a basis for overturning the appraisal award. It also remarked in a manner that I often do when talking to policyholders and public adjusters about why winning the award is paramount—no matter how you do it:
“Appraisals also deserve a more deferential review because the appraisal process is a fair and efficient tool for resolving disputes. First and foremost, the process is fair to both parties. It allows each to appoint an appraiser of their own liking, with a neutral umpire as the deciding vote. Appraisals also promote finality, are time and cost-efficient, and place a difficult factual question-the replacement value of an item-into the hands of those best-equipped to answer that question. As a form of alternative dispute resolution, the appraisal process is favored and encouraged.
…
The real issue, of course, is that Donaubauer feels the award was too low. It may be that the award was low, and it may be that Donaubauer cannot obtain a 4,000 square foot home with the same specifications based on the award. Conversely, the award may be too high. That is of no event. The salient fact is that Donaubauer agreed to participate in the binding appraisal process he contracted for in his Policy. There is no credible evidence on the face of the award of fraud, bad faith, material mistake, or a failure to understand the contractually assigned task. Therefore, the award should not be set aside.”
Some, but not all Courts, have demanded that appraisals have a procedure which ensures fairness. The dissenting judge noted what many, including myself, find to be a major problem with appraisals:
“Even though the exact process necessary to create a fair method for resolving disputes through appraisal is not set forth in the statutes, there must be at least a minimum level of process to ensure that the parties are heard and that an appraisal decision is fairly reached and reviewed. This is especially important because the form appraisal clauses in standard insurance policies, which are contracts of adhesion, may result in a policyholder's forfeiture of the right to have a jury determine the amount of loss.
The majority, however, seems oblivious to the necessity of establishing minimum standards for fairness in the appraisal process because it: (1) allows for the forfeiture of an important right by erroneously reading into the appraisal clause the word “binding” where it does not exist; (2) appears to constrain meaningful review of an appraisal award under most circumstances by limiting review to the face of the award; and (3) affirms the circuit court's erroneous decision refusing to permit Donaubauer to conduct necessary discovery in an action in the circuit court to invalidate the appraisal award. Because the majority fails to establish even minimum standards for fairness in the appraisal process, I respectfully dissent.”
I have a number of clients with matters in appraisal. Pick very qualified appraisers who will work hard on your case and with sufficient time to prepare. There is no second chance. “Just win, baby” is the mantra every policyholder better have in an appraisal.
After thirty six years as an adjuster, insurance company claims manager, and head of a major restoration firm, I've looked at this issue from a multitude of vantage points.
Sometimes, the insured is seeking an outcome incompatible with the policy conditions. Hoping for renovations to unaffected areas, repairing damages caused by non-insured perils. and other similar unrealistic expectations, very frequently contribute to the "unhappy" syndrome.
I've also worked as a Public Adjuster and do not view this issue from one side of the fence. If an insured retains a knowledgeable, honest appraiser, the system does normally work.
Unfortunately, Christmas does only come once a year.
Veteran,
I appreciate the view and you taking the time to share it.
Yes, sometimes policyholders have an unrealistic viewpoint. Sometimes, the appraisal process, whether informal or formal, results in awards where the policyholder has a poor result. Indeed, it happens in Courtrooms as well where the insurer simply prevails and the policyholder loses. No process guarantees a perfect and accurate judgment from differing evidence. That is reserved for the Almighty.
The policyholder has no protection in an informal appraisal process if the policyholder is ignorant. If a policyholder fails to obtain a very good appraiser as well as professional preparation of the evidence supporting damage, my impression is that insurers typically get a result with a far smaller award than when policyholders get the "right" appraiser and use professionals to provide, and work with, the appraiser towards a strategically prepared presentation to an Umpire.
My impression is that many policyholders in Florida come away with a good result because there is a very active public adjuster industry and knowledgeable policyholder bar that have experience with how to go about presenting evidence in an informal appraisal procedure so that policyholder recovery is fully realized.
This was not the case fifteen years ago in Florida nor in many other states today. In some situations, I have been approached for representation by policyholders, following a poor award, where they selected appraisers that are realtors, from restoration contractors that are on the insurers preferred vendor list, independent adjusters, and contractors with little insurance understanding that a simple estimate is generally going to result in an award far lower than what should have been obtained. If you select the wrong appraiser as a policyholder, you will lose.
The harder you work preparing an appraisal as if it were a full blown trial with a twist that it is not a trial, the better the results are generally obtained. Time, money and thoughtful preparation supporting the claimed amount as well as thoughtful preparation of rebuttal evidence is crucial to enhancing recovery for policyholders.
Selection of the Umpire is also important. Some umpires are slow and lazy. They take a lot of time to split differences. Some umpires are concerned about pleasing one side or the other--unfair awards may result. Ignorant appraisers sometimes agree to insurance industry Umpires. Getting the "right" umpire can make the difference between winning, having a so-so result, and getting killed because the "fix" is in. This is the real world of "Umpire shopping" that goes on everyday in the banter of the appraisal process. If a policyholder selects or has appointed the "wrong" umpire, the policyholder loses.
I applaud all Umpires that take their job seriously enough to become Certifide through the Windstorm Network and educate themselves enough to truly be worthy of what the position should be and requires.
The one aspect of all this is the right to have a jury of one's peers determine the outcome of a dispute is completely abrogated through this process. Not only are there no procedural due process safeguards for policyholders which allow them to have a right to confront those with opposing views, there are no rules at all. These basic civil protections were first provided to subjects of Kings in the Magna Carta and they exist in our Constitution.
Maybe personal Constitutional rights and the liberties all of us enjoy do not matter much in this day and age. After all, Judges trained in the law and are sworn to uphold the Constitution and the important personal right to a jury trial, make simple rules that suggest expediency and cost is more important than the Constituional right. So, why should others care?
Many of my colleague and myself have taken an oath and truly (possibly naively) believe in our jury system with set rules and procedures of fairness. My personal and professional opinion is that Kangaroo courts subject to personal arbitrary rules should not be be forced upon those that do not voluntarily agree. Policyholders with adhesionary policy terms not bargained for should question the wisdom of judges to say that somebody has relinguished such important rights merely by purchasing a standard form policy.
Yet, I live with what many Courts have found. If the rule is that there are no rules, I can get into the mud with the best of anybody. All I care about for my client is winning anyway I legally can if we go to an appraisal. Absent fraud, the Courts in informal situations have just about blessed that "anything goes."
This is what I teach and preach to public adjusters that attend our workshops. Unlike an insurer to its customer, I have no obligation to be fair and act in good faith to the insurance company during the appraisal process. Instead, my legal obligation is to zealously represent my client to the best of my ability and for the interest of my client. Insurers always have an obligation to be "fair" and thus cannot legally act only in their short term economic interest if they are acting in good faith and following the regulations that bind them.
From my view, insurers wrote this clause into the policy long ago when there were few public adjusters and experienced attorneys for the policyholder. It served them well to reduce claims payments at little cost when there was futile opposition.
"The worm turns."