Appraiser Disinterest and Impartiality California Style
Barry Zalma writes some interesting and worthwhile property insurance coverage articles. While most of his work centers on insurance fraud, his recent article, "When is An Appraiser Disinterested?" has implications for consideration in Florida as well.
Zalma noted that when considering the qualifications of an appraiser, California courts have adopted the arbitration code for guidance:
California courts have concluded this adjudication must be conducted pursuant to the provisions of the California Arbitration Act, Code of Civil Procedure section 1280 et seq. (Arbitration Act).
Section 1281.9 of the Arbitration Act requires proposed neutral arbitrators to disclose to opposing parties the existence of any potential grounds for disqualification. If a party objects to the proposed neutral arbitrator, section 1281.91 requires the objecting party to serve a notice of disqualification within 15 days of receipt of the disclosure statement.
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The key to disqualifying a party appointed appraiser is whether there is a "substantial" business relationship between the party appointed appraiser and a party to the appraisal, their counsel, or the umpire. Impartial arbitrators/appraisers must disclose to the parties any dealings that might "create an impression of possible bias." The test is whether a reasonable member of the public at large, aware of all of the facts, would fairly entertain doubts concerning the arbitrators/appraisers impartiality, the arbitrator/appraiser is not subject to disqualification.
This discussion is quite relevant to the ongoing debate about appraisal in Florida. One of the insurers’ contentions is that many policyholder appraisers are biased and interested. Insurers argue that appraisers who are compensated on a contingency fee system inherently try to raise the amount of awards because they have an incentive to do so.
A Florida case, Rios v. Tri-State Ins. Co., 714 So. 2d 547 (Fla. 3d DCA 1998), allows appraisers to work on a contingency basis, so long as it is disclosed to the panel. This is prohibited in Texas appraisals.
It will be interesting to see how all this resolves.
There needs to be a regulatory body that ensures the competency and impartiality of appraisers. The existent system is flawed, the training is inadequate, allegiance prevails rather than professionalism,business considerations predominate. An appraiser properly trained, licensed and monitored would be desirable. There is nothing wrong with putting two different positions forward as long as both are honest, impartial, and reflective of damages caused. The appraisal process needs to strictly correlate damages caused with appropriate caveats as to causation.Simply providing a tally of visible damages does not serve the interested parties well. If the appraiser can not with reasonable professionalism determine what caused the damage then they should not be appraising. The process needs to be transparent, only then will it serve it's ultimate purpose which is resolution of a claim according to policy conditions.
Chip,
Confused; are you for contingency or against?
A contingency agreement protects the insured by not allowing billable hours to affect what the policyholder is required to pay for the appraiser's services.
"Insurers argue that appraisers who are compensated on a contingency fee system inherently try to raise the amount of awards because they have an incentive to do so." And the insurer's appraiser doesn't have an incentive to keep the award lower so they continue to obtain work from the insurer? Ironic how the insurers only see this issue being against them, when they cause most of the appraisal issues in the first place. Doesn't an engineer who revises their initial report due to the pressure from the insurer have incentive to do so?
Far too many appraisers fight for their clients "position" (either for the carrier or the insured), and do not truly try to analyze the "amount of loss." The "amount of loss," is the key! If the appraisers can truly back up their findings by providing documentation and photos proving the loss will cost X-amount on an RCV and ACV basis... then why should the insurer care what the agreement is between the appraiser and the policyholder?
The appraisal clause states that each party will hire and pay their appraiser separately. What business does the insurer have to regulate what a policyholder should pay to an appraiser? Maybe the policyholders should fight to have the insurers pay their appraisers on contingency? They would feel that would be ludicrous, right?
This true issue is that the insurers are getting their heads handed to them in appraisal. They end up paying much higher settlements from the appraisal process. It's aggravating that they believe it's because PA's, appraisers, and umpires are all in it together - against them. NO, the fact is that many of their adjusters are uneducated on the processes to repair and/or rebuild damaged property. They are losing more in appraisal because the adjusters and management are not doing their jobs properly. Awards would not continuously be in favor of the policyholders on such a high percentage if the insurer's staff were properly settling their claims. Insurers would not be trying to remove clauses and adjust policy language if the clause was not costing them more than they wanted. They want it removed because the process is costing them more money in settlements... PERIOD.
In addition; far too many appraisers are in it to ramp up billable hours. I find this to happen more from the insurer's appraisers than the policyholder's. Many umpires do this as well. If the insurer's appraiser is interested in billable hours it is far better for the policyholder to be under a contingency agreement. The issue in appraisal is not how much per hour - or how much the percentage is that an appraiser is charging THEIR CLIENT... it's about finding the correct "amount of loss," that the covered peril has caused.
One of the biggest issues is the COMPETENCE of the umpires. It's not mediation, and it's not a ruling on the policy or the law, it is however, a ruling on "actual costs." I've been in the building industry for 20+ years. I am IICRC certified in Fire and Water Damage Restoration. This makes me COMPETENT on fire damage claims to a dwelling. I should not be considered as a COMPETENT umpire for fire damages to cars, art, boats or heavy equipment. For such damages I would not be able to see if one of the appraisers was trying to pull the wool over my eyes. However, as a COMPETENT contractor and certified fire restorator I could make an informed, educated, decision about such a loss.
In closing; the insures should focus on how to settle their claims fairly and less about how the apposing appraisers are paid. No system will ever be 100% FAIR and UNBIASED. You even eluded in an earlier post that an attorney without good skills or knowledge of such claims can be detrimental to the policyholder. Well, there you go, that's not fair that the insurers can afford more knowledgeable attorneys for such cases. If COMPETENT appraisers and umpires would focus solely on the "amount of loss," all this would be mute.
Joe,
I don't know. I am certain that in most states that I practice, I have to ask the appraiser if he/she is on a contingent agreement to prevent a disqualification. But, not in Florida.
In Florida, as I have stated, anything goes because there are no rules.
And your observations are very representative.
Thanks for adding to a thoughtful perspective. I encourage you to do so more often.
Veteran,
What about the California procedure?
What do you think about that?
I disagree with the idea of impartial appraisers. The insured is "interested" and anyone who represents him should be as well. That way the insured can be confident that his appraiser is working hard towards the best settlement. No insurance company appraiser is going to have a record that favors the insured. That isn't a coincidence.
I would almost always select the insureds contractor as appraiser if given the choice. No other party can understand the scope and cost of the damage like the contractor. He has to answer to the customer when the job is done so it better be right!
The position that requires strict impartial involvement is that of Umpire. Require a State License and General Contracting experience in the state where the appraisal is to take place. Also require that all appraisal results be made public record so the public is able to see the decision history of any available Umpire.
Now this sounds fair and transparent. The insurer and the insured select the individual most capable of representing their interest. These two select an Umpire from the list of those qualified and proceed to make their cases.
While the California system has merit it's disclosure provision has no teeth so to speak. The crucial element in my opinion is to ensure qualfied appraisers are utilized, the minimum criterion in place at present is a farce, also allowing umpires with vested interests is non sensical. Institute a governing body, a type of bar association or similar entity that would attempt to govern the parameters of appraisal. This process should normally provide a policyholder with an inexpensive solution to an indemnity issue. At present it's a free for all.I wholeheatedly agree with Joe that competency is the key. I hark back to the idea of an indemnity tribunal. Cull the best and let them decide.
As far as I am concerned, make a preset statutory amount that if the carrier estimate is found to be greater than 20% off of the price, they are responsible for legal fees. That way they will have a reason for reaching an amicable resolution quickly. If not we can stack all of these cases into court and have the PA's receive their commission; the Counsel for the Insured receive their fees by the carrier; and the insurance carrier can also pay for their own legal fees, as well as their own expert fees. Now we have truely helped stimulate the economy and now the carrier will complain about the legal fees eating them out of house and home. The bottom line is, the carriers will always complain about paying out money and the insured will always complain about not getting paid enough. If someone actually comes up with a real and viable way to resolve this, whole lot of people will not have clients to work for on either side of the line.
If the carriers would stop interfearing with the appraisal process and allow their appraiser to adjust the loss with the insured's appraiser then we would not, I repeat we would not have so many claims going to umpire or even appraisal. Make the carriers comply with matching statute (threashold vs. door jamb) and O & P requirements and you will allow many more claims to settle. But when you have appraisers hired by companies like Florida Peninsula who arrive and they advise you that they will give you extra on other areas of the estimate but they will not be allowed to give you flooring in adjoining rooms because there is a door (no threashold) then how are we to resolve these issues. If the carriers do not want to pay for matching tile or laminate or carpet in adjoining rooms that had no damage, then they should sell their policy accordingly. Not come up with an internal policy and inflict that policy even on the appraiser!!!
FROM VETERAN: "This process should normally provide a policyholder with an inexpensive solution to an indemnity issue."
Did everyone get that? It's About The Policyholder, the one who pays for the service. It's not about what is best for the insurer. If two COMPETENT appraisers (no matter who they represent) both agree on an "amount of loss," then that is what the claim pays. Both parties are supposed to understand this simple concept.
Unfortunately, both sides believe this is a "win or lose," issue. It is not! The amount of the damage caused by the peril is what appraisal is about. If the insurer is trying to get over on an insured… the two appraisers will see it. Same is true on the other side. If an insured is try to claim damages that are not form that date of loss… then two COMPETENT appraisers will also see right through that.
The policy is about making the POLICYHOLDER... WHOLE! Not about how much money the insurer can save on their settlements. You make the POLICYHOLDER whole by repairing or replacing what was actually damaged. Is that not fair for both parties? Is that not what the policyholder actually paid for? Is that not what the insurer sold to the policyholder?
This is done by having COMPETENT appraisers and umpires "appraise†the damages.
FROM RICHARD SCHWARTZ: "If the carriers do not want to pay for matching tile or laminate or carpet in adjoining rooms that had no damage, then they should sell their policy accordingly. Not come up with an internal policy and inflict that policy even on the appraiser!!!"
This is why we have appraisal in the first place. So each appraiser can act INDEPENDENTLY! I agree with Richard; if the carpet in the hall is being removed, then the "adjoining" carpet in the bedrooms must go as well. Prior to the loss the policyholder did not have two different color carpets - where the dye lots did not match.
I'm no attorney Chip, but one of the legal characteristics of an insurance contact is "Adhesion." The insurance contract and its wording are prepared by the insurer. The applicant (policyholder) cannot bargain over the wording. Therefore the contract is purchased how it is worded and the policyholder is "stuck with," that wording. In adhesion contracts, the courts will interpret any ambiguity in the wording in favor of the party who did not write the contract.
"...And your observations are very representative."
Representative of who Chip? I'm assuming from your post you have me pegged as an appraiser that represents policyholders? I actually have represented and currently represent both. Appraisal and appraisers are to be unbiased.
I'm a licensed "Insurance Adjuster," in 10-states. I'm not a PA, nor a person who is an advocate for either side. The damages speak for themselves. As I like to say, "It is what it is." No more, no less. My views may appear that I'm an advocate for the insured. I believe it to appear that way because so many company adjusters... get it wrong.
Thanks for the reference.
For your information, most of my work does not involve insurance fraud, it involves insurance coverage. I do write a twice monthly newsletter called "Zalma's Insurance Fraud Letter" because I saw a need. I am an insurance coverage lawyer and an insurance claims and coverage consultant and expert witness who testifies for any party who has a case against a party with whom I have no conflict. I also have written books that are available from my site or from the publishers that are useful to anyone interested in insurance.
In California "appraisal" is an arbitration whose result can be made into a judgment so impartiality -- or, at least, a lack of serious conflict must be shown.
Appraisal, in my opinion, should be used as a last resort. It is often less efficient than trial especially when the appraisers have little or no experience in valuing property or legal procedures.
Regards,
Barry Zalma
Barry,
I will make a point of correcting that. Sometimes, I get it wrong and want to make certain that is pointed out.
And, thanks for your thoughts on this important subject.