Requests for Itemized and Line By Line Appraisal Awards Become More Common
Texas and Florida insurance companies wanting to preserve coverage disagreements and dispute appraisal awards have one thing in common--requests for itemized appraisal awards. Insurance policies have no provision for such itemizations. In construction practice, nobody accepts or places bids with the lowest line by line bid. Only the bottom line counts. Even in jury trials, the itemization of jury verdicts is far shorter than what the insurance companies are having their attorneys ask for in front of judges.
A decision yesterday by Florida's Third District Court of Appeal, Pineda v. State Farm Florida Insurance Company, No. 3D09-1003, (Fla. 3rd DCA October 27, 2010), involved a controversy where the insurance company demanded a line by line appraisal. The appraisal clause in the State Farm policy is only slightly different than the standard language:
4. Appraisal. If you and we fail to agree on the amount of loss, either one can demand that the amount of the loss be set by appraisal. If either makes a written demand for appraisal, each shall select a competent, disinterested appraiser. Each shall notify the other of the appraiser's identity within 20 days of receipt of the written demand. The two appraisers shall then 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 residence premises is located to select an umpire. The appraisers shall then set the amount of the loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any two of these three shall set the amount of the loss. Each appraiser shall be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire shall be paid equally by you and us.
State Farm asked the Court to require the appraisal panel to provide a line by line award. The policyholders filed a counterclaim, requesting the Court to declare that such an award form was wrong and not required under the policy. The appellate court noted the following regarding the line by line award:
With regard to the request for an itemized appraisal, the Pinedas stated that they had discussed the issue with the umpire, and the umpire told the Pinedas that use of a line by line appraisal form would increase the amount of fees the umpire would charge. Apparently the umpire did not say what that additional amount might be.
The court entered an interlocutory order stating that the insurance policy itself does not require a line by line appraisal, so the court denied State Farm's request. The court recommended (but did not require) that the parties agree to a line by line award if State Farm would pay for the additional time that is required for the umpire to prepare an itemized award. However, State Farm did not accept that recommendation and did not offer to pay the additional umpire fee. Accordingly, the umpire completed his work without preparing a line by line estimate. An award of $111,000 was entered in favor the Pinedas, which State Farm promptly paid. (emphasis added)
This was an excellent practical argument which is factually true. The greater the itemization, the greater the costs and fees of those charged with calculating and agreeing upon such an appraisal. Those opposing this process should be raising this point. Insurers requiring such awards should realize that this type of appraisal is extraordinarily expensive to their customers--if they care about such issues.
Interestingly, State Farm dropped the issue on appeal. A long time State Farm appellate adversary, Liz Russo, represented State Farm on appeal. She must have good reasons for not challenging this correct trial court Order.
Insurers have two bites at the apple in appraisal. First, some insurers work hard to actively use the appraisal process as if they were fighting their policyholder with an "anything goes" mentality to limit the amount of benefits rather than acting in good faith and working just as diligently to find the full amount of benefits owed. Most would suggest this type of claims culture in appraisal is not good faith.
To be fair, I said and meant "some." Many appraisers who work for insurers carry no such agenda. Many insurance company adjusters will not tolerate it and try to actively resolve disputes as the process moves along with new views of how the damage may be considered.
The second advantage insurance companies have in appraisal is challenging awards for various reasons including coverage. As noted in Appraisal in Texas is Still Going to be Debated and Part of the Wild West of Insurance Coverage Disputes, this is especially true in Texas. Even if the award comes our favorable for the policyholder, there is no guarantee of payment. And if the appraisal award is line by line or itemized, those reviewing the award will often pick and choose what is going to be paid. The policyholder may think the end is near after an award is signed. The insurer may view an itemized award as the start of the second half of a contest, especially since many courts illogically fail to include any interest for the time the insurer holds the money.
The Windstorm Conference: A Claims and Insurance Law Conference That Cannot Be Missed noted at least five workshops where these appraisal issues will be raised and debated in much greater detail. One workshop will even provide you a designation in the field of insurance appraisal:
"Professional Appraisers Designation" (PAD)
In order for the appraisal process to operate in a fair and productive manner, it is necessary for the appraisers to adhere to procedures, protocol, ethical and legal standards. WIND has instituted the Professional Appraisers Designation program to educate appraisers and potential appraisers on appraisal basics and the proper manner to navigate the appraisal process. Those who successfully complete the class will have their names listed on the WIND Professional Appraisers Designation list for a two-year period.
Faculty: John Voelpel, Voelpel Claim Service; Jon Doan, Claims Consultants Group; William Berk, Esq., Berk Merchant & Sims, PLC ; David Hisey, HISI
The trend is clear--itemized appraisal awards are requested more often. Whether you think appraisal awards should be itemized or not, the entire controversy can leave one very unsatisfied with the entire appraisal experience. This truth leads to a very pleasant end to this post:
Chip,
Interesting post.
As a very active party appointed appraiser, most often in the case of contents disputes, I find this interesting.
With this being said, I am of the opinion that an itemized (line by line) appraisal award is of the best interest to both parties and the preservation of accurate settlement amounts.
Please note, I cannot speak much on building appraisals, and my points may not be relevant in that perspective, however, in my experience with regard to CONTENTS appraisals, it is of my opinion and practice to Appraise the amount of loss on every single line item of the appraisable loss. This appraisal, on a line by line basis, allows me to present my "independent" findings to the panel, demonstrates my due diligence to the obligations of my appointment, and fosters the EFFICIENT comparison of both appraiser's INDEPENDENT findings, which essentially is an anaylis of 'line for line' of the two independent appraiser's valuations.
Although I do not attempt to tell the other appraiser how to do his job, I do assert my opinion that our appointment as appraisers, requires us to appraise the the amount of this loss. As most contents claims consist of 3000-6000 individual, unique line items, of various pedigrees, brands, categories, availability, some being valued at "market value" with appreciation instead of depreciation (i.e. antiques) and some being valued at standard replacement cost (LKQ) which would depreciate. {Please note, another factor which supports my opinion of the need to itemize an award and/or appraisal, is that the appraisal award must indicate both ACV and RCV. In order to determine ACV, the independent appraiser, in my opinion and in line with the court's opinions in NJ/NY/ETC, must calculate depreciation utilizing the Broad Evidence Rule (BER). As you all know that the BER requires all available facts/info to be considered to ascertain pre-loss condition, including use history, location in home, profile of occupants, etc., the determination of ACV must be done on a line by line basis, as each line is a unique, individual item with various pre-loss conditions and functional use.}
More so, I am of the opinion that, often, when a contents loss goes into appraisal, the scope of loss submitted by the insured may vary from the scope of loss in the carrier's settlement offer. This is often met with a conflict to which "scope" the appraisers should work off. In this situation, it is of my opinion, that as an independent appraiser, I am of the duty to fully investigate the loss and determine the amount of loss. In order to do this, I feel that I should not be influenced by the opinions/determinations/over sites/errors/etc., made by individuals during the claim process who may have had some type of interest in the outcome of the claim. That being said, it is my practice to independently inspect the loss site and any/all available documentation such as photographs, evaluations, etc., to determine my opinion regarding the amount of loss suffered to the insured property. IMO, there is no way to do this with out documenting each item of loss as a line item.
To close this long winded post, I must explain that although the appraiser's practice of investigating the loss, thus writing up each component of loss on a line by line basis may sound time consuming, because it is. REMEMBER, most likely, the loss was not properly investigated during the claim process, there may not have been enough time invested in determining the actual damages, which may of resulted in one of the parties disagreeing with the other. IN COLORFUL CONTEXT, WE, THE APPRAISERS, ARE APPOINTED TO CLEAN UP THEIR MESS!! If there was not proper investment of time and due diligence during the claim process, the appraisers should remember that their appointment calls for independent and competent professionals to investigate the loss and determine the amount (often 100s of thousands to millions of dollars) that one party of the contract owes to the other. These two parties look to the appraisal panel to determine the actual amount of loss, and entrust this panel to resolve the disputes faced in valuation.
Also, to touch on the issue discussed in your post regarding the Umpire's statement regarding that a line by line award would require more expense to the panel... I do not like the sound of that, but let me say this: As an appointed appraiser, my efforts to document the scope of a loss (line by line), and my efforts to submit my findings to the other appraiser and first prior to valuation, come to an agreement with the other appraiser on the line items which we are appraising. Once their is an agreement, we often agree to use this list as our master list. Now, as we both determine RCV and ACV independently, it will be very easy and {key word=efficient} for the two appraisers to determine the line items which we can agree upon and which line items we do not agree on with regard to their value.
NOW, IF WE NEED THE SERVICE OF THE UMPIRE, WE ARE ONLY SUBMITTING THE LINE ITEMS IN DISAGREEMENT, NOT THE ENTIRE LISTING OF 4000 LINE ITEMS. Often, the list of disagreements may only be 10-20% of the actual scope of loss. In my experience, this greatly reduces the umpire's time requirement and allows the impasse to be resolved quicker and costs ALL of the parties less money.
Thomas Di Sieno
Digitory Solutions, Inc.
Chip,
I wanted to add some interesting facts to this subject. As an appraiser who is involved with very large disputes with lots of money on the line, I do my very best to take a scholastic stance on the knowledge of all aspects pertaining to my duties as an appraiser. As you know, often this research brings us to matters of law. I do not attempt to interpret legalities or determine matters that are beyond my layman abilities, however, I am of the opinion that as a professional, it is of my best interest to be knowledgeable of the laws that guide our obligations, requirements, obligations, etc.
Through my research, I would like to ask you your opinion regarding some notable cases which have discussed the issues with "form and substance" of the appraisal award.
"Mound City Roofing Tile Co. v. Springfield Fire and Marine Ins. Co., 281 Mo. App.395, 277 S.W.349 (1925)
{The lack of detailed itemization has been held to invalidate an award}
John P. Burke Apts., Inc. v. Swan, 137 A.D.2d 321, 325, 528 N.Y.S2d 718, 720 (3d Dept. 1988)
Northville Ind. Corp. v. Board of Assessors of Town of Riverhead, 143, A.D.2d 135, 136-137, 531 N.Y.S2d 592, 593 (2d Dept. 1988)
An appraisal award is expected to set fourth basic explanations and adjustments {including the necessary facts, figures and calculations to account for any adjustments}
Glenn Houle Co. v. State of New York, 73 A.D.2d 794, 795, 423 N.Y.S2d 714, 715 (4th Dept. 1979)
Matter of Acquisition of Real Property by County of Dutchess, 186 A.D.2d 891, 892, 588 N.Y.S2d 936, 937 (3d Dept. 1983) (Citing Glenn Houle, 73 A.D.2d 794)
{A lump-sum adjustment is generally improper}
HOWEVER
In Michell v. Aetna Cas. & Sur. Co., 579 F.2d. 342 (5th Cir. 1978) it seems that it was held that an {appraisal award would not be invalidated because of the appraisers' failure to itemize unless prejudice or injustice was shown.}
It should also be noted that Jonathan Wilkofsky, in one of his books, stated that "Note that an insured (but not the carrier) might successfully challenge any additional burdens being placed upon the the appraisal team beyond that required by the Standard Fire Policy as adopted in the local jurisdiction as insurers are not permitted to draft a policy less favorable to the insured than that found in the Standard Fire Policy." (he quotes the Standard Form, Conn. Stat., Anti-Arson application, N.Y. Ins. Law 3403(e) among others...)
In DeCrescenzo, 187 A.D.2d 793, it is quoted:
"[A] reasonable interpretation of the policy language necessitates only an itemization of the damage to the basic component systems (e.g., electrical plumbing, heating, structure, carpentry, painting, refinishing) so as to insured a modicum of accountability and reliability in the appraisal process"
The Appellate Division went on to state:
"[E]ven if, as defendant contends, the phrase "each building item" is to be construed as a whole building and not its component parts (an interpretation of dubious validity as it appears to render the terms "each" and "item" superfluous), the policy language nonetheless requires that the actual cash value of the building be stated "in detail". A lump-sum figure cannot, in any sense of the word, be said to be detailed (c.f., 14 Couch Ins.2d 50:226 at 314-316;6 Appleman Insurance Law and Practice, 3945, at 609-610)
Accordingly, because of the policy language here, unlike the standard form fire policy (Insurance Law 3404) expressly mandates itemization, the Supreme Court's reliance on Gansevoort Holiding Corp v. Palatine Ins. Co. for the proposition that cash and sound valuecan be stated in gross without apportionment among the constituent elements of the building (supra at 522) was misplaced.
Wilkofsky's book also highlights that there are different opinions regarding all of this from state to state. (note, I am located in NY)
DIGITORY
My experience has been limited to acting as appraiser for insureds who feel that their claim does not reflect accurate losses and in many cases, repairs could not be accomplished by a qualified contractor for the amounts paid by their insurer. It has been my observation that insurers demand itemized line item awards for the purpose of selecting items that they normally do not pay for even though strict policy language does not support them. They will find a line item and deduct it from the award. Itemizing damaged items by "trade" is a solution to give adequate explanation of the scope of damage and yet not giving insurers the opportunity to throw out awarded items. Group electrical, plumbing, roofing or structural framing and avoid line item within "Trade" groups.