Appraisal is becoming its own sub-industry within the property insurance claims business. Many claims managers at various insurance companies have privately complained to me that the appraisal process is becoming fraught with gamesmanship and is used improperly as method of resolving a claim without adjustment or the fairness of litigation. Without a doubt, there has been an explosion in litigation regarding all aspects of appraisal.
Many adjusters, contractors, and so called “claims consultants” are now skirting state licensing laws by calling themselves “appraisers” rather than adjusters. While many of these individuals have adjuster, public adjuster, contractor, and even attorney licenses, they directly and indirectly solicit policyholders as “appraisers” and advise policyholders that the appraisal process should be invoked rather than continuing with claims adjustment or litigation. They claim that as “appraisers” that they are not subject to any licensing laws. I predict this scenario will not last much longer for a number of reasons.
Conflicts of interest occur with much greater frequency in the current world of appraisal. Many public adjusters and independent adjusters find themselves appointed appraisers or umpires on some matters, despite the fact that they are adjusting other claims that involve the same appraisers. Trading results is an obvious temptation and something every policyholder and insurance carrier should be concerned about. It does not take a genius to figure out that an appraiser may give up on one appraisal or claim to gain a much better financial result on another.
It is nearly impossible to prove trading occurs except when it is publicly or privately admitted. Insurance claims managers may be in a position to figure this out because of their large inventory of claims and resultant data, but many policyholders have no clue about this practice.
As a result, some insurance companies have removed appraisal provisions from their policies. In Florida, where appraisers can be retained on a contingent basis when they reveal the basis for the fee retention, many insurance claims managers have stated this contingent economic incentive was the impetus for some underwriters to remove appraisal from their policies. They believe appraisers will have an inherent bias if they are paid on a contingent basis rather than on an hourly or set fee basis.
A recent case, Citizens Property Insurance Corporation v. Casar,1 shows how one insurance company kept the appraisal provision in its policy, but only if both parties mutually agreed to terms of the appraisal. In that case, the unusual appraisal provision provided:
Appraisal. If you and we fail to agree on the amount of loss, either may request an appraisal of the loss by presenting the other party with a written request for appraisal of the amount of loss. If the other party agrees in writing to participate in appraisal, then appraisal shall proceed pursuant to the terms of a written agreement between the parties. (emphsis added)
The facts of the case are as follows:
The Casars filed a claim for water damage alleged to have been caused by a refrigerator line leak. Citizens inspected the property twice and concluded that the damage to some items being claimed was caused by water damage from the leak and, therefore, was covered, but that damage to other items being claimed was not caused by the leak and, therefore, was not covered. The Casars disagreed with Citizens that damage to some property was not caused by the leak and disagreed with Citizens's [sic] valuation of the property deemed covered by Citizens. The public adjuster for the Casars sent a written demand for appraisal of the entire claim. Citizens forwarded an Appraisal Agreement wherein Citizens listed for appraisal only those items both parties agreed were damaged by the water but could not agree as to the amount. Citizens excluded from appraisal any of the items determined by Citizens not to have been damaged by the leak. The Casars refused to sign the Agreement and Citizens informed the Casars that, since they were not able to agree to the terms of the appraisal agreement, Citizens was unable to proceed to appraisal.
Based on these facts and the policy language, the result is not surprising:
The appraisal provision of the Citizens' policy unambiguously requires a written request for appraisal and a written agreement between the parties in order for appraisal to take place. If the parties do not agree to the terms of the written agreement, appraisal will not take place. Because of the disagreement between the Casars and Citizens as to which items of property were damaged by the water leak, leading to disagreement as to which items would be valued at appraisal, the Casars never consummated the Citizens proposed Agreement for Appraisal. Therefore, pursuant to the policy, as there was no written agreement between the parties, Citizens was not required to participate in appraisal.
… In the instant case, Citizens complied with the appraisal provisions of the Policy. Citizens forwarded an Agreement for Appraisal. The Casars would not agree to the terms. Therefore, appraisal could not take place. Citizens complied with the policy provisions and, as such, the trial court had no basis to compel Citizens to appraisal.
Many more property insurance policies will be written with this language. I will write more about the topic of ethics in appraisal tomorrow.