"Overturning Appraisal Awards for Bias and Seeking Discovery from Appraisers: A Policyholder's Guide" Published By the ABA

Challenges to appraisal awards and to appraisers are becoming more commonplace. While speaking on an American Bar Association panel in Phoenix, I think somebody heard some of my very frank comments about good faith claims handling and problems in the appraisal process. As a result, I was asked to write an article. Last week, Shane Smith and I had an article, Overturning Appraisal Awards for Bias and Seeking Discovery from Appraisers: A Policyholder’s Guide, published by the ABA Tort and Insurance Law Section in its Summer 2015 issue of The Brief.

While that article is more academic, some of my comments about appraisal in this blog have not been so light. For instance, over two years ago in The Current State of Appraisal and How Mutual Terms Can Prevent Appraisal, I noted:

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.

I have also noted that many appraisers often never think of the ethics of what they are doing, they just want to “win.” I think that winning to the insurance company appraisers is getting as low a figure as they can without feeling shame for it. I have publicly suggested that coming up with any numbers less than what the policyholder is fully entitled to is unethical. Yet, some insurers track the success of appraisers and some appraisers for insurers even use those figures to advertise their services.

Probably the most candid remarks about appraisal and selecting non-biased appraisers was in Texas Appraisers are Supposed to be Disinterested, Impartial and Not Biased: I Doubt This is Reality in Texas Appraisals. There, I had probably had too much to say:

Appraisal is nothing like a trial if conducted informally. There is a significant chance of unfairness to both parties because there is no procedural due process. Indeed, in most states that allow the appraisal to be “informal,” there are no rules about the procedure of appraisal at all.

The problem is that the view of “fair” is dependent on what you have analyzed to be an accurate estimate of the damage and claim. I have yet to see an insurance company appraiser come to one of my clients seeking information regarding the damage, history of the property, and observations of why my client believes the damage is more than the insurance company estimate. The reason is obvious-- the insurance company does not want its appraiser to learn information that may increase the value of the estimates of damage being prepared by its appraiser. The insurance company appraisers usually have some prior relationship with the insurance company adjuster or independent adjuster and are looking for future business. I truly believe that most want to keep the dollar value as low as fairly possible—a number have admitted as much over drinks at the various conferences I attend.

And, in many jurisdictions, the policyholder’s appraiser is acting as an advocate as well. Indeed, I request that clients I represent in appraisal have an appraiser that works as hard as possible to find out all information about the loss from both my client and from the insurer’s viewpoint. It is my impression that the harder and longer one works on analyzing damage following a loss, the more damage is found that would simply go unclaimed as a result of ignorance. Getting an accurate and fair independent estimate of damage by either appraiser requires diligence, information, expertise and then an understanding of why other views are not accurate or subject to criticism.

These issues are becoming commonplace. As I said in Phoenix, they involve not only issues of fairness in appraisal, but good faith by the insurer. I am not saying that a policyholder gets a blank check after a loss happens to go to appraisal, but the policyholder should not have to fight a person looking to make a mark by bragging or advertising that he “won” or got a low figure. 

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