Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Barry Zalma wrote a comment worth sharing and pointing out my incorrect explanation of his law practice:

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

Harvey Goodman, a public adjuster from Goodman-Gable-Gould/Adjusters International, once told me that his firm rarely went to appraisal. He felt that they understood their client’s loss better than anybody else and should be able to explain and adjust it to resolution without having to risk third parties coming to a wrong conclusion. He wanted to keep control of the claim and suggested that many bitter disagreements regarding the value of a loss could be resolved through intensive good faith dialogue and negotiation with insurance company representatives. I know a number of prominent public adjusters who share that same philosophy, although most concede that appraisal is invoked much more often today than two decades ago--for a number of reasons.

Zalma’s opinion is not that different than Harvey Goodman’s. I agree that there are a number of case examples where appraisals take longer than litigation or can come out much worse for policyholders. On the whole though, I believe appraisals in most states usually reach resolution faster than litigation and at less cost.

One thing that is missing from the discussion is that the client policyholder should have a say and some legal advice whether the resolution should be through appraisal or litigation. A public adjuster should not unilaterally demand appraisal. The demand for appraisal and a suggestion that appraisal, rather than legal remedy, should be done is a legal decision with considerations of laws to the facts of a case. Adjusters who give advice as to one over the other in a given situation are giving advice that is commonly referred to as practicing law without a license. I am certain there will be a lot of public adjusters who claim that I am pointing this out because it is in my and other attorneys’ economic benefit to do so. On the other hand, it is illegal and a crime for public adjusters to practice law. Every public adjuster agrees to that, but I would suggest that a few do not want to adhere to that rule if it is not in their economic interest.

Indeed, I have met a few public adjusters in Texas who prepare their policyholder clients’ cases for settlements or litigation. They take the view that the Texas consumer protection statutes generally provide significant interest and other remedies that make most cases where an insurer offers an unfair settlement better resolved with attorney involvement. They always seek legal counsel for the client to help make the decision regarding appraisal or litigation.

The National Association of Public Insurance Adjusters, its general counsel, and officers have maintained my view and have warned against the unintentional practice of law by public adjusters for decades. There should be no question that only licensed lawyers should explain legal rights and actions to a client.. Many dedicated public adjusters are concerned that the legal bars of various states will question the licensing of public adjusting if public adjusters continually overstep their authority and provide legal, rather than adjustment, advice.

For those of us in the trenches of working for fair and efficient resolutions of disputes, the following comment published early this morning to my post, Impressions Following the Alternative Dispute Resolution Roundtable, should provide serious consideration about how mediation can be easily abused:

Chip:

I am writing this to express my experiences with alternative claims resolution processes using both the Florida Mediation Program and the appraisal provisions of the insurance policy.

Let me start by saying that I have a somewhat unique perspective on claims handling. I have spent my entire 35 year professional career in the claims handling industry in one form or another. The first 24 years of my career I worked on the insurer side in various positions including a 5 year stint as a regional claims manager for a property casualty insurance carrier and 13 years as an equity partner in a regional independent adjusting company. For the past 11 years I have owned my own public adjusting company. So I have had extensive experience in both mediation and appraisal advocating for both the insurer and the insured.

First let me address the Florida Mediation program. To put it bluntly it is, in my opinion, an abject failure. Perhaps the first and foremost reason that it is a failure is that my experience has shown that the insurer’s representative almost always goes into the mediation without having full settlement authority. Without having that authority the insurer’s representative is unwilling or unable to offer a fair settlement to the insured simply because they either do not have the dollar authority to do so and/or are unwilling to go back to their supervisor for my authority. I have also experienced cases where the insurer agreed to go to mediation with an insured but at mediation they did not move one dollar from the original position that drove the claim to mediation in the first place. I have had an impasse declared within 10 minutes of the start of mediation with the insurer never making an offer above the original adjuster’s offer.

However, perhaps the most insidious aspect of mediation is the way the insurance industry advocates to the insured to use the mediation process without the insured having any professional assistance with their presentation. The insurer’s representative at the mediation is a professional claims person who has been trained in the mediation process and negotiation tactics. An unrepresented insured almost never understands the process and certainly does not have the training of the insurer’s representative. In the words of one insurer representative that I know when an insured goes into mediation without professional help, 'it is like leading the lambs to slaughter.' It has reached a point now that I see no redeeming reason to recommend to my clients, even with my help, that they avail themselves to the mediation program as it currently exists.

Next, let me relate my experiences with the appraisal process. In my career, I have appraised claims on behalf of both insurers and insureds. I have also served as an umpire on over 50 appraisals. I appreciate the appraisal process because it does give some finality to a claim. It is quicker and less costly than litigation and absent any coverage issues a properly crafted appraisal award is almost always binding on both the insurer and insured. The appraisal also gives the insured a professional advocate in the decision making process. That cannot be said for many mediation hearings. I also like appraisals because there is no such thing as an impasse in appraisal. I have yet to see an appraisal I was involved with that did not have an ending where at least two of the three appraisal panel members were able to reach an agreement.

Now, let me speak to the appraisal process. I believe the appraisal process would be very well served if it had some guidelines on how the process was to be conducted, such as having utilizing the Florida Arbitration Code as a guide. I have issues with the conduct of insurers and their appraisers. I believe insurers have far too much influence on their appraisers when it comes to the selection of an umpire.

As indicated by Umpires at the Roundtable, it is a very poorly kept secret that insurers have lists of umpires that they instruct their appraisers to never use, even if their own appraiser feels the person on that list is qualified and would make a good umpire on their appraisal. I have run across another problem in my capacity as umpire. I have had appraisals where the appraisers advise me they are at an impasse and need my umpire services to settle their differences. When I meet with the 2 appraisers they inform me that they really do agree on an amount of loss but the insurer’s appraiser informs me that he doesn’t want to sign the award. He won’t sign the award, even though he agrees with it, because he is afraid if he does sign it the insurer will stop using him on their appraisals. As an umpire I should be happy with this situation because it means more business for me. However that is not the case. I can’t help but think about the poor insured who has had his claim settlement delayed and now that an agreement has finally been reached he has to pay 50% of an umpire’s bill when in reality the umpire was not really needed. That is just wrong.

As a former claims manager and a person very familiar with the industry, it is naive to think that insurers, including Citizens, do not keep statistics and track which umpires and appraisers provide lower awards and then deselect those that give awards higher than what those insurers think is acceptable.

Does the appraisal process have warts? Certainly it does. However, I believe any problems with the appraisal process are repairable. I do not feel the same way about the Florida Mediation program.

Thanks for all your efforts on behalf of the policyholder.

Sincerely,
Don
Donald A. Phillips

Insurers, or any party to a dispute, can abuse the mediation process by having people that do not have the complete authority settle after considering everything presented at the mediation. I have heard of insurers that intentionally provide limited dollar authority to the adjuster at mediation, no matter how compelling the evidence presented, at a state sponsored mediation, knowing that many policyholders will simply give up. Many policyholders are afraid of litigation or appraisal. Nobody buys an insurance policy thinking they will have to become professional negotiators or litigators. Insurance companies have professional litigators and train their adjusters how to negotiate with unrepresented policyholders and how to hold their own in negotiations with attorneys. Honestly, what chance does a lone policyholder have against an insurer that has a claims attitude to pay as little as possible? Why do you think insurance company executives and their lobbyists are pushing for a mediation system in Florida where policyholders come all by themselves? "Lambs to slaughter" sounds about right to me.

Here is his letter to me:

The Roundtable will be televised live on The Florida Channel, and there will be an opportunity for people to call-in with questions.

I have commented about appraisal in previous posts.

I plan to have a post before and after the roundtable as I work through my thoughts on how we can efficiently and fairly resolve cases short of litigation.