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

Last year I noted that the case The Doan v. State Farm Gen. Ins. Co., 195 Cal. App. 4th 1082, 1094 (2011), addressed appraisal provisions found in first-party property insurance policies. The Appellate Court reaffirmed that while appraisal provisions are mandatory, they do not apply to, or limit, an insured’s right to seek other relief on issues other than the amount of a loss. This decision clearly allows insureds to litigate matters that appraisal could not address.

In 2011, the California Appellate Court also issued the decision of Kirkwood v. California State Auto. Ass’n, 193 Cal. App. 4th 49, 58 (2011). In this decision, the Court wrote that appraisers are "to determine the amount of the damage resulting to various items submitted to their consideration." The decision made it clear that it "is certainly not their [the appraiser’s] function to resolve questions of coverage and interpret provisions of the policy." Kirkwood also made it clear that "appraisers have no power to interpret the insurance contract or the governing statutes."

California Courts recognize that appraisal can be beneficial in limited circumstances, such as when scope of damage is not at issue, and that litigation is still important to determine a breach of a law or contract. Appraisal is no longer truly informal and it can be expensive and time consuming. Mediation may be the preferred and most efficient method of resolving a claim if the parties can work together.

Other state courts began to follow California's lead and held that a tort claim exists for policyholders that can establish bad faith on the part of insurance carriers. Today, the majority of states have come to embrace the bad faith tort. Many of them have passed specific legislation that allows for the bad faith tort cause of action to be brought against insurance companies which inappropriately deny and delay claims. The specifics of what constitutes bad faith is still being developed and evolves with each case. Many states such as Hawaii, and Nevada follow suit and are heavily influenced by California case law when it comes to bad faith actions.

Bad faith torts arise from an insurance companies’ duty of good faith and fair dealing to the insured. In California, the duty is referred to as the “implied covenant of good faith and fair dealing.” This duty is inherent to each insurance contract and the violation of the covenant of good faith and fair dealing gives rise to not only a breach of contract claim, but the bad faith tort claim which allows for an insurance company to be penalized in an amount greater than the insured’s policy limits, depending on the insurer’s actions.

Bad faith has traditionally been defined through case law issued by the Court’s decisions. California has allowed insureds with bad faith claims to recover attorney’s fees in addition to the judgment for damages. California is known to be a state that protects consumers, and our case law evolves and changes by the year, adding essential consumer protections that will hopefully be embraced and adopted by many other states.

These issues are:

1. Whether, under California insurance law, a building ordinance or law exclusion, found in the Perils Exclusions section of a property insurance policy, effectively excludes coverage for increased costs caused by complying with ordinances and regulations if the underlying loss was caused by a covered peril.
2. Whether, under California insurance law, the costs of obtaining building permits or conducting required environmental impact studies are considered costs excluded by a building ordinance or law exclusion, or whether these costs are better considered as part of the replacement cost under the policy.

This case arises from a dam break on New Year’s Day in 1997. A flood destroyed a dam used in connection with a hydroelectric facility in Farad, California. The Ninth Circuit explained that if the policy excludes increased costs due to building ordinances, the Building Ordinance Exclusion is the only potential source of that limitation. The Supreme Court has not indicated whether such an exclusion, which is located in a list of perils exclusion and purports to exclude increases in the loss rather than the costs to repair or replace, is effective to limit an insurer’s liability.

It will be interesting to see how the Supreme Court of California rules. We expect a decision sometime in March 2012 and will update the blog when it is released.

When Northern and Central California experiences wildfires, even if the local vineyards are not in immediate danger of burning, local wineries may keep careful watch as the smoke poses a danger to vineyard workers. Heavy smoke may cause delays for a winery and the smoke damage to a year’s crop can change the wine.

Los Angeles County has been plagued with arson fires. More than 50 blazes have flared since Friday in Hollywood, neighboring West Hollywood and the San Fernando Valley, causing about $3 million in damage. Although most of these fires were set in vehicles, a few blazes were set in buildings. Today, a suspect was taken into custody and charged. Southern California has not seen arson like this for years and it has brought terror to the surrounding neighborhoods. For each of these fire victims, they have lost property, and the arson will likely be covered under their insurance policies. However, the fear derived from such an act of arson lingers.

Whether it is a wildfire or an arson fire, the loss is the same. Fire consumes a home or vehicle in minutes, leaving little to nothing but salvage. Submitting a claim to an insurer for destruction from a wildfire or arson is pretty much the same as submitting any other claim for a total loss. An insured must report the claim in a timely manner and submit to any preconditions of coverage such as providing a sworn affidavit of a proof of loss or submitting to an examination under oath.

In these instances, it is incredibly important to be able to inventory the loss for the insurer. For example, a claim might not only include a vehicle damaged in a fire, but also the contents of the vehicle, such as laptops or luggage.

Putting a claim together can be difficult or confusing. Fortunately, United Policyholders has compiled several great resources for policyholders. You can order a copy of United Policyholders’ Disaster Relief Handbook and Household Inventory Guide here.

In bad faith, any coverage provided for the insured’s direct benefit is considered first party coverage. First party coverage usually involves uninsured and underinsured motorist coverage in automobile liability insurance and medical and property casualty coverage in automobile or homeowners or business policies.

In California, there is a three step analysis for bad faith (of course there are exceptions):

1. First, determine if the insurer has contractual liability under the contract to pay the insured’s claim for policy benefits;
2. Second, determine whether the insurer’s failure to pay or other conduct in the connection with the claims subjects it to extra contractual (tort) liability for compensatory damages over and above whatever is owed under the policy; and
3. Third, separate consideration must be given to determine whether punitive damages might be recoverable based upon the insurer’s conduct.

Generally, when one thinks of "bad faith," they think in terms whether or not the insurer breached the implied covenant of good faith and fair dealing. The breach of the implied covenant is actionable under tort or contract and an action on either theory is commonly referred to as "bad faith." Archdale v. American Int’l Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449,467. In analyzing bad faith, we look to see whether the insurer’s delay or withholding benefits was unreasonable or without proper cause. Jordan v. Allstaste Ins. Co. (2007) 148 Cal.App.4th 1062, 1072-1073. Usually, no bad faith action lies where the benefits due were fully and promptly paid, no matter how hostile or egregious the insurer’s conduct towards the insured may be prior to the payout.

Overall, bad faith actions are filed for withholding of benefits due under a policy or for unreasonable conduct by the insurer. Although there are many ways to analyze withholding of benefits or unreasonable conduct, these are the basic terms. It will be interesting to see how the analysis and case law will evolve over the upcoming year.

Every insurance policy imposes certain conditions on coverage. Generally, conditions impose certain duties on the insured in order to obtain coverage. In most cases of property damage coverage, policies require that the insured provide timely notice of the loss. In instances where a loss is not discovered immediately, such as in this landlord-tenant scenario, it’s good to know that coverage is still possible in California. California Courts follow the "notice-prejudice rule."

The “notice-prejudice rule" has been construed and used in many contexts when it comes to conditions of coverage. However, it pertinently states that unless an insurer can demonstrate actual prejudice from late notice, the insured’s failure to provide timely notice will not defeat coverage. Northwestern Tile Secur. Co. v. Flack (1970) 6 CA3d 134, 141-143; Downey Sav. & Loan Ass’n v. Ohio Cas. Ins, Co., (1987) 189 CSA3d 1072, 1088-1089. Therefore, if an insured can show that the insurer is no worse off at the time of giving notice upon the insured’s discovery, the delay may be irrelevant. Arguably, there may be a good chance that policy coverage will apply.
Over time, this "notice-prejudice rule " has been flipped where an insurer may deny coverage on the basis of the insured’s refusal to cooperate if it is substantially prejudiced by the refusal to provide material information. Othman v. Global Indem. Co. (9th Cit. 1985) 759 F2d 1458, 1465.

Although all policies are different, where some are based on claims made and others on when claims are reported, the "notice-prejudice rule" does not extend the time for reporting claims to the insurer under a "claims made and reported" policy. Such policies only cover claims reported to the insurer during the policy period. Timely reporting of the claim is the event that triggers coverage, and this condition is enforceable according to its terms. Pacific Employers Ins. Co. v. Sup. Ct. (1990) 221 CA3d 1348, 1356.

Although the "notice-prejudice rule" protects an insured from a delay which does not prejudice an insurer, in California, when homeowner’s policies which may shorten a statute or requirement to file suit, the "notice-prejudice rule" may not be used to extend contractual limitations on filing suit which are designed to promote justice by preventing stale claims.

What we must take away from the "notice-prejudice rule" is that in California, insureds may have a little leeway for short or inconsequential delays. But where an insured purposefully refuses to cooperate under the conditions of a policy in providing material information, or reports a claim beyond the statue or policy period, that protection will not be granted.

This last weekend, a heavy rainstorm pummeled Los Angeles for two days, causing additional damage to already compromised structures. The local mountains are now capped with snow, and the debris from the wind and rainstorms are clogging up the storm drains. The National Weather Service has issued a special weather statement for Southern California from December 15 through December 17th warning that "...strong and potentially damaging offshore winds are possible Thursday night through early Saturday afternoon. The winds are estimated to be the strongest Friday morning, and then once again Friday evening through Saturday morning. Wind speeds are predicted to range from 25 mph to 40 mph with gust to 65 mph."

Southern Californians may be disturbed to find out that storm damage to interiors of structures not caused by "direct force" of a storm may not be a covered loss. Many property insurance policies exclude rain damage to a building’s interior and furnishings unless rain entered as a result of "direct action" of a storm on the building’s roof or walls, such as a hole in the roof or walls. In Diep v. California Fair Plan Ass’n (1993) 15 CA4th 1205, 1210-1211, the Court decided that under such an exclusion, there is no coverage for storm damage to the interior where a section of the roof had been removed for repair. The rain entered because the workers removed the roof, not because of the storm.

Fortunately, under Tento Int’l, Inc. v. State Farm Fire & Cas. Co. (9th Cir. 2000) 222 F.3d 660, 662, 664, there may be coverage for insureds in that situation where a policy does not exclude losses resulting from third party negligence, such as a roofing contractor. If the storm damage to the interior was a result of a roofing contractor’s negligent failure to provide temporary covering on a roof, then the damage may be covered. At a time where Mother Nature is unkind to Southern California, knowing what your insurance policy may or may not cover can help in the claims process.

After hurricanes have affected a region, homeowners and businesses are advised to have a licensed professional roofer examine their roofs in the expectation that hurricane winds may cause damage. In many instances after Hurricane Ike went through Texas, businesses and homeowners didn’t know that the gale-force winds extensively damaged their roofs until months down the road when the rainy season began. The rains came and suddenly business owners and homeowners discovered that the winds formed cracks in the membrane of their roofs and caused minute ripples, which allow water to seep into structures. Over a course of a few months, relatively young roofs deteriorated quickly with the rain, turning the roof into a total loss.

There are many different types of roofs, and they are all rated for a certain amount of years depending on the type of material the roof is made out of and what kind of conditions (or region) the roof is expected to weather. In Southern California, a roof can be rated a 10, 20 or 30 year roof. After the strong Santa Ana gusts last week, building owners may want a professional to examine their roofs to see if any repairs should be reported to their insurance companies. In particular, roofs over 10 years old, may be more susceptible to strong winds. Winds may cause buckling or bring off tiles which cover the felt underneath. If the winds caused severe cracks or loosened too many seams, rain may come into a building, or a roof may be damaged enough to collapse.

A professional roofer can identify cracks and loose seams which we may not be readily seen. In the long run, a proper examination may be the difference between a few leaks and a roof collapse. Southern California is about to enter its winter rainy season.

More information on how an insured home or business owner may find help in dealing with wind related claims may be found at the non-profit insurance consumer protection organization, United Policyholders.

Large trees toppled cars and roofs causing extensive damage. The wind has also blown off parts of roofs of many structures. Los Angeles County declared a state of emergency, a move that hastens the ability of state and federal authorities to provide assistance.

Forty-two damaged houses and apartment units were declared unsafe for habitation by early afternoon in Pasadena alone. A service station in Pasadena was demolished by a large uprooted tree.

Wind gusts stronger than 140 mph -- which would be equivalent to a Category 4 hurricane -- have been measured on the Sierra Crest mountain ridge, according to the National Weather Service.
Lower-lying areas also have been hit hard by Santa Ana winds, with 80 mph gusts. Some of the strongest gusts were measured:

• 94 mph, Mt. Elizabeth near Sonora
• 106 mph, Grey Butte, near Mt. Shasta
• 97 mph, Whitaker Peak, near Castaic Lake
• 72 mph, San Rafael Hills, near Glendale
• 83 mph, Acton

Although Santa Ana winds are common, wind gusts of this magnitude are not. Some damage may be subtle and require an examination by professional roofer or contractor to find. In his post, The Science of Roof Damage Claims Caused by Wind, Chip Merlin explained the importance of understanding the subtle damage to roofs and structures that can be caused by wind.

Damage should be reported to your insurance company immediately. Document damage, mitigation efforts and repairs with receipts, work repair estimates and photos.

Many businesses across Southern California may have business interruption claims that arise from the power outages caused from these unusually strong Santa Anas. Michelle Claverol details the ins and outs of Utility Service Interruption Coverage in her post, Service Interruption Coverage May Help Connecticut Businesses Get Ready for the Holiday Season - Understanding Business Interruption Coverage, Part 96.

This kind of widespread wind damage does not occur often in Southern California, and it brings a reminder that Southern California is well into our fire season.

Probably the strongest evidence of this storm’s damage is in the San Pedro area, where the roadway collapsed in a landslide into the ocean. Although this was an area of concern before the rainstorm, it was certainly driveable before Sunday. Thankfully, no homes were lost, but now the nearby houses along the cliffside may be geologically compromised.

With winter and additional rainstorms, there comes the possibility of landslides. Despite these worries, the threat of another major earthquake is California’s most dangerous and costly potential natural disaster. If you believe the statistics, a large quake occurs once every twenty years, so we are overdue for another large quake. Our last big earthquake in Southern California was the 1994 Northridge Quake, which caused about $20 billion in damage.

In California, earthquake insurance is not a covered risk under a general “All Risk” policy. In fact, earthquakes are specifically excluded under most property insurance policies. See California Insurance Code § 10088. To have insurance coverage for earthquake related damage, a separate policy must be purchased. These earthquake insurance policies can be costly. Thankfully for homeowners, earthquake coverage must be offered at the time of purchase of residential property insurance or at least within sixty (60) days of the purchase. Earthquake insurance must also be offered every other year upon renewal of a homeowners policy. With residential properties, an insurer must offer earthquake coverage to a homeowner or forego insuring the property altogether. See Williams v. State Farm Fire & Casualty Company (1990) 216 Cal.App.3d 1540, 1545.

Although many insureds wish to forego the extra expense of earthquake coverage, it should be noted that the insurance company insuring your home must offer the coverage and the failure to offer earthquake insurance coverage may give insureds who suffer earthquake losses a possibility to recover from an insurer who failed to comply with the insurance code and applicable Act. See Jacobellis v. State Farm Fire & Casualty Company (9th Cir. 1997) 120 F. 3d 171, 173,-174. Jacobellis implies that a private right of action exists because otherwise the Insurance Code Statues could not be enforced.

With the statistics indicating a large earthquake will hit Southern California, it’s time for insureds to examine their policies to see if their earthquake insurance is adequate or determine whether they should be purchasing earthquake insurance if they don’t already have it.

My answer is always the same---it depends on the facts and the circumstances surrounding those facts. In California, insurance brokers and agents may be responsible for coverage issues on policies purchased through the broker or agent. However, these types of cases against brokers and agents are very specific as to whether or not the broker/agent provided the right type of coverage, understood the needs of the insured and explained the policy. In instances of straight underinsurance, typically, it is difficult to find the insurer or the broker/agents responsible.

Many California insurance policies have a “value protection clause” or an “inflation coverage provision”. The value protection clause automatically protects increased property values and enables the insurer to increase premiums accordingly. Usually, this means that premiums are adjusted yearly to reflect such things as the increased costs of construction. This type of clause is usually available as an endorsement to overcome code upgrade or replacement cost coverage limitations. See Fire Ins. Exch. v. Sup. Ct.(2004) 116 CA4th 446, 469). The “inflation coverage provision” allows the increase of policy limits as specified in the declarations page and may have a same or similar effect of a value protection clause. See Everett v. State Farm Gen. Ins. Co.(2008) 162 CA4th 649 at 660.

Despite these two provisions, the insurer is not bound to set “adequate” policy limits. It is up to the insured to determine sufficient coverage for his or her needs. Essentially, the California Courts recognize that many insureds take a calculated risk and simply do not purchase enough insurance to keep the annual premiums low and therefore cannot fault insurers or their representatives. As a consequence, it is good for all insureds to review their policies on a yearly basis to determine if the amount of coverage purchased meets their current needs.

Last year, many insureds found their homes and communities were unprepared for the damage that the rains would cause. Trees were downed by the heavy rains and soft soil. The winds caused roof damage in many communities, and insureds found leaks in their ceilings and walls for the first time. Some homes were even flooded by the heavy downpours.

Over the last five months, I’ve received numerous calls and consulted with home and condominium owners asking if their water damage claims arising from the December 2010 storms were viable. Many insureds’ water damage claims were denied outright by their insurance company.

Water damage claims can be difficult, depending on the circumstances. Each instance and insured may have a unique situation. However, the one thing that may not be unique for each potential claim is that in California, the insurance company may have put a provision in their policies requiring all lawsuits to be filed within one year from the date of incident or date of loss discovery.

In Prudential-LMI Com. Insurance v. Superior Court (Lundberg) (1990) 51 Cal. 3d 674 [274 Cal. Rptr. 387, 798 P.2d 1230], the California Courts have upheld that "the one-year suit provision begins to run on the date of inception of the loss." Specifically, the Court defined the date of loss "as that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered." Further, the Court defined tolling, indicating that the "limitation period should be equitably tolled from the time the insured files a timely notice, pursuant to policy notice provisions, to the time the insurer formally denies the claim in writing."

As we approach December 2011, many Southern Californian insureds will find that their rights will be forfeited if they do not settle their claims or file suit before the one year anniversary of the date of loss. Although California law allows for tolling of the statute during the time a claims is adjusted, it is safest to preserve a claim by filing suit before the one year expiration.

The purpose of the UCL is to protect consumers and business by “promoting fair competition in commercial markets for goods and services.” (Kasky v. Nike, Inc., (2002) 27 Cal.4th 939, 949, 119 Cal.Rptr.2d 296.)

Section 17200 is framed in the disjunctive, a business practice need only meet one of the three criteria, unlawful, unfair or fraudulent, to be considered unfair competition. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., [“Cel Tech”] (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548 [the UCL “‘establishes three varieties of unfair competition – acts or practices which are unlawful, or unfair, or fraudulent. . . . a practice is prohibited as ‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa’”].)

The UCL has been applied in bad faith cases to aid in pursuing pattern and practice discovery to fight unfair insurer practices. Although actual damages are not permitted for a claim brought under the UCL and awards are restricted to injunctive relief and restitution, the UCL may also support punitive damages claims and aid in the request for attorney fees. Attorney fees are not generally awarded under the UCL, but, “if a plaintiff prevails in an unfair competition law claim, it may seek attorney fees as a private attorney general pursuant to Code of Civil Procedure section 1021.5.” (Walker v. Countrywide Home Loans, Inc., (2002) 98 Cal.App.4th 1158, 1179, 121 Cal.Rptr.2d 79.) There is no similar provision for an award of attorney fees to a successful defendant. Further, if a provision in a contract allows attorneys’ fees to the prevailing party and the contract is challenged in an action under the statute, attorney fees may be awarded. (Shadoan v. World Savings & Loan Ass’n., (1990) 219 Cal.App.3d 97, 107-109, 268 Cal.Rptr. 207.)

The UCL cause of action, through restitution relief, permits a court to make orders and judgments necessary to restore any money or property an insurance company acquires by wrongful conduct. Through the years, carriers have fought viciously to have the UCL removed from causes of actions, arguing insureds have other remedies, such as breach or contract and the breach of implied covenant of good faith and fair dealing, to make them whole. However, this argument does not make the UCL an invalid cause of action in a bad faith action.

In a bad faith case, the UCL may be a powerful tool. Keeping the UCL cause of action in a claim bolsters the insured’s argument that the pattern of practice discovery is relevant in the case and allows discovery on how an insurance company handles similar claims. This can help prove an insurance company has a conscious and willful pattern of practice of wrongful denials, delays and refusals to investigate, exposing the insurer to tortious breach and punitive damages.

The California Insurance Code allows insurers to impose conditions on coverage and requirements that must be satisfied by the insured in order to institute coverage for a loss. Sometimes insureds are surprised that they have to provide the expected notice and proof of loss, as well as examinations under oath (EUO). For insureds, an EUO may feel like an inquiry where their integrity is questioned.

The most common complaint I hear among insureds regarding an insurer’s imposition of conditions on coverage is that insurers have difficult standards for a layperson to uphold. There is no concrete roadmap that tells an insured how to structure a proof of loss or what receipts or other paperwork documentation would be needed at the time their property is flooded or burnt.

For those insureds who have attempted their own proofs of loss and were denied based upon a lack of satisfying the conditions for coverage, there is relief. Depending on the circumstances, California courts have been inclined to examine an insureds behavior and sometimes not all coverage is lost. If a carrier denies coverage for a reason other than a failure to satisfy conditions, it waives defenses based upon those conditions. Select Ins. Co. v. Superior Court, (1990) 226 Cal. App.3d 631, 637. “An insurer is not allowed to rely on an insured’s failure to perform a condition of a policy when the insurer has denied coverage because the insure has, by denying coverage, demonstrated performance of the conditions would not have been altered its response to the claim.” Campbell v. Allstate Ins. Co., (1963) 60 Cal.2d 303, 306. “An insurer may assert defenses based upon a breach by the insured of a condition of the policy such as a cooperation clause, but the breach cannot be a valid defense unless the insurer was substantially prejudiced thereby.” This is because a condition in an insurance policy is “not to provide a technical escape-hatch by which to deny coverage in the absence of prejudice not to evade the fundamental protective purpose of the insurance contract to assure the insured and the general public that liability claims will be paid.” Ins. Co. of the State of Pennsylvania v. Associated International Ins. Co., (9th Cir. 1990) 922 F.2d 516, 523.

Insureds should always try to comply with all requirements and conditions contained in most policies, however, in the event that a condition fails, California law provides a scope of protections for the insured. A court may find coverage even when a carrier initially chooses to deny it.

In California, the seminal case that allows for attorney fees and litigation costs is Brandt v. Superior Court (Standard Ins. Co.), (1985) 37 Cal.3d 813, 817. In Brandt, the California Supreme Court established an exception to the general contract rule that each party bears its own attorney fees. Brandt allows recovery of attorney fees incurred in obtaining contract benefits when the insurer’s withholding of those benefits was in bad faith.

To recover attorney fees, a policyholder must prove:

1. Benefits were withheld in bad faith; and
2. The fees incurred by the policyholder to recover those benefits. The fees incurred to prove the bad faith are NOT recoverable; only fees incurred to prove coverage are recoverable. (Cassim v. Allstate Ins. Co., (2004) 33 Cal.4th 780, 811)

In White v. Western Title Ins. Co., (1985) 40 Cal.3d 870, the Supreme Court extended its analysis in Brandt to recovery of litigation costs, including expert fees, incurred in proving coverage. Since coverage experts can be very expensive, this additional economic damage should not be overlooked. Attorney fee and litigation costs are normally a jury issue, but, as the Brandt court recommended, they are usually best determined by the court after the verdict.

When it is time for policyholders to make a claim with their carrier, it’s always under unfortunate circumstances. At that time, having an appropriate policy to rely upon and a cooperative insurance company is crucial to the livelihood of individuals and businesses alike. During these times of need, finding out that the broker did not procure a policy which met the policyholder’s needs, can be devastating.

In California, a broker is held to a reasonable standard of care. Courts have consistently identified that a broker must:

1. Understand a client’s needs when providing a policy;
2. Match the proper policy to the client’s needs;
3. Explain to the client whether the policy meets the coverage needs and disclose coverage possible coverage gaps;
4. Explain to the client any possibilities of coverage disputes.

Actions for lack of appropriate coverage, gap in coverage, or that the coverage is not what was represented by the broker are possible. A broker’s failure to deliver the agreed-upon coverage may constitute actionable negligence and can constitute the proximate cause of an injury. Butcher v. Truck Ins. Exchange, (2000) 77 Cal App. 4th 1442, 1461.

Californian policyholders may rely upon the broker’s representations regarding the appropriate purchase of a policy and the amount of coverage needed. An agent or broker who fails to procure insurance as requested will be liable for any resulting damage. Hydro-Mill Co. v. Hayward, Tilton & Rolapp Ins. Associates, (2004) 115 Cal.App. 4th 1145,1153. Although it is good to know that California Courts consistently recognize that a broker has an affirmative or greater duty to the client, and better still, holds brokers liable for the resulting damages, it ultimately behooves the policyholder to understand his or her own coverage needs. Being diligent in making sure that your broker chooses the right policy for your needs can make the difference between mere unfortunate circumstances and a nightmare.

The honest answer is nobody knows. I hope these massive destructive forces miss all of us.

I can’t foretell where the next hurricane will hit. While we opened our Texas office just before two massive hurricanes hit Texas in 2008, I do not expect similar catastrophes will strike near our two newest offices in Denver or Los Angeles anytime soon.

Still, I do note that in a July 28 article, Planning for the Big One, Yevgeniy Sverdlik wrote about California:

Undeterred by forecasts of the imminence of 'the big one', companies continue building data center space in the region. Players that have brought new space online last year, or are readying to come online this year, include QTS, CoreSite, Vantage and Server Farm Realty.

The region sits on the line where two tectonic plates meet: the Pacific Plate and the North American Plate. As the Pacific Plate tries to move northwest and the North American Plate tries to hold it back, energy accumulates until it is unleashed in the form of an earthquake.

Between the region's eight active faults (the points where these plates touch), cumulative probability that an earthquake of magnitude 6.7 or greater will hit between 2007 and 2036 is 63%, according to the US Geological Survey.

So what is my advice? If you are in California, buy a lot of earthquake coverage. If you are in the Southeast, buy a lot of windstorm and flood coverage.

Then, listen to this song about the summer of Hurricane Camille in 1969.

We made a decision two years ago to open an office in California. Corey Harris and I passed the California Bar Examination last summer and were granted admittance this spring. Two more Merlin Law Group attorneys are taking the exam next week.

After a search, we were pleased to hire Denise Sze to start and head our efforts representing Californians with insurance coverage disputes. In a press release announcing the opening of our Los Angeles office, Denise noted:

As a Californian, I know firsthand the pleasure of living here but also understand the potential perils for property owners,” said Ms. Sze. “I am so pleased to have the resources that being a part of Merlin Law Group offers and being able to put all of that together to represent policyholders in their claims against their insurance providers.

We are hosting a reception at the Beverly Hills Wilshire next Thursday evening, July 28, at 7 pm to celebrate the opening of Merlin Law Group’s Los Angeles office. We will make a donation to United Policyholders and will certainly have a grand time in setting more intimate than at some recent conferences. Call Kendra Kenney at (813) 229-1000 or Denise Zse at (310) 229-5961 to RSVP.

The Crown Fire forced evacuations of over 2,000 homes in the area. Unbeknownst to many homeowners with active homeowner’s policies, these homeowners have substantial claims with their insurance companies for damages caused by smoke, soot and ash.

Smoke, soot and ash may cause hefty property damage, ranging from a few thousand dollars all the way to tens of thousands of dollars, when a structure is contaminated by the debris in the roof, chimneys, fireplaces, pools and their pumps, attic insulation and air conditioning and heating ducts.

Policyholders are entitled to costs incurred in the clean up, painting, and remediation of damages caused by the smoke and ash to the home itself and the property within. Ash and soot can be very fine and have the ability to travel through air into pipes and between walls, on carpets and clothing. They can cause illness due to the composition of chemicals that are acidic and may eat away at what they settle on.

Many insurance policies in California are drafted to require that a claim or lawsuit must be made within one year of the date of incident. Many Californians will find that their rights are forfeited if they do not bring their claims on or before July 29, 2011.

Stan got his start in the insurance industry in 1950 when he was only 20 years old. He was a college student on scholarship, working weekends scoping auto claims for his uncle, a well known insurance broker in New Jersey. Stan was known as a “runner” – he was paid five dollars for every claim he worked. On a given weekend, he could make twenty to thirty five dollars evaluating the automobiles, taking photos, and summarizing the damages.

Stan graduated from St. Paul College and went on to become an insurance agent. He was quickly promoted to managing agent. In 1956, Stan became a public insurance adjuster, starting first in New Jersey, and then expanding his business to five states --80 public adjusters strong.

Stan Kaufman worked approximately 30,000 claims on the East Coast before expanding to California. Stan was challenged in California. Back East, business was done with a handshake. Stan and other public adjusters built solid reputations and were respected by many insurance company representatives. Stan was known in the community for helping people navigate the muddy waters of insurance coverage. But after moving west, Stan encountered resistance when he was adjusting claims. Insurance companies and police and fire departments did not understand his role. The communities weren’t as familiar with the good work of public adjusters. Stan explained that in the beginning of his career in California, the competition between public adjusters was intense and caused a divide between policyholder representatives. Seeing an opportunity to improve the industry, Stan started gathering the troops.

Stan formed the California Association of Public Insurance Adjusters in 1976. CAPIA held monthly Saturday morning meetings. At every CAPIA event, Stan said he has pushed for CAPIA members to follow three key principles:

1. Brotherhood. Professional Public Adjusters should work together. Public adjusters should interact with each other on a claim with respect. Respecting the profession includes following a first-come, first-serve approach when several adjusters arrive on a loss site. Adjusters should join together to help protect policyholders.
2. Education is fundamental. Each CAPIA meeting features experts who discuss relevant insurance topics.
3. Socialize. The monthly meetings, originally held over breakfast, allowed the adjusters the opportunity to build up a sense of camaraderie.

Currently, CAPIA’s headquarters is in Los Angeles, California, and the association promotes professional public adjuster education and employs lobbyists throughout the Los Angeles area to protect the interests of the industry and the insureds.

Jeff Sjobring, vice president of CAPIA, said the association plans to honor Stan with a plaque, recognizing Stan’s lifelong hard work and dedication to the initiation and preservation of CAPIA at their August 5, 2011 Bi-Monthly meeting in Simi Valley.

For more information on how to join CAPIA, Jeff encourages licensed public adjusters to go to the CAPIA website at www.capiainc.com to contact the association. To be considered for membership, persons must be licensed by the California Department of Insurance and adhere to the CAPIA Code of Ethics. To be considered for affiliate membership, a person must be employed by a company or firm engaged in the business which serves the best interests of Insureds.

For directions to the August 5, 2011 meeting, where the featured speaker will be Amy Bach Esq., of United Policyholders, go to: http://www.lostcanyons.com/facility_directions.php. All Public Adjusters are welcome. Admission is the cost of lunch. Applications to join CAPIA will be available at the meeting.

This would be a great chance to meet Stan. After helping insureds for over 60 years, Stan has a wealth of knowledge concerning the principles and application of insurance coverage, and he is willing to share his knowledge in every way that helps policyholders.

There is a remedy. Look to your insurance policy. Most insurance policies have an Appraisal Clause purportedly designed to help the parties avoid litigation. This Appraisal Clause, which can be invoked by either party, can be a double edged sword for insureds. A neutral umpire is assigned or agreed upon by the parties to determine the mere value of the items claimed in the loss, or the actual damages. Although this process may lead to a quicker resolution than litigation, it also has its limitations.

In California, the Court of Appeals determined that an appraisal panel does not have the authority to decide whether an insured actually lost what he claimed to have lost or something different. Safeco Insurance Company of America v. Sharma, (1984) 160 Cal.App.3d 1060.

The Sharma decision was reaffirmed in Kacha v. Allstate Ins. Co., (2006)140 Cal. App. 4th 1023, which demonstrates that insurers must be careful when seeking to expand the scope of appraisal beyond the mere valuation of the items claimed, or the appraisal may be set aside.

In Sharma, the insured lost 36 paintings in a burglary. The insured claimed that the paintings were a museum-quality "set of 36 Rajput miniature paintings, Bundi School, India, late 18th Century." The appraisal panel determined that the paintings were not, as the insured contended, a matched set of museum-quality paintings of the Bundi School, and determined their value to be significantly less than claimed.

On appeal, the court found that the appraisal panel improperly addressed whether the paintings the insured actually owned were those he claimed to have owned. The Sharma court admonished that an appraisal panel has no authority to determine whether an insured lost what he claimed to have lost or something different. The identity of the property, the court explained, was not the same as value, e.g., quality or condition.

In short, an umpire can only resolve a pure financial dispute of damages. When that award is properly given, it takes the effect of an arbitration award and is not easily overturned or set aside unless the umpire overstepped his or her authority or the scope of appraisal. The insured may find the matter is not satisfactorily resolved if the type of coverage, property and repairs slated for appraisal are not agreed on before the appraisal.

If an California insured is concerned about the appraisal process because the scope of a claim is not agreed upon, then the insured may want to consider litigation before invoking the appraisal process per their policy. In the recent decision of Doan v. State Farm General Ins. Co., (2011) 195 Cal. App. 4th 1082, bringing a claim for declaratory relief to address issues that an appraiser could not was upheld by the Court of Appeals. The insurer did not have to submit to an appraisal under Insurance Code Section 2071 prior to obtaining a judicial declaration as to the proper interpretation of Insurance Code Section 2051 and the depreciation regulations arising out of the statute. An appraisal could be stayed under California Code of Civil Procedure Section 1281.2.

The recent development of Doan shows that the Courts recognize the limitations of the scope of the appraisal process and that policyholders have methods of seeking remedies other than appraisal if the scope of the claim is disputed.

Californians are plagued not only with earthquakes, but also windstorms, rainstorms, wildfires and landslides. Homeownership and the cost of homeowner’s insurance in California come at a high price. In October 2007, California was engulfed in epic wildfires that ravaged whole communities and destroyed the lives of many. In the years following the wildfires, the same communities suffered catastrophic rainstorms and landslides.

Years after the 2007 catastrophic wildfires, rainstorms and landslides, many homeowners are still struggling to rebuild. It is a difficult road to rebuild and put a life back together when everything a person owns is destroyed. Unfortunately, many homeowner victims did not have experience in filing claims, and, although some insurance companies paid expediently and fairly, many Californians are still fighting an uphill battle on denied, delayed or partially paid claims. These homeowners may have bad faith claims against their insurance companies. Depending on a homeowner’s written insurance policy or the statutes, homeowners must file their lawsuits in a timely manner or their rights will expire.

Homeowners cannot control how an insurer adjusts a claim, but a homeowner should seek legal advice when:

1. their claim is denied outright after a catastrophe;
2. there is significant delay in adjusting the loss;
3. an appraisal is denied;
4. the adjusting does not conform with the written policy between the homeowner and the insurer.

As the four (4) year anniversary of the October 2007 California wildfires approaches, homeowners should evaluate whether they received the maximum benefit of their policies or if a new claim or a reopen claim on the policy should be considered.

Koch alleged that during his dealings with the agent, he specifically requested that the agent procure slip-and-fall coverage for the auto repair business. The agent not only agreed to do so, but he also held himself and his agency out as an expert in garage-keepers insurance. The agent prepared an insurance package that included the garage-keepers insurance from Markel and a separate workers compensation policy from a different insurance company.

Koch later incorporated part of his business, but left the other part as it was. Koch asked the agent to ensure that the insurance policies be changed so that there would be no gap in coverage. The agent prepared a new application, and had Koch sign it without affording Koch a reasonable opportunity to review it. The new policy provisions proved to be insufficient.

An employee at the garage fell and injured himself. After receiving workers’ compensation, the employee sued Koch for negligently maintaining the garage premises. Koch sought a defense from Markel, but was denied because of the policy language. Koch then sued Markel, and also sued the agent for agent negligence because he procured insufficient coverage.

The trial court dismissed the suit, reasoning that insurance agents have no duty to procure a specific type of coverage for an insured. Koch, however, successfully appealed to the California Court of Appeal, which reasoned that insurance agents take on added responsibility when, like the agent in this case, they hold themselves out as experts in a field. The court further held that this responsibility, or duty, is even clearer when the insured specifically requests a particular type of coverage. Because Koch had a viable negligence claim against the agent, the Appellate Court also held that Koch had a potentially viable claim against Markel, which could be held vicariously liable for the actions of its agents.

Importantly, this case illustrates that even though an insurance agent doesn’t represent the insured, in some circumstances, the agent may have a greater duty to ensure that the insured gets what they bargain for. Take this lesson to heart---if your insurance company denies your claim based on a gap in coverage that you believe shouldn’t have existed, remedies may be available. Keep in mind that this case came from California’s Second District Court of Appeal, and the law in other jurisdictions may differ. An insured’s remedies will depend on the particular facts of the case and the specific law of the jurisdiction where the case may be brought.

InsuranceNewsNet noted the following about the race:

With 100% of precincts reporting, insurance department enforcement attorney Brian FitzGerald is holding a 11,204-vote lead, a margin of 0.8%, over Assemblyman Mike Villines. FitzGerald, whose campaign consisted primarily of a blog and Facebook page, spent less than $5,000 on his campaign. Villines, a three-term legislator, spent $228,710 as of May 22, according to state campaign finance reports.

Indeed, FitzGerald has noted the following expenses:

Since there are those so astonished that a person can actually run for office in California and NOT spend $10 Millions and as I have not spent the amount requiring a FPPC filing, here is my approximate campaign accounting:

Secretary of State filing fee
$2800

Ballot Pamphlet Statement (for those that missed it, it is also listed on this site)
$25 per word x 43 = $1075

One round trip to the LA Times Editorial Board Meeting who declined to endorse me. Trip including airfare and taxi rides:
$417

Grand Total: $4292

His biography points to his insurance experience:

Brian, whose office is in San Francisco, has been with the California Department of Insurance for over 16 years, enforcing the Insurance Code and regulations against companies and agents in hearings. His work requires him to travel around the State and visit the other Department offices where he is known by investigators, examiners, actuaries and analysts who work with him.

The voters apparently did not read The Los Angeles Times editorial, which did not endorse FitzGerald:

On the Republican side, Fitzgerald's [sic] main pitch seems to be his ability to get more out of the department's staff, a disappointingly inward focus for such an important policymaking position. We think Villines is the better candidate, in part because of the political courage he showed in helping to end a debilitating stalemate in the budget talks last year. Our biggest complaint about Villines is that he doesn't seem prepared to be insurance commissioner. If he hopes to challenge Jones or De La Torre in November, he will have to demonstrate a much better grasp of the job he's seeking.

Assuming FitzGerald wins the final tally of primary votes, the November election will be interesting to see if a non-career politician, but qualified candidate, can show that a bunch of money is not needed to win a statewide office in a major state.

The possibility of the earthquake event that happened in Haiti was anticipated. The World Bank provided Haiti a loan to pay natural catastrophe insurance premiums starting in 2007:

The Haiti Catastrophe Insurance Project's objective is to reduce Haiti's financial vulnerability to natural disasters through insurance coverage against earthquakes and hurricanes. This will be achieved by providing financing to Haiti to allow it to join the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and purchase financial protection against catastrophic earthquake and/or hurricane events. Without the IDA grant, it is unlikely that Haiti would join this pilot initiative, which represents the first entity created to protect small island states from the financial impact of natural disasters. The project has two main components with the first being to assist Haiti in joining the CCRIF through the financing of the entrance fee. This fee is equal to the first year's insurance premium of US $2.57 million. The second project component is payment of annual insurance premium which will assist Haiti in purchasing the catastrophe insurance coverage offered by the CCRIF during the first three years. As such, the project supports the establishment and viability of the CCRIF.

The sad truth is that poor countries and poor people usually have no or little insurance. In this case, as indicated in a Wall Street Journal article, Haiti Insurance Coverage Expected To Be Far Short Of Losses, only multinational corporations were expected to have any significant earthquake coverage. The insurance fund supported by the World Bank apparently has only $8 million:

Haiti will likely receive some help from its main catastrophe insurer, the Caribbean Catastrophe Risk Insurance Facility, a regional fund administered by participating governments. A spokesman said that Haiti's earthquake coverage is up to $8 million, which would be paid from the fund in about 14 days, once the earthquake is categorized. The spokesman said he knows of little private insurance coverage in Haiti.

Devastating earthquakes will happen in the United States. Most vulnerable are California, Oregon, and Washington. The only question is "when." I bet that many in those areas are taking the news from Haiti as a wakeup call, as indicated in an article from Oregon, Only 20 percent of Oregonians have quake insurance:

"As we offer our support and help to the victims of the Haiti earthquake, Oregonians may also be thinking about how to protect themselves in the event of an earthquake.

Although Oregon is among the states at highest risk for a major earthquake, only about 20 percent of Oregonians have earthquake insurance, according to a Department of Consumer and Business Services survey.

Standard homeowner policies do not cover earthquakes but optional earthquake coverage is readily available and relatively inexpensive, the 2009 survey indicated.

"Consumers may want to think about their ability to rebuild if their house is destroyed in an earthquake," said Cory Streisinger, director of the Department of Consumer and Business Services. "Insurance should be weighed as part of other earthquake preparations."
...

• Homeowners generally can buy earthquake insurance as an endorsement (addition to their policy) or as a separate policy. The few companies that do not offer earthquake insurance in Oregon typically refer clients to a company that sells stand-alone earthquake policies.

• Earthquake coverage is relatively inexpensive - often less than $300 a year for a $300,000 wood-frame home. Masonry homes are more expensive to insure. And, if you live in an older home, you may need to bolt your home to the foundation or make other seismic upgrades before you can buy earthquake insurance.

• To keep premiums low and because it is designed to cover catastrophic loss, earthquake coverage generally features high deductibles. These typically amount to 10 percent or 15 percent of the amount covered by insurance. A homeowner with a house insured for $300,000 and a 10 percent deductible would pay $30,000 before the policy would pay. Coverage for contents is separate.
...

Studies by the Federal Emergency Management Agency (FEMA) show the bulk of the nation's annual losses from earthquakes are expected to occur in California, Oregon and Washington – with most of that loss in California.

Although quake-prone California collects more earthquake premiums than any other state, the insurance costs significantly more than in Oregon and only about 12 percent of Californians are covered for earthquakes. The state created the California Earthquake Authority to ensure homeowners could buy earthquake insurance after the 6.7-magnitude Northridge Earthquake of 1994, the costliest quake in U.S. history.

The majority of economic loss is along the West Coast but earthquake risk is nationwide. About 35 percent of Missouri residents, who are part of the New Madrid seismic zone in the central Mississippi Valley, are insured for earthquakes..."

Insurancenewsnet also noted that the Haitian earthquake disaster could act as a wakeup call in, Recent Temblors Put Focus on Need for Quake Insurance: 

"A 6.5 magnitude earthquake that recently struck the shore of Northern California didn't even come close to the devastation of the quake that destroyed much of Haiti on Jan. 12. But Pete Moraga, spokesman for the Insurance Information Network of California, said temblors like the one that shook the Sunshine State put focus on the need for insurance.

"This was a sizable wake-up call," Moraga said. He said the combination of where the earthquake's epicenter was and building codes in the state reduced the damage but the next time could be a different story."

The Insurance Information Network of California highlights the current state of affairs regarding earthquake insurance in California:

"Only 12 percent of California homeowners currently own earthquake insurance policies, potentially leaving millions of Californians financially unprotected in the event of a catastrophic quake.

“Historically, the longer California goes between major quakes, the more homeowners drop their earthquake coverage,” said Candysse Miller, executive director of the Insurance Information Network of California. “Without a financial recovery plan, homeowners should expect to be hit by financial aftershocks in the event of a major quake.”

Though Tuesday’s Chino Hills temblor caused only minor damage, it was the first sizable quake to strike a Southern California metropolitan area since the 1994 Northridge earthquake. At the time of the Northridge quake, nearly 30 percent of California homeowners purchased earthquake coverage.

IINC research has indicated that Californians may errantly believe that their homeowner and renters’ insurance cover earthquake damage. Past surveys by IINC revealed that far more Californians believed they had insurance for earthquake and flood damages than actually purchased the policies. Like flood insurance, however, earthquake coverage is purchased separately from standard homeowner and renters’ policies.

In 2006, an IINC poll found that 31 percent of Californians believed they had earthquake insurance, when sales trends indicated that fewer than 13 percent of California homeowners had earthquake coverage. Today, roughly 88 percent of California homeowners reject earthquake coverage.

...

“Financial preparedness is a key and often overlooked part of disaster readiness,” Miller said. “It may sound like a chore, but understanding your insurance coverage is a critical step in protecting your home and assets.”

Fear of loss and the current reminder from Haiti's devastation is something insurance agents and brokers should be emphasizing to their customers. It is human nature to not dwell upon unpleasant possibilities of financial disaster caused by events out of our control. The purpose of insurance is to provide the peace of mind that, in the unlikely event of a catastrophe, there is a softening of the impact. Insurance helps and is most effective to individuals and society at large when we recognize those perils and widely insure against them. California, in particular, is awaiting this crisis because its population is not widely insuring against earthquake destruction. Agents and insurers need to get this message out in the media before California truly becomes a national bailout state.

Many adjusters have found purposeful work as catastrophe adjusters. I have suggested to many experienced adjusters that there is a great deal of gratifying work when they help adjust claims in an area of widespread devastation. I have heard countless stories from policyholders and adjusters about how an adjuster can soften the emotional blow to policyholders. While I am often looked at by many as only a critic of the insurance claims industry, most dedicated adjusters work long and hard to help those in need following widespread natural disaster. Most do it for more than just the money, and I strongly encourage those in the insurance claims industry to try CAT adjusting.

Public adjusters can also help. Following Hurricane Andrew in 1992 and then the Northridge Earthquake in 1994, I noted how many public adjusters travelled cross country to ply their trade. This trend has continued. I have also encouraged public adjusters to obtain licenses in various states, anticipating a demand for their services. Public insurance adjusters should consider the need for their work in the western states following an earthquake and prepare for that today. Business arrangements with local public adjusting firms can be made in advance.

Unlike Haiti, we are one of the wealthiest countries and people. In an affluent society such as ours, insurance becomes even more important because we have so much more to lose. Our financial affairs are interconnected. In modern American society, business collapse and personal financial loss have ripples far beyond the local community and its physical damage. Insurance is a wonderful man-made financial product that provides society in general with a mechanism to mitigate these inevitable catastrophes, so that those ripples do not become waves causing more significant loss, including that of our fortunate affluence.

Our society, unfortunately, seems ever more inclined to defer personal expenditure upon available insurance for one reason or another. Instead, possibly as a result of seeing so many other individuals, small businesses, and, now, even our largest financial institutions being given money from the government following various widespread physical or man-made financial disasters, many are irresponsibly refusing to take responsibility for themselves. When I served on the Citizens Mission Review Task Force, I heard many people comment that Florida would simply rely upon the national government in the event the "big one" struck Florida. I noted in Actuaries Are Underwriters With No Personality that:

"After the session ended, I tried to explain what I think we did as a group to three newspapers and another television station. I recognize that the issues are very important, but I have never dreamed that issues of insurance rates, which will take effect a year from now, could ever be this newsworthy. The problem is that we are just making suggestions for legislation. The big fights will take place later this spring. We did not directly address the biggest issue.

The biggest question which needs to be answered by all the intelligent, nerdy actuaries and financial types is:

If we get into a really big hurricane season or another Hurricane Andrew, is there any way to avoid Florida's bankruptcy and inability to pay claims?

From what I have heard about the current scheme so far, the answer is "no." Nobody wants to hear this. It is almost impossible to contemplate that the Catastrophe Fund will not operate to save us. But in some of the limited discussions we had on this topic, my impression is that no actuary is guaranteeing anything if a big disaster hits. All bets are off at that point. We will be charting new financial waters similar to what we are doing now with our economy. A few mentioned that Florida will have to look for a bailout. Seems like that line is pretty long right now."

Eventually, there is no free lunch. Debts will have to be paid. Actuaries can estimate debts of future physical destruction. We should encourage private expenditures and savings for these occurrences through private insurance as much as possible. Every law and action that we take which fails to do so, encourages this growing notion that others will be there to finance individual catastrophe losses as a bailout and discourage saving and actions mitigating against the same. There is not enough discussion of this unfortunate trend in the United States. The trend is reflected by many who have much more financially at stake than the poor victims in Haiti could ever dream of losing, intentionally not insuring against exposures.

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.

...

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.