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.

Section 627.7015 sets forth an alternative mediation procedure for resolution of disputed property insurance claims and highlights the “particular need for an informal, nonthreatening forum for helping parties ... because most homeowner’s ... residential insurance policies obligate insureds to participate in a potentially expensive and time-consuming adversarial appraisal process prior to litigation.” § 627.7015(1), Fla. Stat. (2009). The statute specifically provides that “[a]t the time a first-party claim within the scope of this section is filed, the insurer shall notify all first-party claimants of their right to participate in the mediation program under this section.” § 627.7015(2), Fla. Stat. (2009). However,

[i]f the insurer fails to comply with subsection (2) by failing to notify a first-party claimant of its right to participate in the mediation program under this section or if the insurer requests the mediation, and the mediation results are rejected by either party, the insured shall not be required to submit to or participate in any contractual loss appraisal process of the property loss damage as a precondition to legal action for breach of contract against the insurer for its failure to pay the policyholder’s claims covered by the policy. § 627.7015(7), Fla. Stat. (2009) (emphasis added).

The statutory requirements are further clarified in rule 69J–166.031 of the Florida Administrative Code, which “implements Section 627.7015, F.S.[,]” and specifies that:

1. Within five days of the insured filing a first-party claim which falls within the scope of this rule, the insurer shall notify the insured of their right to participate in this program.

2. Notification shall be in writing and shall be legible, conspicuous, printed in at least 12–point type, and printed in typeface no smaller than any other text contained in the notice. The first paragraph of the notice shall contain the following statement: “The Chief Financial Officer for the State of Florida has adopted a rule to facilitate the fair and timely handling of residential property insurance claims. The rule gives you the right to attend a mediation conference with your insurer in order to settle any claim you have with your insurer. An independent mediator, who has no connection with your insurer, will be in charge of the mediation....

3. The notice shall also:
a. Include detailed instructions on how the insured is to request mediation, including the address, phone number, and fax number for requesting mediation through the Department;
b. State that the parties have 21 days from the date of the notice within which to settle the claim before the Department will assign a mediator;

....

Fla. Admin. Code R. 69J–166.031(1) & 4(a) 1–3 (emphasis added).

Interestingly, the policyholders participated in the appraisal process for a period of time before filing a lawsuit. After the lawsuit was filed, the policyholders argued they did not have to complete the appraisal because notice of the alternative mediation procedure was not given. The Court agreed and stated:

Here, although the Insureds initiated the appraisal process, they were unsatisfied with the alleged lack of progress, and decided to pursue litigation instead. There is no language in the statute to indicate that an insured’s commencement or exploration of a contractual appraisal process irrevocably binds that party through the conclusion of the appraisal. Likewise, there is nothing either in the statute, or in case law, demonstrating that the commencement of the appraisal process relieves the insurer of its burden of notification. Were we to follow Universal’s theory of interpretation, we would be contravening the purpose of the statute as an insurance carrier could, by withholding notification, trap an uninformed insured into the very same potentially lengthy and costly appraisal process the statute was meant to guard against.

Insurers should follow Florida statutes and regulations. This decision reaffirms that there are consequences for failing to do so. Without accountability and consequences, laws are meaningless.

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.

Significant is the reasoning provided by United Property & Casualty for removal of appraisal:

The Appraisal clause is being eliminated. We are taking this action because the current appraisal language, as it exists, does not give insurers recourse to meaningful judicial review. Furthermore, the basis of awards under Appraisal is outside the scrutiny of both policyholders and insurers.

Eliminating the appraisal clause will mean that our policy contracts will follow Mediation, which is the Florida Legislature’s preferred method of dispute resolution.

Interestingly, the Courts have approved appraisal as a means to keep the matter away from litigation. United Property seems to want a mechanism to get disputes into litigation.

I am not certain that mediation is preferred by the legislature. The legislature has enacted laws that demand that insurers fully investigate a loss and promptly pay claims for the full amount.

Certainly, if the insurers can get unwary policyholders into mediation without professional representation and threaten the potential of a lawsuit without the possibility of appraisal, insurers will gain "leverage" in the negotiation of a dispute because delay works to an insurer's advantage. This is not what Florida legislators, except those politicians in the pockets of the insurers, want for Floridians.

Still, the trend is clear---appraisal is becoming less of an option. Many insurers are not happy with the results of appraisal and think our judicial system provides a better forum to fairly resolve disputes.

Slabbed is probably going nuts because I am indicating that another case may be resolved confidentially and without public scrutiny. So, to help Slabbed understand a little (there is more) of what we do and provide Dimechimes with some more adjuster training lessons, I am publishing the Reports of the Claims Expert and the CPCU expert in the case.

If this post is not removed, I would appreciate any ideas on this case and would love to share information about AIG and Lexington Insurance Company with those who are having claims problems with them.

Deborah Trotter in our Gulfport office is the primary attorney on this matter. She has flown from one side of the country to the other working on this case. We are on a contingency fee and we report to a receiver in the Bankruptcy Court. The client went into bankruptcy long before we were retained and the Court approved as counsel.

The mediator for the case is Jim Perry. He has an excellent reputation and was the mediator in our Port of New Orleans case. From my one experience with him, he deserves the reputation.

One commentator with personal knowledge about our firm in replying to The Parable of Hurricane Ike Insurance Claims, indicated that our files are "thick" when we go to settlement conferences. Our experience is that most good counsel prepare their cases thoroughly.

However, there is significant debate whether all facts should be used as leverage at a mediation. Even in our law firm, I have seen a strategy that "less is more" at mediation since the lawyers just end up arguing about which case is factually better. As mediation is purely about money, the attorneys following that theory do the trial analysis and simply give a one page summary: pay or go to trial.

I prefer to provide information prior to the mediation and discuss the facts less while there. As indicated in a post last week, our firm is discussing trial technique because we expect that more carriers will try to delay their day of reckoning through trial and appeal as the current economic climate worsens. Still, I have my trusted presentation advisor, Jack Stein of Trial Exhibits, with me because I feel compelled to make a few more points.

Will this case settle? Who knows? If it does, you may be one of the few who will know it existed.