Imagine entering into a contract to build a structure to specifications with your fee, the fair value, to be determined at the completion of the project. If a disagreement over the value could not be resolved, each side selected a “competent” person to determine the fair value. If the chosen persons could not agree, a third person enters the evaluation, and an agreement of any two of the three bound you as to the amount you would receive. You have no right to depositions, to testify, to critically analyze the opposing experts or even have experts appear live to explain to the three why you are right and the other side wrong. Sounds crazy, but this is the binding process of appraisal common in the property insurance disputes. Many Courts uphold it as a fair process to resolve differences. My advice to policyholders: WIN THE APPRAISAL ANY LEGAL WAY YOU CAN BECAUSE THERE IS LITTLE LIKELIHOOD OF OVERTURNING A BAD APPRAISAL AWARD.
A recent case supporting my position is Farmers Auto. Ins. Ass’n v. Union Pacific Ry. Co.,
— N.W.2d —-, 2009 WI 73, 2009 WL 1976043 (Wis., July 10, 2009). There, a policyholder argued that the appraisal panel came to a wrong conclusion and wanted to prove the mistake by taking the depositions of the appraisal panel. I have no idea how else you would prove they made a mistake without first obtaining the evidence. While I know many property insurance appraisers claim their depositions cannot be taken because they are like jurors, that argument is inherently flawed because the evidence and procedures of the admitted evidence are public in a jury trial and only the deliberations are private. Indeed, the jury in their deliberations are instructed as to the law they must follow when cosidering the evidence. In property insurance appraisals, there is no formal process (in many states), they are not public, and there are no instructions as to what is to be done to accurately determine the value as well as define what "value" even means.
Yet, the Wisconsin court found the policyholder had no right to discovery to prove a basis for overturning the appraisal award. It also remarked in a manner that I often do when talking to policyholders and public adjusters about why winning the award is paramount—no matter how you do it:
“Appraisals also deserve a more deferential review because the appraisal process is a fair and efficient tool for resolving disputes. First and foremost, the process is fair to both parties. It allows each to appoint an appraiser of their own liking, with a neutral umpire as the deciding vote. Appraisals also promote finality, are time and cost-efficient, and place a difficult factual question-the replacement value of an item-into the hands of those best-equipped to answer that question. As a form of alternative dispute resolution, the appraisal process is favored and encouraged.
The real issue, of course, is that Donaubauer feels the award was too low. It may be that the award was low, and it may be that Donaubauer cannot obtain a 4,000 square foot home with the same specifications based on the award. Conversely, the award may be too high. That is of no event. The salient fact is that Donaubauer agreed to participate in the binding appraisal process he contracted for in his Policy. There is no credible evidence on the face of the award of fraud, bad faith, material mistake, or a failure to understand the contractually assigned task. Therefore, the award should not be set aside.”
Some, but not all Courts, have demanded that appraisals have a procedure which ensures fairness. The dissenting judge noted what many, including myself, find to be a major problem with appraisals:
“Even though the exact process necessary to create a fair method for resolving disputes through appraisal is not set forth in the statutes, there must be at least a minimum level of process to ensure that the parties are heard and that an appraisal decision is fairly reached and reviewed. This is especially important because the form appraisal clauses in standard insurance policies, which are contracts of adhesion, may result in a policyholder’s forfeiture of the right to have a jury determine the amount of loss.
The majority, however, seems oblivious to the necessity of establishing minimum standards for fairness in the appraisal process because it: (1) allows for the forfeiture of an important right by erroneously reading into the appraisal clause the word “binding” where it does not exist; (2) appears to constrain meaningful review of an appraisal award under most circumstances by limiting review to the face of the award; and (3) affirms the circuit court’s erroneous decision refusing to permit Donaubauer to conduct necessary discovery in an action in the circuit court to invalidate the appraisal award. Because the majority fails to establish even minimum standards for fairness in the appraisal process, I respectfully dissent.”
I have a number of clients with matters in appraisal. Pick very qualified appraisers who will work hard on your case and with sufficient time to prepare. There is no second chance. “Just win, baby” is the mantra every policyholder better have in an appraisal.