Texas hurricane claims are being resolved in a number of ways. Simple adjustment, mediation, litigation, and appraisal are the primary means to do so. Any TWIA policyholder thinking of invoking the administrative process should first consult an attorney as we warned in An Example of Why You Need to be Careful in Choosing How To Challenge TWIA. My perception is that many public adjusters are advising their clients (which is probably the unauthorized practice of law) to choose appraisal and entering the unknown post-State Farm v. Johnson era of Texas appraisals, as discussed in Appraisal in Texas is Still Going to be Debated and Part of the Wild West of Insurance Coverage Disputes.
I have been diligently studying law about the Texas appraisal process and procedure after being recently retained by a commercial client that was sued by the insurer for not cooperating in a number of ways, including the appraisal. Among other issues, the insurer claims that the process is taking too long, which is rather novel from the standpoint of what most insurers think about playing the float.
While thinking about the issues in that case, I came across a blog post Appraisal Process As A Substitute For Trial by Oklahoma attorney Steven Buchman. Appraisal is nothing like a trial if conducted informally. There is a significant chance of unfairness to both parties because there is no procedural due process. Indeed, in most states that allow the appraisal to be “informal,” there are no rules about the procedure of appraisal at all. I found Buchman’s following remarks interesting because they reflect the higher aspirations of fairness and accuracy in the result:
Does the appraisal process always work? No. Just like the jury system and any other dispute resolution device created by man, it is imperfect. On the other hand, when a dispute needs to be resolved without years of litigation, expert witnesses, depositions, appeals, and legal maneuvering, the appraisal process offers an alternative to people.
While care should be given to the choice of both the appraisers and the umpire, I have witnessed situations in which there was so much maneuvering by the participants the parties ended up in litigation. Both sides clearly want their own appraiser to be competent and knowledgeable, but it is also important to have one that is reasonable and fair-minded. If both sides merely hire their own advocate to serve solely as their "fighter in the ring" it creates more disputes for resolution by the umpire. Locating an umpire who has some experience can be extremely beneficial. Since the umpire’s job is strictly intended to resolve disagreements between the appraisers, prior experience in how appraisals function is helpful. More important is a willingness to listen, fairly look at the circumstances, and make a rational decision.
Having personally served as an umpire at the request of attorneys representing insureds as well as insurance companies, there is a keen responsibility that you feel as an umpire to try to do the right thing. In particular, I recall one situation in which the appraisers with me acting as the umpire essentially reached a conclusion unanimously as to the amount. The determination was exactly the midpoint between the polarized positions of the parties. I recall thinking before the award was entered that we would probably hear grumbling that we simply "split the baby" and divided everything down the middle. I personally disdain the practice of some umpires submitting a decision in the middle to avoid the appearance of showing favoritism. The practice of "splitting the baby" is not the purpose of appraisal. The job of the umpire is to make the right decision. He should not be concerned with future work from the parties or making either side unhappy.
At the end of the day, lawyers, adjusters, and insureds owe a duty to try to reach results that are fair and appropriate for the situation.
The problem is that the view of “fair” is dependent on what you have analyzed to be an accurate estimate of the damage and claim. I have yet to see an insurance company appraiser come to one of my clients seeking information regarding the damage, history of the property, and observations of why my client believes the damage is more than the insurance company estimate. The reason is obvious– the insurance company does not want its appraiser to learn information that may increase the value of the estimates of damage being prepared by its appraiser. The insurance company appraisers usually have some prior relationship with the insurance company adjuster or independent adjuster and are looking for future business. I truly believe that most want to keep the dollar value as low as fairly possible—a number have admitted as much over drinks at the various conferences I attend.
And, in many jurisdictions, the policyholder’s appraiser is acting as an advocate as well. Indeed, I request that clients I represent in appraisal have an appraiser that works as hard as possible to find out all information about the loss from both my client and from the insurer’s viewpoint. It is my impression that the harder and longer one works on analyzing damage following a loss, the more damage is found that would simply go unclaimed as a result of ignorance. Getting an accurate and fair independent estimate of damage by either appraiser requires diligence, information, expertise and then an understanding of why other views are not accurate or subject to criticism.
This type of critical analysis is normal for those of us in insurance coverage litigation. However, it is often the exception rather than the rule in appraisals where, as noted by Buchman, the panel often simply splits amounts.
Texas insurance law follows a view that the appraisers and umpire are an independent and unbiased group similar to a jury. I know this is not going on in many Texas cases. So it may come as a surprise for insurers and policyholders to read the following from Delaware Underwriters v. Brock, 109 Tex. 425, 430 (Tex. 1919):
The Alabama Supreme Court clearly gave the right construction to the appraisal clause in these policies, when it said: "The purpose of the clause is to secure a fair and impartial tribunal to settle the difference submitted to them. In their selection it is not contemplated that they shall represent either party to the controversy or be a partisan in the cause of either, nor is an appraiser expected to sustain the views or to further the interest of the party who may have named him. And this is true, not only with respect to estimating the amount of the loss, but also with reference to the selection of an umpire. They are to act in a quasi judicial capacity and as a court selected by the parties free from all partiality and bias in favor of either party; so as to do equal justice between them. This tribunal having been selected to act instead of the court and in place of the court, must, like a court, be impartial and non-partisan. For the term ‘disinterested’ ‘does not mean simply lack of pecuniary interest, but requires the appraiser to be not biased or prejudiced.’ And, if this provision of the policy was not carried out in this spirit and for this purpose, neither party is precluded from going to the courts, notwithstanding the agreement to submit their difference to the board of appraisers.
I know there are many adjusters and public adjusters in Texas that are reading this and agreeing with me that this Pollyanna process is not going on in their appraisals. And they are thinking, “OK Chip, but if I appoint such an expert angel of an appraiser and the other side appoints the same outcome oriented person, I am going to lose and get an unfair award. So, what do I do to follow the law and still make certain I get a fair award?”
Honestly, as an attorney that is required to follow the law, I have to tell people to follow it. But, could you imagine a system of justice where the parties picked the “independent and fair” jury members fifty-fifty and then those independent jurors voluntarily agreed to pick an independent and unbiased judge? Of course not. No legal jurisdiction selects jurors or judges in that manner because nobody would believe the other party would select an unbiased and independent juror. Yet our Texas appellate judges somehow have this notion that it can happen when it comes to insurance companies and policyholders picking appraisal panels.
My prediction is that sometime in the future, our Texas jurists will start to understand the reality of the situation and the standard of the panels will change to reflect reality. Until then, parties to Texas appraisals are advised to consider whether the appraisal panel is acceptable under Texas legal standards.