Failure by appraisers or umpires to include newly discovered damages during the appraisal process prevents policyholders from obtaining fair payment for a covered loss. Almost every property policy includes an appraisal provision which states that if the insurer and the insured disagree as to “the amount of loss” then either may invoke appraisal and each appoint a disinterested appraiser to determine “the amount of loss.”
Some insurers are attempting to litigate the appraisal process and object to appraisal awards based on the insurer’s claim that the appraisers or the umpire should not have considered newly discovered damage which was not part of the original adjuster’s estimate. However, if this argument were allowed to prevail, then the adjuster’s original estimate of loss would set the “amount of loss” in stone. Even if the appraisers or owner later found additional, newly discovered damage, appraisers and umpires would be handcuffed—only appraising the original estimate of loss or damage.
A District Court Judge in Adams County Colorado recently issued an opinion which illustrates the absurdity of the insurer’s argument. In Rooftop Roofing Inc. v. Fire Insurance Exchange, Case No. 11 -CV-668 (unpublished district court order), the court had to determine whether the insurer could refuse appraisal based on its claim of “impossibility.” The policyholder had earlier demanded appraisal and after the insurer refused, moved forward with repairs to the roof which was leaking. After a hearing, the court ordered that the parties participate in appraisal.
Both parties selected appraisers, however, since the insurance adjuster only considered a limited scope of damage, the adjuster’s original estimate did not include damages that were to be examined during appraisal. In addition, since the roof had been replaced, the insurer’s appraiser was given new photos, new correspondence, estimates and invoices, almost none of which were considered as part of the original adjuster’s estimate of damage. The insurer’s claim that appraisal was “impossible” and any subsequent appraisal award would be invalid was rejected by the court.
The insurance company’s appraiser was provided with correspondence, photographs, estimates and invoices to use in the appraisal process. The appraisers were able to come back with a unanimous appraisal award although repairs had already been done. The Court finds that the appraisal process is not “impossible” as defined by Restatement of the Law of Contracts §454.
The court based its decision on the plain meaning of the terms “amount of loss.” To exclude newly discovered damage during the appraisal process would certainly prevent the policyholder from receiving a true assessment of the “amount of loss” as the policy requires.
In addition, as the Texas Supreme Court noted in State Farm Lloyds v. Johnson, 290 S.W.3d 886, 894 (Tex. 2009):
[I]n most cases appraisal can be structured in a way that decides the amount of loss without deciding any liability questions. As already noted, when an indivisible injury to property may have several causes, appraisers can assess the amount of damage and leave causation up to the courts. When divisible losses are involved, appraisers can decide the cost to repair each without deciding who must pay for it. When an insurer denies coverage, appraisers can still set the amount of loss in case the insurer turns out to be wrong. And when the parties disagree whether there has been any loss at all, nothing prevents the appraisers from finding $0 if that is how much damage they find.
Appraisers and umpires should not be handcuffed by an adjuster’s initial estimate or scope of loss. Appraisers and umpires usually have the expertise to address newly discovered damage that the adjuster or property owner may have initially missed. As noted above, any issue as to liability and coverage for specific damage can be addressed in litigation if necessary.