For those of you unfamiliar with insurance-related appraisals, appraisals are supposed to provide a quick and easy way to resolve insurance disputes. Most insurance policies provide that after an insurance company has had the opportunity to adjust a claim, if the two sides disagree on the amount of the loss, they each can select an appraiser to represent them. Those two appraisers then attempt to resolve the dispute on their own. If the two appraisers cannot resolve the matter completely, they submit their differences to an umpire. A matter is considered resolved once two of the three (2 appraisers and 1 umpire) agree. Typically, the umpire sides with one appraiser’s opinion to resolve an issue, but what happens when the umpire comes up with his or her own numbers instead of picking sides? In Providence Lloyds Insurance Company v. Crystal City Independent School District,1 the school district complained the umpire failed to comply with the appraisal provision of its policy when he made his own determinations instead of merely siding with one appraiser or the other.
In Providence, after the parties disagreed as to the amount of damages, they agreed to partake in the appraisal process. When the appraisal began, there were 48 items in dispute. The two appraisers were able to resolve their differences on 26 of those items, and submitted their remaining 22 items to the umpire. In all but 5 of the disputed items, the umpire agreed with either the insured or insurer’s appraisers. The appraisers both signed the final appraisal award. At the trial level, the court ruled that the umpire’s final sum was not in substantial compliance with the contractual appraisal mandates and allowed a trial to proceed on this matter. After the jury ruled in favor of the insured, Providence appealed.
At the appellate level, the school district complained of two “flaws” in the appraisal process. First, the umpire exercised independent judgment with five items instead of agreeing with one appraiser or the other. Those items were: (1) builder’s risk, (2) doors and frames, (3) plumbing, (4) fire alarm system, and (5) HVAC.
The appraisal provision read:
Appraisal. In case the Insured and this Company shall fail to agree as to the actual cash value of the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within twenty days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for fifteen days to agree upon such umpire, then, on request of the Insured or this Company, such umpire shall be selected by a judge of a district court of a judicial district where the loss occurred. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences only to the umpire. An award in writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties. [emphasis added]
The appellate court stated
The duty of the umpire under the terms of the insurance policy was to ascertain and determine, in the exercise of his own best judgment, the cash value of the items of property which the appraisers had disagreed, independent of the findings of the appraisers, or either of them… The umpire is required to act with the appraisers in matters of difference. He is the third appraiser. If the three are of one mind, or if two of them are is accord as to value and loss, the appraisal award is a finality.
The school district contended the umpire was to act “in matters of difference only,” his function was to agree with one or the other of the appraisers “or to somehow warp his judgment between the high and low figures that marked their differences.” The appellate court called this reasoning “not sound.”
The appellate court ultimately determined that the umpire complied with the terms of the policy:
[W]e find that in acting independently as to the disputed values, the umpire did not exceed the authority conferred upon him. On the contrary, it was the duty of the umpire under the terms of the contract of insurance to ascertain and determine, in the exercise of his own judgment and as the result of his own investigation, the cost values of the disputed items, independent of the findings of the appraisers, or either of them.
Finally, regarding this contention, the parties concurred in the result. Not one, but both the appraisers agreed with the final appraisal award, making it a binding one. Following this, the District accepted the payment of the award.
The appellate court reversed the trial court’s ruling and opined the appraisal award was made pursuant to the provisions of the insurance contract and was binding on the District.