Disputed insurance claims are often resolved in the appraisal process. The process is generally less time consuming and less expensive than full blown litigation and, if done properly, can resolve the majority of discrepancies between the policyholder’s estimate and the position of the insurance carrier.
While the basic law on appraisal is fairly well developed in most states, a growing trend of litigation after the appraisal process has forced courts to consider what role, if any, the appraisal panel should play in that circumstance.
Florida courts have found that litigation over an appraisal award must be based on the face of the award itself and have prohibited parties from going further to have an award overturned. In First Protective Insurance Company v. Hess,1 the insurance carrier attempted to have an appraisal award overturned by arguing that the appraisal panel had awarded more money for stolen jewelry than the $1,000 limit in the insurance policy allowed. The award was not a model of clarity and did not contain a breakdown of what amounts had been awarded for which items, so the insurance carrier attempted (unsuccessfully) to have the trial court reduce the amounts in the award by hearing evidence from the members of the appraisal panel itself.
The court rejected this argument saying that such discovery and evidence is not contemplated by the insurance policy. The court noted that the appraisal process was supposed to be an alternative to litigation and was binding on the parties. According to the court, going beyond the face of the appraisal award would impermissibly allow the court to interfere with the appraisal process and would permit the court to determine the amount of loss instead of the panel as the policy contemplated. While the court can make reductions for the deductible, prior payments, and items not covered, this can only be done based on what is contained within the four corners of the award.
Colorado courts have come to a similar decision, however, for vastly different reasons. Because Colorado is one of the few states that has not formally decided whether an insurance appraisal must follow the arbitration code, courts in that state have been wrestling with how to deal with post award challenges and litigation.
In Tae Hyung Lim v. American Economy Insurance Company,2 litigation between the policyholder and its insurance company continued after the appraisal award had been entered, although both parties agreed the insurer had paid the award in full. The policyholder, apparently displeased with the amount of the award, sought to subpoena the files from the appraisers and umpire and take their depositions.
In response to a request from the insurance company to preclude the policyholder from going forward with its discovery, the court addressed the appraisal provision as a whole. The court noted that the appraisal process was binding on the parties when it came to the amount of loss and rejected the policyholder’s argument to the contrary. The court precluded discovery from the appraisal panel noting that it believed that appraisers should be considered “arbitrators” under Colorado Statute 13-22 and thus they were not permitted to provide evidence or testimony in any subsequent litigation as it relates what went on during the appraisal process.
While appraisal awards are sometimes challenged by policyholders, there is a growing trend of insurance companies attempting to challenge awards they do not like. As one seasoned attorney told me recently, if the carrier likes the award they will fight to make sure it is enforced. If they don’t, however, they will litigate to have it overturned. While this is definitely not in the spirit of the appraisal provision or what was envisioned when the provision was written into policies over 100 years ago, we are guaranteed to see more cases dealing with the scope of post appraisal litigation in the foreseeable future.
Disputes often arise during the adjustment process of claims and the amount of loss is often in controversy. The appraisal process is not always the right solution to a disputed claim, however, when used properly it can be a good tool to take advantage of.
1 First Protective Ins. Co. v. Hess, 81 So.3d 482 (Fla. 1st DCA 2011).
2 Lim v. American Economy Ins. Co., No. 13-2063 (D. Ct. Colo. April 14, 2014).