Law professor Johnny C. Parker recently published a law review article, Understanding The Insurance Policy Appraisal Clause: A Four-Step Program, where he claims that resolving property insurance disputes concerning amounts of loss is an “almost perfect method.” Here’s the quote:

More than one hundred years of judicial and legislative scrutiny has shaped appraisement into an almost perfect method of alternative dispute resolution. Over the past twenty-five years it has stepped out of the shadow cast by arbitration and taken on a life of its own. In the context of insurance, it has become the methodology of choice for resolving disputes over value of property and the amount of an insured loss.

Many appraisers and umpires probably agree that appraisal is the best and most efficient manner to resolve insurance disputes. Yet, many probably think judges, who are not familiar with appraisal, are making it more difficult than it has to be with many different rules which vary significantly from state to state.

For those judges, Professor Parker correctly notes that appraisal is not arbitration:

Appraisement, in particular, is perhaps most often confused with arbitration. While some of the rules of law that apply to arbitration apply in the same manner to appraisement, and the terms have at times been used interchangeably, there is a plain distinction between them. In the proper sense of the term, arbitration presupposes the existence of a dispute or controversy to be tried and determined in a quasi-judicial manner, whereas appraisement is an agreed method of ascertaining value or amount of damage, stipulated in advance, generally as a mere auxiliary or incident feature of a contract, with the object of preventing future disputes, rather than of settling present ones. Liability is not fixed by means of an appraisement; there is only a finding of value, price, or amount of loss or damage. The investigation of arbitrators is in the nature of a judicial inquiry and involves, ordinarily, a hearing and all that is thereby implied. Appraisers, on the other hand, where it is not otherwise provided by the agreement, are generally expected to act upon their own knowledge and investigation, without notice of hearings, are not required to hear evidence or to receive statements of the parties, and are allowed a wide discretion as to the mode of procedure and source of information?

I will be discussing with appraisers and umpires the recommendations that Professor Parker makes concerning disclosure of interest, partiality, and bias this Friday. If you are actively involved with appraisals as part of your livelihood, I strongly suggest you consider attending the Insurance Appraisal and Umpire Association Conference. Here is a link if you have not registered.

Positive Thought For The Day

It’s time for us to turn to each other, not on each other.
         —Jesse Jackson

  • Mike Rump

    Chip,Professor Parker is right on the money and it is really nice to see you providing his statement on the value of appraisal. Appraisal has been a very valuable tool for our industry for longer than any of us have been alive and has survived the test of time. The fact that many carriers in Florida have removed appraisal from their policies I believe is a major mistake. I believe these same carriers are now paying the price for removing appraisal from their policies with the huge increase in litigation costs that is the direct result of this action. Having appraisal back in the policy will result in more timely claims settlement and will also reduce litigation costs dramatically. What is not to like. For those on the carrier side who feel they are getting hammered in the appraisal process, I say, hire better appraisers and or pay your claims up front and avoid the appraisal process altogether. In the long run, this will prove to be better for consumers and the carrier’s bottom line. In the long run, both sides will benefit with lower premiums.

  • Chris Lackey

    I am currently involved in an appraisal in New Mexico, I represent the insured and recently received a letter from the insurance carrier settings stipulations as to what might be appraised. The carrier had agreed to pay for roof damage from hail but only to one slope of the roof, the letter stated that slope was the only part of the roof that we could appraise because to appraise the other sections of the roof the carrier had not agreed to pay for would be making a coverage decision and therefore was not allowed. I have been told by several appraisers who appraise on the carriers side that that’s the way it’s done in New Mexico. However, when to produce anything in writing as to these rules no one is able to do so. My opinion is; The carrier has already determined the causation and coverage and that we must appraise for all damages from this covered loss. Please correct me if I am wrong and misunderstand my duties as an appraiser.

  • Chip Merlin

    Mike,

    Thank you for your kind words and your thoughts on the matter.

  • Bob Schmidt

    I am trying to challenge the insurance companies named appraiser stating that he is not disinterested. I sent out a letter with some general questions to be answered by the chosen appraiser. The insurance co. is refusing to have them answered stating that they do not have to answer . They are still trying to bully us into the process without supplying the answers. Whats my next step?