It is no secret that there are problems with the appraisal process. The ever-growing issues with appraisal include, but certainly are not limited to, exorbitant expenses pushed onto policyholders and insurance companies, gamesmanship, and the never-ending questions of:

  • When is appraisal appropriate
  • What can be addressed and assessed within appraisal, and
  • Whether a policyholder’s claims for bad faith, fraud, and violations of the Texas Insurance Code stand once appraisal is completed.

There are other burdens, problems, and uncertainties with appraisal, as discussed more in-depth in my previous article, The Status of Appraisal in Texas Insurance Policies & Claims.

If we look back over the past fifteen years of insurance claims and litigation in Texas, it becomes clear that appraisal was not a problem, solution, or commonly used tactic until around 2014. Since then, insurance companies have increasingly used the appraisal provision as a sword and shield – a sword to kill the claim, and shield to prevent liability for the bad acts of their own personnel.

This behavior is not okay!

Insurance companies need to be accountable for their actions. The truth is, the only party that suffers in appraisal is the policyholder – the people who were promised supplemental payment in December that they didn’t receive until June; those people whose claims have been unnecessarily delayed, who are still sitting in a home with a leaky roof at the beginning of another hurricane season; the people without the financial resources or the knowledge of who to use as their appraiser. People who have tried their darndest to get their claim resolved themselves, but are finally forced to retain an attorney because the insurance company continues to delay the claim.

The question becomes why. Why have problems with appraisal and the appraisal provisions continued to increase? What can we do about it? How can we change it? How did we get here?

For this problem we must look to the root of the cause: The appraisal provisions in insurance policies. Over the past several years, insurance companies have been amending their policies and changing the provisions to add language that limits policyholders rights, decreases their remedies, and forces them to pay for a service that should be included as part of the insurance contract they enter into.

The problem has been that policyholders – your run of the mill homeowner and business owner – do not realize that their policies have been changing little by little. The reason this has largely gone unrecognized is because these policy changes are not in exchange for a reduction in premium or deductible. Therefore, insurance agents may have not be aware that any substantive change to the policy and its provisions has occurred. With hundreds of policy forms used in Texas, it’s impossible for an agent to review every line of every policy they put in place. If there was a significant change in the deductible or premium amounts, it may tip the agent off that the policy is different, but if not, they may never know.

The insurance companies certainly aren’t telling policyholders that their policy is changing to reduce coverage and limit their rights and remedies. Yet, year after year insurance companies are filing policy endorsements and amendments with the Texas Department of Insurance to do just that – reduce policy coverage, limit policyholder rights, and impose greater burdens on policyholders if a loss occurs.

These policy changes generally aren’t obvious to an untrained eye – the changes are hidden in the fine print of the Amendments, Endorsements, and Exclusions.

The problem is that Texans aren’t aware of these issues and changes. How are insurance companies changing their policies without clearly alerting their insureds to the changes and their effect on future claims? For insurance companies the process is simple, they just submit their proposed policy changes to the Texas Department of Insurance for review and approval.

It’s a fairly simple process that has happened repeatedly the past many years. A simple search generates thousands of examples, where policy language was significantly altered to reduce coverage, reduce rights and remedies, and impose burdens on policyholders. Examples of this can be found below:

  • Exhibit 1 – In 2015, State Farm proposed to amend its policy language to significantly alter the appraisal provision. Here, you will see State Farm’s former appraisal provision, which was 1 simple paragraph in the left column compared with State Farm’s proposed amendment, which increased their appraisal provision from 1 paragraph to over 2 pages of text and added numerous conditions, stipulations, and burdens for the policyholder. This language was approved, and policyholders had no clue.
  • Exhibit 2 – In 2014, Foremost Insurance proposed to amend its policy language regarding loss settlement and appraisal. Page 2 says “old” at the top, which shows the previous policy, a single page of text regarding loss settlement. However, pages 3-4 that say “new” at the top and clarify that the underlined language is new added requirements. At the bottom left of page 3 the newly proposed appraisal provision begins, and continues on for the next 2 pages and includes extensive and burdensome appraisal impositions, requirements, and confusing rules. This language was approved, and policyholders had no clue.
  • Exhibit 3 – In 2015, Allstate proposed to amend its endorsements regarding duties after loss and appraisal. Page 3 of this Exhibit shows how Allstate added in nearly 10 requirements that a policyholder must comply with in the event of a loss, including sending a signed sworn to proof of loss, submit to an examination under oath, and to provide Allstate with access to the property “as often as we reasonably require” – this means Allstate could request to inspect the property 10 times, 20 times, 30 times never offering to pay, but policyholders are required to allow them to do so. The proposed amended language on appraisal starts on page 5 – its quite burdensome and continues on through the end of page 6. This language was not in their previous policy form, that’s why its all in red.

The foregoing are just a few examples that are publicly accessible through the Texas Department of Insurance. These proposed amendments were all approved and are now in effect. Maybe your policy provides less rights today than a few years ago – do you know?

Insurance policies can vary, but to consistently reduce rights, limit recoveries, and leave insureds empty handed with nowhere to turn is wrong. Someone needs to be accountable, someone needs to step up. It’s time to change this system, and facilitate a more transparent insurance process.

Where is the oversight?

Who is grading the insurance companies’ papers?

Who is protecting the rights of the policyholders?

How many rights does an insured have to lose before they realize it?

When will the mortgage companies wake up, and act to ensure that their interests in properties are protected?

Who is going to finally step up to do the right thing?

  • shirley heflin

    Dear Ms. Marlowe:

    Your article brings up many unfortunate issues in the “insurance world” and the last sentence/question (Who is going to finally step up to do the right thing?) deserves attention.

    The last person who should suffer following a loss is the policyholder, however, they are often the first to suffer. They bought a product (insurance policy), paid their premiums and were at peace that they were protected in the event of a loss. Their peace is shattered when their claim is denied for ignorant reasons and delayed by their insurance company. Indeed, their claim can be delayed for months and even years.

    Regarding the assertion about Insurance Agents not noticing changes made to policies, that is inexcusable. They get paid to know what an insurance policy contains and that’s why the insured hired them.

    Finally, in my opinion, the Insurance Commissioners of every State should step up and do the right thing and regulate the insurance companies accordingly. If an insurance company delays a claim without a valid reason, stonewalls their insured, puts it’s interests before that of it’s insured, etc., they should be punished, suspended and/or fined accordingly.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL

    • Emily Marlowe

      Shirley – Thank you for taking the time to read through my post! Im glad you found it interesting.

      I totally agree that often the policyholders are the first to suffer following a loss, particularly when they face significant delays and underpayment.

      To me the most concerning part of the situation is that the insurance company adjusters (and in many cases the insurance companies themselves) are not held responsible for their actions.

      What kind of world do we live in where our law makers create laws that shield acts of fraud, deceit, and wrongdoing? What happened to the 7th Amendment that provides aggrieved parties with the right to trial by jury in order to resolve their disputes.

      In Texas, the law makers are taking away policyholders rights day-by-day. Its time for someone to step up and take responsibility, and not allow bad laws to be put in place.