Recently, I presented at the Professional Public Adjusters Association of New Jersey educational conference on the area of insurance appraisal to roughly 30 public adjusters. During my preparation, I reviewed current and past appraisal provisions contained within standard insurance policies. In my research, I found some very interesting differences contained within insurance policy appraisal provisions concerning three key terms: competent, disinterested and impartial.

In analyzing four insurance policies: the 165-line, State Farm, ISO with standard HO3, and NFIP, I found that each policy contained very different uses and omissions of competent, disinterested and impartial as it pertains to appraisers and umpires during the appraisal process. Below you will see a chart1 that outlines, for each of the four policies, whether an adjuster or umpire involved must be competent, disinterested, and/or impartial during the process.

It is amazing to see that the insurance companies are writing appraisal provisions where the umpire need not be competent, disinterested or impartial such as the ISO HO3 and NFIP. These glaring omissions within each policy open up a host of issues which eventually make their way to the courts. However, depending upon the jurisdiction, the courts may rule differently.

In New York, an umpire under a standard fire policy is to be both competent and disinterested. However, the courts have ruled that using an appraiser or umpire who has had prior dealings with the insurer is not on its face evidence of being an interested party. In New Jersey, an appraiser must be impartial and disinterested. The courts have held that an appraiser in New Jersey can have previous dealings with the hiring party but must not have a pecuniary interest in the outcome of the appraisal process. In Pennsylvania, however, a contingency fee of an appraiser does not render them more biased than if paid on a flat fee basis.

Altogether, you can see from the above posted chart and changing language of appraisal provisions within insurance policies that you must be careful when invoking appraisal. Always read the policy, define the scope of the appraisal and put everything in writing.
1 Tim Ryles, Appraisal Clause in Homeowners Policies, International Risk Management Institute (IRMI), October 2014.

  • Tim Varga

    Small correction to start off with. The discussion shows “adjuster” instead of “appraiser”. Although it is a reasonable fact that the carrier does name an “adjuster” as their chosen “appraiser” a majority of the time, in my experience, the appraisal clause states that each must name their “appraiser.

    • Michael T. Buonocore

      Tim, good catch. I used the terms interchangeably but that can cause some confusion and it should reflect an “appraiser” as most appraisal clauses call for that.

      • Edward Fako

        Further expanding on variances from State to State and individual name nuances, some States Statutorily call each member of the Appraisal Panel Arbitors or Arbitrators.

        I’m glad that Mr. Tim Carta pointed out the word Adjuster being used, as it caught my eye immediately as well.

        Yet, many Insurance Appraisers actually hold full time positions as Adjusters though, but more typivlcally the Independent and Public variety as a Licensed Staff Adjuster should properly be deemed as too Partial or potentially biased from a reasonable persons perspective.

  • Lewis O’Leary

    There are a significant number of states that have embodied the 165 line (aka 1943 NY Standard Fire) policy provisions into their general statutes. In other cases, there may be a case law and or directives from that state’s DOI, that address this particular point. NC (where I live) is one of those states. On good authority, if the insured is guaranteed certain rights via the General Statutes, the carrier cannot normally circumvent those rights by creating a policy provision that takes that right from the insured. Accordingly, I recommend that if you see a policy benefit that should normally be afforded to the insured is missing, you might want to get a reading of the general statutes (or case law or DOI directive) to see if one of these 3 sources contradicts (aka trumps) what the carrier has put into the appraisal clause. The 165 line fire policy has other values in those states that just this umpire provision in the appraisal clause.

    • Michael T. Buonocore

      Lewis, thank you for your comment and good insight and advice regarding the policy provisions and general statutes.