The Insurance Appraisal and Umpire Association (IAUA) has a test where the answer to a question is often “it depends.” Most of the time, the correct answer depends on what state law applies. States have different laws impacting the appraisal process and valuation. So, what is the answer to the question of this post?

“It depends” on the state and the circumstances of the loss. A classic one-hundred-year-old case from Utah involved this issue.1 The parties were involved in an appraisal of business in inventory. The policyholder complained that he was not able to present his own testimony to the panel. 

The court reversed a lower court decree canceling and annulling an appraisal award. It held that where the function of appraisers evaluating a fire loss was that of appraisers rather than arbitrators, and the panel had before them the complete record of the inventory and market value of the raw materials and goods which were destroyed in a fire, and such goods had a recognized market value at the time of the fire, they were under no obligation to afford the insured’s general manager an opportunity to present evidence regarding the value of the goods and materials lost. 

This federal Utah case recognized that appraisal was different from arbitration. It also noted that the circumstances of the loss did not require the parties to obtain additional information or testimony from the parties. The court acknowledged some circumstances where the appraisal panel must obtain information from the policyholder, but that need was not apparent with these facts. The court stated:

But in an appraisement * * * the strict rules relating to arbitration and awards do not apply, and the appraisers were not rigidly required to confine themselves either to matters within their own knowledge, or those submitted to them formally in the presence of the parties; but might reject, if they saw fit, evidence so submitted, and inform themselves from any other source, as experts who were at last to act upon their own judgment.‘

…

We are not concerned with the question as to whether the appraisal is more or less than we now think it should have been, or whether it approximates, in our judgment, an amount that would have been allowed on a regular trial in court; we are only concerned with whether it was fairly and honestly made, and expresses the unprejudiced and unbiased opinion and judgment of the appraisers. When so made a court is without right to set it aside. The record convinces us that there was no misconduct or misfeasance on the part of the appraisers, and that the procedure adopted and the appraisement they made violated no right of the appellee.

A concurring opinion noted the following:

An appraisal is the result of contract and the contract must, in so far as it is explicit, govern the rights of the parties and the methods to be followed thereunder….The difficulty, as here, usually arises from the circumstance that the contract providing for the appraisal is general in its terms. It rarely goes beyond provisions as to the circumstances under which an appraisal may be demanded, as to selection and qualification of appraisers, and that a majority may make an award. Where there is only such generality in the contract, it is implied by the law as a part of the contract that the appraisal shall be conducted in such a manner as to secure substantial justice and failure to so proceed is misconduct of which a court of equity will take cognizance….What is necessary to avoid such misconduct depends, of course, upon the circumstances of each appraisal.

The action of appraisers is presumed free from misconduct and such must be clearly shown….

But this presumption will not be overindulged where the award is very apparently unjust….

The right to a hearing before the appraisers concerns the conduct of the appraisal. It may exist or not according to the circumstances. There may be nothing in the contract making such requisite…or the character of the matter submitted and of the appraisers chosen may be such as to justify the inference that they are acting as qualified experts…and no hearing is required. But where it is clear that they could not, under the attendant circumstances, decide the matter submitted to them except upon evidence produced before them, the parties have a right to an opportunity to be heard in that regard and it is misconduct to deny such opportunity or to hear such evidence without notice.

The bottom line is that it may be the best practice for an appraisal panel to invite the parties to provide any information or testimony they wish to provide for consideration to the panel. The panel can accept or reject this evidence, but at least it is considered. 

Thought For The Day 

Ask yourself each day: If I only did 3 things today, what are the actions that will produce the greatest results in moving me closer to my big goals?

—Darren Hardy

1Phoenix Ins. Co. v. Everfresh Food Co., 294 F. 51 (8th Cir. 1923).