Over the past several days, I have provided a brief study of Utah appraisal law. For appraisers and umpires, it is important to read the policy language regarding the appraisal process and policy terms regarding valuation. Then, the panel must thoroughly understand the state laws and regulations impacting the policy language regarding appraisal and valuation.  State law varies on these issues and is constantly changing. Appraisers and umpires have to keep up. 

The Utah Supreme Court has determined that appraisal is not governed under the Utah Arbitration Act:1 

[W]e must determine whether an appraisal clause is essentially an arbitration clause to which the Act applies….

Although appraisal may be used as another form of alternative dispute resolution, it is not arbitration. Appraisal, in a general sense, is defined as the ‘determination of what constitutes a fair price; valuation; estimation of worth.’ Black’s Law Dictionary 97 (7th ed.1999). An appraisal is an informal, independent investigation conducted by individuals who ‘base their decisions on their own knowledge.’ Teachworth, 898 F.2d at 1062. An appraisal is conducted ‘without hearing or judicial inquiry.’ 6 C.J.S. Arbitration § 3 (1975). In addition, unlike arbitration, ‘appraisal ordinarily settles only a subsidiary or incidental matter rather than the main controversy as does an arbitration award.’ Id.; see also St. Paul Fire & Marine Ins. Co. v. Wright, 97 Nev. 308, 629 P.2d 1202, 1203 (1981) (‘An appraiser’s power generally does not ‘encompass the disposition of the entire controversy between the parties … [but] extends merely to the resolution of the specific issues of actual cash value and the amount of loss.’ ’ (quoting In re Delmar Box Co., 309 N.Y. 60, 127 N.E.2d 808, 811 (1955))).

Further, unlike an arbitration award, an appraisal determination is not necessarily binding and enforceable in court. The appraisal determination is either evidence to be considered by the trial court or an award to be enforced, depending upon the contract terms.

Because of the intrinsic differences between arbitration and appraisal, we conclude that neither the Act nor our case law addressing arbitration agreements directly applies to appraisal.

The Utah Supreme Court also noted that the appraisal panel was only authorized to consider “the amount of the loss” and not extra-contractual damages:

[A]mount of loss as used in the appraisal clause refers to the value of the injury or damage for which the Millers may seek indemnity. Massey v. Farmers Ins. Group, 837 P.2d 880, 882 (Okla.1992) (‘[A]ppraisal provisions permit appraisers or umpires to determine one issue, to wit, the amount of damage to the property.’); 46A C.J.S. Insurance § 1355 (1993) ( ‘[S]ubmissions to ascertain the ‘amount of loss or damage’ are to be construed to signify a proceeding to appraise and estimate the damage to the property described, but not to embrace the question of ownership or any other matter [that] goes to the root of the cause of action.’). ‘The word ‘loss’ in a clause in an indemnity insurance policy … means the injury or damage caused by the accident for which the insurer may, under the provisions of the policy, be liable….’…

The only claim the Millers alleged in Miller I regarding the amount of damage or loss caused by the water heater’s bursting was the contractual claim for property damage. None of the extra-contractual claims pertain to the amount of loss under the insurance contract. Because the clause is limited to appraisal of the amount of loss, only the contractual claim was covered by the clause. See Rastelli Bros. v. Netherlands Ins. Co., 68 F.Supp.2d 440, 442–43 (D.N.J.1999) (‘The appraisal clause … deals exclusively with the method of handling a dispute about ‘the amount of loss.’ ’); J. Wise Smith & Assocs. v. Nationwide Mut. Ins. Co., 925 F.Supp. 528, 529 (W.D.Tenn.1995) (concluding that appraisal of amount of loss was appropriate where parties agreed to resolve amount of loss by appraisal); Atencio v. U.S. Sec. Ins. Co., 676 So.2d 489, 490 (Fla.Dist.Ct.App.1996) (ruling that lower court erred in granting order to compel appraisal because dispute was not concerning ‘amount of loss’); Lundy, 255 Ill.Dec. 733, 750 N.E.2d at 319 (‘Here, the appraisal process provided for in the policy was designed solely to resolve disputes over the amount of loss.’); Guider v. LCI Communications Holdings Co., 87 Ohio App.3d 412, 622 N.E.2d 415, 419 (1993) (‘[A]n appraisal determines only the amount of loss, without resolving issues such as whether the insurer is liable under the policy.’)

Appraisal is not arbitration nor governed under the Utah Arbitration Act. Utah appraisal case law does not currently address the issue of causation. 

Thought For The Day 

Seek out positive people who have achieved the success you want to create in your own life. Remember the adage: ‘Never ask advice of someone with whom you wouldn’t want to trade places.’

—Darren Hardy

1Miller v. USAA Cas. Ins. Co., 44 P.3d 663 (Utah 2002).