In North Carolina, does a private meeting with one appraiser constitute fraud?

It is not uncommon for an insurance policy to have an appraisal provision. Keep in mind, the wording differs from policy to policy and the actual guidelines of an appraisal will be dictated by the appraisal provision with a policy, but, historically, an appraisal provision has been a method for an insurer and a policyholder to resolve a dispute of the amount of a covered loss. Today, we will look at the facts of two cases that evaluated whether an appraisal award could be invalidated because of the way the panel interacted.

Here is the appraisal provision from the North Carolina policy that was part of Mr. and Mrs. Narron’s policy with Harleysville Mutual Insurance Company.1

If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If hey cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the “residence premises” is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss.

Mr. and Mr. Narron had severe damage to their property that happened in September of 1999 when winds from Hurricane Floyd blew a large tree onto their home. By December, the claim was not resolved so the homeowners requested to use appraisal provision of their policy. Both Mr. and Mrs. Narron and the insurance company hired an appraiser and an umpire was also part of the panel.

Three meetings were held with all three members of the panel but the appraisers could not agree on the replacement cost value. The umpire determined that the policyholder’s appraiser had an estimate closest to his own and the umpire had a meeting with just Mr. and Mrs. Narron’s appraiser. After the meeting the umpire issued an award signed by the Narron’s appraiser. The insurance company sought to have his award invalidated for fraud.

Now, consider the case of Grimes v. Old Insurance Company of New York,2 that takes us back in time to a 1940 appraisal. In Grimes, J. Waldo Grimes’s truck was demolished as a result of a collision with a locomotive engine. Both the insured and insurer agreed to take the claim appraisal, but the appraisal happened without notice to policyholder and without a chance for him to be heard. The judge ordered a re-do of the appraisal award. During this second go around, the umpire and one appraiser increased the amount of the truck from $485 to $606 (a lot of money in those days).

In Narron, the insurance company relied on Grimes to throw the appraisal out, but the court was not convinced because the facts were dissimilar.

The court’s fact-specific reasoning of why the appraisal award was not invalidated is explained below. In this Hurricane Floyd tree case, keep in mind the Plaintiff was the insurance company, Harleysville, and its appraiser was named Bryant:

Our review of the relevant case law leads us to conclude that the existence of impeaching circumstances is to be determined on a case by case basis. In the present case, there was no evidence of fraud or conniving actions on the part of the umpire O’Leary to exclude plaintiff’s appraiser, Bryant, from the appraisal process. The policy required that to set the amount of loss, *any two participants as between the insurer’s appraiser, insured’s appraiser or umpire had to agree on the amount. Thompson, the umpire, testified in his deposition that he met with both appraisers together three times: on 29 September 2000, 4 November 2000 and 16 December 2000. At the December meeting, the appraisers could not agree on an amount. Thompson testified that plaintiff’s appraiser, Evan Bryant, did not provide him with the supporting documentation he requested. Bryant told Thompson that he left it at the airport and never provided the requested documentation. Bryant did not request additional time, and had been told that Thompson was close to issuing an award. Thompson, therefore, did not believe that he needed to wait for anything else from plaintiff. According to Thompson, “I felt there was no purpose after three meetings, and he having given me his final report.”

Because O’Leary’s figures were closer to what Thompson believed to be an accurate amount to repair defendants’ house, and because one of the appraisers had to agree with Thompson for an award to issue, Thompson orally discussed a final amount with O’Leary. We conclude that plaintiff failed to show that the ex parte communications with O’Leary constituted an impeaching circumstance such that the appraisal award must be overturned.

To answer the question posed above:

In North Carolina, does a private meeting with one appraiser constitute fraud? The answer depends heavily on the facts. We know based on the 1940 case, excluding a party from the process entirely can result in the award being invalidated but having a meeting with one appraiser after having three with the group does not rise to the level of fraud necessary to throw out the award.

The best practice for an umpire is to keep all correspondence with the panel transparent, copy all the parties on the emails, and invite everyone to inspections and meetings.

1 Harleysville Mut. Ins. Co. v. Narron, 155 N.C. App. 362, 371, 574 S.E.2d 490, 495-96 (N.C. Ct. App. 2002).
2 Grimes v. Old Ins. Co. of New York, 217 N.C. 259 (N.C. 1940).