Just as I was thinking about Colorado mountains and finishing the booking of my Christmas ski trip to Beaver Creek, the Colorado Department of insurance delivers Bulletin No. B-5.26, Requirements Related to Disputed Claims Subject to Appraisal.
This has been a long work in process. Members from The Rocky Mountain Association of Public Insurance Adjusters and Merlin Law Group’s Corey Harris met with insurance regulators and insurance company representatives to hammer out changes that are not perfect, but far better than previously in place.
Here are the standards:
1. An appraiser is considered “fair and competent” if he or she
i. Is not a party to the insurance contract;
ii. Has no financial interest in the outcome of the appraisal;
iii. Is not a current employee of the insurer or policyholder; and
iv. Is not a family member or an individual with whom the insured has a personal relationship that could reasonably suggest bias.
2. An appraiser in the appraisal process may not have a direct material interest in the amounts determined by the appraisal process. The appraiser must disclose to all parties any known facts that a reasonable person would consider likely to affect an appraiser’s interest in the amounts determined by the appraisal process, including any contingency arrangement related to payment of the appraiser.
3. The appraiser shall have a continuing obligation to disclose to all parties to the appraisal process any facts the appraiser learns after accepting the appointment that a reasonable person would consider likely to affect the appraisers [sic] interest in the amounts determined by the appraisal process.
4. Any insurer, insured or representatives of the insurer or insured, including an adjuster and/or licensed public adjuster, may have direct communication with their own appraiser; however no insurer, insured or their representative may communicate with the other party’s appraiser without the consent and participation by both parties and/or their representatives. Appraisers may directly communicate with each other as part of the appraisal process in an effort to reach an agreed upon settlement amount.
1. The umpire may not have an existing direct and/or material relationship with any party to the appraisal and must remain neutral.
2. The umpire must disclose to all parties in the appraisal process, any known facts that a reasonable person would consider likely to affect the impartiality of the umpire including:
(a) A financial or personal interest in the outcome of the appraisal; and
(b) A current or previous relationship with any of the parties to the agreement to appraise or the appraisal proceeding, their counsel or representatives, including licensed public adjusters, a witness, or another appraiser.
3. The umpire shall have a continuing obligation to disclose to all parties to the appraisal process any facts that the umpire learns after accepting appointment that a reasonable person would consider likely to affect the impartiality of the umpire.
4. The insurer including adjusters, insured and their representatives, including licensed public adjusters and/or attorney, and appraisers, must not have ex parte communications with the umpire during the appraisal process. The umpire shall not have any communication with the insurer including adjusters, insured and their representative, including public adjusters and/or attorneys and appraisers, without participation by both parties and/or their representatives.
C. Upon reaching an agreed upon value (either through the selected appraisers or an umpire), the insurer shall comply with the clean claim standards found in Colorado Regulation 5-1-14.
This is not bad, and good public policy. As I noted in Proposed Umpires to an Insurance Appraisal Should Disclose Possible Conflicts of Interest:
Umpires appointed or selected to an insurance appraisal panel should be fair and unbiased. However, I am certain that parties to an insurance appraisal hope the umpire is "unbiased" in their favor. That thought may get a chuckle and a nod of the head from many readers of this blog because many spend a great deal of time and thought when choosing just the right unbiased and fair umpire.
Choosing an umpire that seems unbiased but carries "silent" conflicts of interest is disastrous. However, this situation happens all the time. One way to prevent it is to make an inquiry. The other is for the umpire to voluntarily explain any potential conflicts.
This Bulletin goes a long way towards addressing the concerns I stated and that are very problematic with appraisals.