Appraisal in first party property insurance claims is an alternative dispute resolution process designed to help policyholders and insurers resolve their disagreements over the amount of loss for claims. It has been utilized quite often in past years for hurricane claims in Florida. As it is an alternative dispute resolution process, an appraisal proceeding and outcome should not be disturbed by lawyers and courts after the fact, unless there is some unusual circumstance such as fraud or collusion on behalf of the appraisal panel. A Florida appellate court recently rejected an insurer’s request to reduce the amount of an appraisal award in the case First Protective Ins. Co. v. Hess, No. 1D10-6577 (Fla. 1st DCA December 9, 2011).
Hess filed a claim with First Protective after her home was burglarized. The insurer demanded appraisal to resolve the disagreement over the amount of loss for the claim. The appraisal panel issued an award to Hess in the amount of $130,011.53. The award was distributed as follows:
$22,499.95 under Coverage “A” Building and $107,311.58 under Coverage “C” Personal Property.
The appraisal award did not include an itemization of the personal property and the corresponding values. It contained the following provision:
This award does not include nor does this award account for or deduct the insured’s deductible and/or any prior or advance payments that were made to the insured by this insurer or any other insurer if any. Additionally, this award does not consider any limitations or exclusions which may or may not exist under the terms of the contract of insurance.
The insurer deducted prior payments and the policy deductible from the amount of the award and also applied policy limitations for jewelry, cash and other property when calculating the net payment. The insurer’s letter sent to the policyholder with the check listed the following deductions to the personal property award of $107,311.58:
- $41,805.00 – the amount awarded in excess of the $1,000.00 Jewelry Limit;
- $6,086.00 – the amount awarded in excess of the $200.00 Cash Limit;
- $2,192.00 – the amount awarded in excess of $2,500.00 Business Property Limit;
- $3,320.40 – the tax awarded for the amounts in excess of the policy limits;
- $28,053.88 – prior payments for loss of personal property; and
- $1,000.00- the applicable deductible.
After those deductions, the insurer paid Hess $28,994.36 for personal property. Hess filed a complaint requesting the trial court to confirm the original appraisal award. The trial court found in favor of Hess, explaining:
Items such as the deductible and prior payments may be excluded from the amount owed without the Court having to hear extrinsic evidence from the appraisers as to the basis for the award and the reasons for the amounts awarded. The same is not true for deductions based upon special limits of liability. In those cases, the Court would, by necessity, be required to hear testimony from the members of the appraisal panel (and perhaps others who participated in the appraisal process) as to the basis for the award to make these deductions. The Court agrees with Plaintiff that this sort of inquiry behind the appraisal award is not contemplated by the policy, nor permitted by Florida law.
The insurer appealed the trial court ruling. Florida’s First District Court of Appeal affirmed the trial court’s ruling, and stated that “[a]ppraisal clauses are preferred, as they provide a mechanism for prompt resolution of claims and discourage the filing of needless lawsuits.” The Court refused to allow an evidentiary hearing to discern the value of each item to which a policy limitation might be applied. Such a hearing would undermine the purpose of the appraisal, in which appraisers are charged with determining the value of the lost property.
This opinion is important because it recognizes the significance and independence of appraisal as an alternative dispute resolution process. After the fact inquiry into the appraisal award would defeat the goal of appraisal, which is to resolve disputes and avoid litigation.