I anticipate significant discussion and controversy regarding Citizens plan to remove the appraisal clause from its policies. Currently, many claims under Citizens policies go to appraisal because policyholders and Citizens disagree over the value of a loss. I suspect that many of these cases going to appraisal are those where policyholders hired public adjusters. Appraisals have become so common in Florida that the Windstorm Conference has classes on appraisal and a certification for umpires. An Insurance Appraisal and Umpire Association formed over the past couple of years.

After yesterday’s post, I received a number of private questions as well as a public comment from Eric Hyman, an experienced public adjuster. I replied to his comment:


I really have no idea how they go about classifying what you have stated. I have no idea how much Citizens pays in attorney’s fees to defend its cases nor how much it pays policyholders for attorney’s fees when it loses. Do you have any evidence to support your allegations? Send it to me, and I would be more than happy to share it.

I appreciate that you are upset that the manner in which you resolve cases with Citizens may no longer be available. You have told me that most of your cases go to appraisal because Citizens never comes close to agreeing with amounts you provide. And, you get significantly more money back for the policyholder.

Indeed, I predict there will be considerable "push back" because a cottage industry of appraisers for each side and umpires may no longer be making fees from the number one source of appraisal–Citizens.

Still, the process is inherently flawed. There is no due process. I have said that since there are no rules, the only rule is to be honest, but do everything you can to win.

In Florida, when the appraisal result is unfair, there is little either party can do about it. Unfairness may occur in arbitration or litigation, but I can assure everyone that they will be able to present their case, subject the opposing view to critical review, and submit the matter to a somewhat independent panel or jury. All of this guaranteed by the due process clauses of the United States and Florida Constitutions.

The other truth is that Citizens management may feel that the appraisal process results in unjust awards favoring policyholders. If so, they should explain why and how the appraisal process favors policyholders over insurers.

My impression is that the cases going to appraisal now have a policyholder who knows to get evidence and make a presentation to show the validity of the claim amount. In the past, insurers would run over policyholders, thinking their appraiser would do all this work. The appraisal process is no longer a "winning" proposition for insurers as it was in the past, and now some insurers are seeking other ways to game the system to lower claims payments to customers.

Citizens makes several valid points in its report, although I disagree with its publicly stated motive for requesting eliminating the appraisal clause.

Given that public adjusters are obtaining more money for policyholders through appraisal and that so many others, such as appraisers and umpires, have made careers in the appraisal process, you can bet those individuals with such significant financial interests oppose Citizens’ move. This is a normal reaction to the possibility significant change.

My opinion of appraisal has not changed much over the past fifteen years since I chaired a sub-committee of the American Bar Association’s Property Loss Insurance Committee involving a study of the fairness and procedures of the appraisal clause. The procedures vary by state. Many states have noted the due process concerns and have required the process to be more of an arbitration. Florida’s procedure for appraisal is what I call the wild west method. There are no rules. Shoot ’em out, and you better be standing when the smoke clears because there are no second chances for the dead.

I essentially said this when I was asked to be on a Keynote Panel regarding the appraisal process at the Windstorm Conference. While various attorneys, umpires, appraisers, and insurers have tried to set rules through a "Memorandum of Appraisal," that is not required under the terms in insurance policies, statute, or common law.

As an attorney, I always point out that the United States has long held many informal methods unconstitutional. One of the great protections to individuals is a right to have a jury decide controversies. This is a fundamental right with a longstanding history. Alternative methods to resolve controversies must satisfy due process safeguards. I have questioned how a system with no rules does this. Some States, like Florida, allow the informality without addressing constitutional concerns.

Dan Luby, of Precision Adivisors, sent me a private follow-up. It is pertinent to this issue:

"I read your blog today concerning the changes to the Citizens Appraisal clause. I appreciate the attribution.

As a follow up, attached is an excerpt from a recent Citizens filing with the OIR that details the proposed changes to the Appraisal clause in the ‘Homeowners 4 Contents Wind Only Form.’

Appraisal will now be an option available to either party provided that both parties agree to the “terms of a written agreement” to be determined at a later date.

I read this to mean a negotiated ‘Memorandum of Appraisal’ detailing what would be submitted to appraisal, how the appraisal would be conducted and the form of the award. Either party is not obligated to accept a “request” for appraisal.

Scroll down to page 10 of 12 in the policy form. While this filing deals with only one policy form, I would speculate that all of the Citizens policies will be similarly amended.

The complete filing (No. 09-11984) is available at http://www.floir.com/edms/temp1/SessionsPDFs/OnlyOrig09-11984.PDF

Additionally, this new form would require that “any one you hire in connection with your claim” must submit to an EUO if requested. I assume this is targeted towards public adjusters."

This is an important issue and will likely significantly change the way many claims are handled and resolved. I will try to keep everyone informed of these changes.