State Farm and Farmers have created new property insurance policy forms which significantly change the rules of appraisal. One of the trends of insurance coverage is that new policies are not being written with standard language, where years of case law have interpreted meanings of phrases used by all insurers. These two forms are perfect examples of this trend.

As noted in Insurance Appraisal Called "Almost Perfect Method" of Alternative Dispute Resolution, here is language which many policies have used as a standard appraisal clause:


If we and you disagree on the value of the property or the amount of the "loss," either may make written demand for an appraisal of the "loss." In this event, each party will select a competent and impartial appraiser. You and we must notify the other of the appraiser selected within twenty days of the written demand for appraisal. The two appraisers will select an umpire.

If the appraisers do not agree on the selection of an umpire within 15 days, they must request selection of an umpire by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and the amount of the "loss." If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be the appraised value of the property or amount of "loss." If you make a written demand for an appraisal of the "loss," each party will:

a. Pay its chosen appraiser; and
b. Bear the other expenses of the appraisal and umpire equally.

Compare this simple clause with the two appraisal provisions authored by State Farm and Farmers. The Farmers appraisal endorsement is written over four pages and even has the American Arbitrations Association appointing the Umpire. The new State Farm endorsement is two pages and has the following language:

You and we do not waive any rights by demanding or submitting to an appraisal, and retain all contractual rights to determine if coverage applies to each item in dispute.

My prediction is that other insurance companies will follow this trend. My other prediction is these more detailed clauses will lead to more litigation, even after an appraisal award is made.

Departments of insurance should question the need and impact of the proposed language before approving such clauses. I can guarantee you that the insurers are not writing the new language to help policyholders get full benefits paid quicker and sooner.

I thank Cynthia Montgomery and Steve Hadhazi for the policy samples.

Positive Thought for The Day

“Your mind is a tool you can choose to use any way you wish.”
       —Louise Lynn Hay