I was recently approached by policyholders that had suffered a rather severe water loss to their property. They wisely retained a public adjuster who submitted their claim to the insurance carrier. When it became clear that the insurance carrier was not interested in properly adjusting the claim, the policyholders decided to submit the claim to appraisal. The parties chose their appraisers and ultimately an appraisal award was entered that was not favorable to the insured. The award was not sufficient to repair the damages to the property and the policyholders wanted to file suit against the insurance carrier to recover funds sufficient to make the repairs to the property.

This begs the question, under what circumstances will the Pennsylvania courts set aside an appraisal award?

Pennsylvania law dictates that an appraisal award will be set aside in two circumstances. In the first instance—and one common among most states—an award can be set aside or modified in cases of fraud, misconduct, corruption or other irregularity causing an unjust result.1 The courts of Pennsylvania require a showing of actual fraud – not just potential fraud or suspicion.2

The second situation in which an appraisal award may be set aside is when the appraisers exceed the scope of their authority.3 In Maiden Creek, the parties resolved one portion of the claim but could not resolve the building portion of the claim.

The parties agreed to submit the unresolved portions of the claim to appraisal. The appraisers took it upon themselves to appraise the entire loss, including the portion of the claim resolved prior to appraisal. The insured challenged the award as it reduced the payment for the resolved portion of the claim. In finding for the insured, the court found that the appraisal clause in the policy which states that when the parties “disagree on the amount of the loss” the matter may be submitted to appraisal. The court reasoned that as the parties did not disagree on the amount of the loss for the resolved portion, appraisal was inappropriate as to those damages.

It is plain to see where it can be difficult to determine when an appraisal panel exceeds its authority as in Maiden Creek. This is because it is customary for appraisal to be an informal matter. However, based on the court’s reasoning in Maiden Creek, parties to a claim being submitted to appraisal would best be served by preparing an appraisal memorandum that details exactly what is—and is not—to be appraised.

1 42 Pa. C.S.A. § 734l; See also W.V. Realty Inc. v. Maryland Ins. Group, 2000 WL 33252793 (Pa.Cm.Pl. 2000).
2 Celebrations Caterers, Inc. v. The Netherlands Ins. Co., 2008 WL 282203 (E.D.Pa. 2008).
3 Maiden Creek T.V. & Appliance, Inc. v. General Cas. Ins. Co., 2008 WL 351906 (E.D. Pa. Feb. 8, 2008).