While preparing to put another lickin’ on good ole’ Steve Badger at our upcoming debate at the IAUA appraisal seminar in Fort Lauderdale, I came across a marine insurance dispute concerning a “survey of loss” of a yacht. I have handled yacht claims for years, but the wording caught my attention because the procedure looked remarkably familiar. Change “marine surveyor” to “appraiser,” and most property insurance professionals would immediately recognize what they were reading.
The dispute is Matthew M. Pearson v. ACE American Insurance Company, a/k/a Chubb. 1 The policy contains this provision:
Survey
If you or we fail to agree on the amount of loss, you or we may demand a survey of loss. Each party will select a licensed, independent marine surveyor within 20 days after receiving written request from the other. The two surveyors will select a third marine surveyor. If they cannot agree on a third surveyor within 15 days, you or we may request that the selection be made by a judge of a court having jurisdiction. Written agreement signed by any two of the three surveyors shall set the amount of the loss. However, the maximum amount we will pay for a loss is the applicable amount of coverage even if the amount of the loss is determined to be greater by survey. Each surveyor will be paid by the party selecting the surveyor. Other expenses of the survey and the compensation of the third surveyor shall be shared equally by you and us. However, any such survey will be without prejudice, and we will not waive our rights under this policy by agreeing to a survey.
Sound familiar?
Each side selects an independent expert. Those two select a third. A judge can select the third if they cannot agree. Agreement of any two establishes the amount of loss. Each party pays its own expert and splits the expense of the third. Coverage defenses remain preserved. This alternative dispute process is appraisal in everything but name.
Marine surveying, of course, has a much broader history and function than property insurance appraisal. Marine surveyors traditionally inspect vessels, determine the nature and extent of damage, investigate casualties, recommend repairs, and estimate repair costs. The use of marine experts as a private panel to resolve an insurance loss dispute is very old.
In fact, I previously wrote about a 1793 marine insurance policy reproduced in An Appraisal Clause From 1793. That policy provided that a dispute relating to a loss would be referred to two “indifferent Persons,” one selected by the assured and the other by the assurer. If they could not agree, those two selected a third, and agreement by any two became binding on the parties. The basic structure we associate today with property insurance appraisal was sitting in an American marine insurance policy in 1793.
I have not found the historical smoking gun proving that the drafters of the later property appraisal clauses copied their language directly from marine insurance practice. Historians should be careful about claiming causation merely because one practice came before another. But the chronology and resemblance are hard to miss. Marine insurance was using the two-party-selected-experts-plus-a-third mechanism long before modern property appraisal became standardized.
What makes the Chubb yacht clause particularly interesting is its limitation. This is not a broad agreement to arbitrate every dispute under the policy. The very first sentence says the procedure applies when the parties “fail to agree on the amount of loss,” and the panel’s stated job is to “set the amount of the loss.” This is precisely the language that has generated generations of property insurance appraisal litigation over the distinction between valuation versus coverage determination.
That distinction may become important in the Pearson case. Pearson alleges that the survey process ultimately produced a report addressing causation but did not actually value the loss. Chubb, on the other hand, argues that the contractual survey process was properly invoked and that its participation did not waive its coverage defenses.
Those arguments are pending before the court. What caught my attention is something more fundamental about surveys and appraisals.
Property insurance professionals sometimes speak about appraisal as though it developed uniquely within fire and property insurance. The historical record suggests otherwise. Long before appraisers were climbing roofs and arguing over Xactimate estimates, marine insurers and their customers were sending loss disputes to competing experts and a third neutral to get the matter resolved.
Apparently, appraisal had sea legs before it ever learned to climb a roof.
Thought For The Day
“Sadly, these abuses are ruining a process that was intended to help policyholders promptly resolve disputed claims without the need for litigation.”
—Steve Badger
1 Pearson v. Ace American Ins. Co., No. 7:26-cv-01353 (S.D. N.Y.). See Defendant’s Motion for Partial Dismissl [sic] of the Complaint, Pearson’s Opposition to Defendant’s Motion for Partial Dismissal, and Defendant’s Reply.
