The proper and ethical role of an insurance appraiser and umpire has been on my mind as I prepare my presentation for next week’s P.L.A.N. Appraiser & Umpire Certification Conference in Denver, Colorado. I am certain everybody reading this post who has participated in an appraisal thinks they have the correct opinion of these roles. I supported certification for these roles at a time when certification was in its infancy. In the 1990s – before appraisal became such a huge industry and a more common method of property insurance dispute resolution – I chaired a project to study possible ways to make appraisal fairer. So, the topic has been in my head a lot longer than most people have been in this industry.

Most reading this post will say that the role of the appraiser is to determine the amount of the loss. Indeed, the standard appraisal clause says so:

The appraisers shall then set the amount of the loss and actual cash value as to each item. If the appraisers submit a written report of an agreement to the insurer, the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any 2 of these 3 shall set the amount of the loss.

But states may apply a different standard regarding that role. For instance, a 2008 California case1 remarked that appraisers are really arbitrators:

In arguing that the trial court should sustain his demurrer without leave to amend, Carneghi argued below that the appraisal process mandated by the Insurance Code and described in appellant’s complaint constituted an arbitration, and that he was entitled to arbitral immunity because his role as an appraiser was analogous to that of an arbitrator. In their opposition, appellants essentially conceded that the appraisal process in this case was a form of arbitration, referring to Carneghi as ‘a party appraiser, or arbitrator.’ Appellants argued that because Carneghi was alleged to have played a role as a party-appointed advocate, he was not subject to arbitral immunity. The trial court stated at the hearing on the demurrer that Carneghi had prevailed, but left open the question whether it would grant appellants leave to amend. The court ultimately sustained the demurrer without leave to amend.

…It is well settled that ‘[a]n agreement to conduct an appraisal contained in a policy of insurance constitutes an ‘agreement’ within the meaning of [Code of Civil Procedure] section 1280, subdivision (a), and therefore is considered to be an arbitration agreement subject to the statutory contractual arbitration law.’

So, the first lesson is to check the state statutes, common law, and insurance policy. Those opinions about an appraiser may be right in one state but very wrong in other states.

The second lesson is that the law changes and is especially changing regarding appraisals. Indeed, even the policy language is changing and may violate terms of the standard fire policy, as noted in State Farm’s Appraisal Provision Violates the Standard Fire Policy.

Still, in my opinion, in most states and most insurance appraisals, I think the only role of ethical appraisers is to determine the full amount of the loss and damage. The word “full” is, in my opinion, because one does not receive justice by having half justice or 95% justice. Full justice is done only when it is 100%. All insurers tell me that they expect their policyholder customers receive 100% of all the benefits. Shouldn’t the appraisers appointed by the insurers have the same mindset and obligation?

And yes, that means giving 150% is not justice to the insurance company.

I hate for insurers to select appraisers on “savings” to the company based on the opposing appraiser’s estimate. It is unethical if the insurer believes in good faith. Similarly, I hate to see appraisers advertising the opposite to policyholders. It makes the process one of “how much can I get the award to be” or “how low can I keep this award down” game versus—”what is the full amount of the loss?”

Certainly, my viewpoint is more from the policyholder because those are the ones I represent, and most of my current view is what I stated in Texas Appraisers are Supposed to be Disinterested, Impartial and Not Biased: I Doubt This is Reality in Texas Appraisals:

The problem is that the view of ‘fair’ is dependent on what you have analyzed to be an accurate estimate of the damage and claim. I have yet to see an insurance company appraiser come to one of my clients seeking information regarding the damage, history of the property, and observations of why my client believes the damage is more than the insurance company estimate. The reason is obvious– the insurance company does not want its appraiser to learn information that may increase the value of the estimates of damage being prepared by its appraiser. The insurance company appraisers usually have some prior relationship with the insurance company adjuster or independent adjuster and are looking for future business. I truly believe that most want to keep the dollar value as low as fairly possible—a number have admitted as much over drinks at the various conferences I attend.

And, in many jurisdictions, the policyholder’s appraiser is acting as an advocate as well. Indeed, I request that clients I represent in appraisal have an appraiser that works as hard as possible to find out all information about the loss from both my client and from the insurer’s viewpoint. It is my impression that the harder and longer one works on analyzing damage following a loss, the more damage is found that would simply go unclaimed as a result of ignorance. Getting an accurate and fair independent estimate of damage by either appraiser requires diligence, information, expertise and then an understanding of why other views are not accurate or subject to criticism.

This type of critical analysis is normal for those of us in insurance coverage litigation. However, it is often the exception rather than the rule in appraisals….

Since I wrote that blog post in 2009, I have come to appreciate that an appraiser should be allowed to advocate their position and evaluation of the amount of loss as being more precise and accurate. However, I think some may look at the role of an advocate as similar to an attorney for a party, which is not the appraiser’s ethical role.

One of the reasons this topic is on my mind is because P.L.A.N. has a unique description of the education of an umpire on its website:

This Course is The Advanced Appraisal Umpire Certification Program focusing on the role of the Property Loss Appraisal Umpire in the Property Loss Appraisal Process and their duties, authority and expected conduct to:

1.Demand Respect and Command Authority of the Panel.

2. Maintain Control of the Appraisal and the Panel Members once you and they are formally involved in the process.

3. Provide and adhere to expectations, schedules, procedures and protocols of the process.

4. Assure both Appraisers are equally heard.

5. Maintain Non Ex Parte communications between the Panel.

6. Eliminate Outside Influence or Interference in the Appraisal Process.

7. Adherence of Ethical Behavior of and in the Panel.

8. Extinguish Volatile Environments and Situations created by the Panel or their Clients.

9. Create amicable solutions to contentious situations created by the Panel or their Clients.

10. Assure and maintain procedural adherence and fluidity of the panel and the process.

11. Recognizing the ‘Trojan Horse’, ‘Appraisal by Ambush’ and other common ‘Tactics’ of the Appraisers.

12. Understand the Umpire’s rights, Authority and responsibility to proceed in an ‘Empty Chair’ Appraisal.

13. Provide accurate Awards based upon a thorough investigation of the loss under Appraisal and information provided by the panel.

14. ‘Draft’ an Award for ‘Panel Discussion’.

15. Provide substantiation of the ‘Draft’ and ‘Final’ Award decision to the Panel Members.

16. Understand that and why ‘Splitting The Baby’ is an inappropriate means of conclusion to a Property Loss Appraisal.

Item number 11 is important. I mentioned this and Steve Patrick’s courses in Thoughts On Badger vs Merlin and Other Topics Of Appraisal At The IAUA:

Historically, many appraisers for policyholders were inexperienced and often naïve about the games that can go on in an appraisal. Experienced insurance appraisers would bring in last minute evidence in front of umpires associated with the insurance industry. When this type of gamesmanship wrongly influenced the outcome, it was infuriating to me. I taught and wrote in presentations that policyholder appraisers could not accept this type of insurance company appraisal gamesmanship and would have to ‘get down in the mud’ to stop these practices. Steve Patrick has certainly highlighted how to stop insurance company gamesmanship in appraisal so that both sides have a fair chance to obtain an honestly derived and fair appraisal result.

To be fair, I also mentioned that when reading some of the comments from others on the Level the Playing Field forum, some seem to be more interested in getting the most they can rather than obtaining a fairly obtained and honestly supported appraisal award. So, I made the comment that insurance company appraisers may have to educate themselves to ‘get down in the mud’ so they are not gamed in the nonexistent rules of appraisal. The point for everybody which I thought I made was that the goal is to have an honest and fair forum where positions can be explored and considered in an ethical manner. Steve Patrick has always taught ethical and honest techniques as far as I know, and he is not the ‘some’ I was referring to.

The takeaway for appraisers which I intended to make for those attending is to be the best and most competent appraiser you can. The appraisal process is dependent on the appraiser’s ability to honestly ascertain the full amount of the loss and be able to back up that position as well as demonstrate the inaccuracy of other side.

Appraisal should only be an alternative dispute resolution process if it is fair to both the policyholder and the insurer. While it is difficult to regulate ethics, I think it is hard to have a fair appraisal unless both appraisers first view their role as seeking 100% justice. This means that the policyholder is being paid fully.

Thought For The Day

Justice in the life and conduct of the State is possible only as first it resides in the hearts and souls of the citizens.
1 Lambert v. Carneghi, 158 Cal.App.4th 1120 (Cal. App. 2008).