HOW APPRAISALS SHOULD UNFOLD
The Standard to Enforce Appraisal Awards
In a previous post I gave an overview of an insurance appraisal and how it functions. With this post I will describe with a bit more detail the procedural rules for how an appraisal should unfold.
In my previous post I wrote that in two of the three states where I am licensed the rules that govern the fairness of arbitration also apply to appraisal. Yet the law ever changes. Now Minnesota does not apply the rules of arbitration to appraisals. In states where the uniform arbitration act has been adopted by the state legislature and applied to insurance appraisals property owners have a right to notice of the date for the appraisal hearing, the right to cross-examine insurance company witnesses, the right to advocate, a clear understanding of the appraisal panel’s responsibilities, and the right to present evidence. If this procedure is not followed there is a clear and establish path to ask a judge in a court of law to modify or even vacate (or throw-out) the appraisal award.
In states where the law does not apply the rules of arbitration to appraisal the law is vaguer in what constitutes a fair appraisal proceeding. For example, in Wisconsin, appraisals are “presumptively valid. They should not be lightly set aside, even if the court disagrees with the award.” See Farmers Auto. Ins. Ass’n v. Union Pac. Ry., 2009 WI 73 ¶ 44; Wis.2d 52, 73; 768 N.W.2d 596, 607 (Wis. 2009). An appraisal award can only be set aside upon a showing of fraud, bad faith, a material mistake, or a lack of understanding about the completion of the assigned task.
A “material mistake” is one that matters to the outcome of the appraisal award. A “lack of understanding” would be something akin to not understanding the charge to an appraisal panel under the appraisal clause in the insurance policy. These standards set a high bar. Simply complaining about quality of the work performed by an appraisal panel is insufficient.
Courts do not want to see members of the appraisal panel co-mingle coverage issues and the amount of loss. Coverage issues are things like how the policy reads, operates, and how the law applies to the policy. The amount of loss are issues such as the price of items before the loss event (storm, fire, etc.), cost to repair or replace, etc. Co-mingling coverage and amount of loss issues are mistakes that many courts find are “material mistakes” and reflect a “lack of understanding” of the appraisal panel’s charge.
In every state appraisal should begin with the appraisal panel first understanding its charge. I like to see appraisal panels have the questions then will answer before they do their work. I like to see appraisal panels notify parties of the date of the hearing, who can be present, and whether there will be pre-disclosures. These procedures should be written so the property owner and insurance company know the rules of the road.
When an Appraisal Process Goes Wrong
In every state where I practice judges are loath to overturn an appraisal award based on the merits of the decision. If judges overturn decisions based on the merits, then the point of appraisal is lost. There would be no finality to appraisal and the decision of the appraisal panel would simply be temporary – a dry-run for an eventual court decision. That would defeat the point of the appraisal clause in the insurance policy, the appraisal clause written by the law, and numerous appellate court decisions enforcing appraisal awards. The argument an appraisal panel used poor judgment is likely doomed. An error that can result in a modified or vacated decision is a procedural error where the property owner did not receive his, her, or its “day in appraisal”.
The remedy for an erroneous appraisal ward need not be completely vacated or overturned decision. Judges can order an appraisal panel to reconsider or amend their findings. The relief a property owner seeks from a for an erroneous award depends on the error. It need not be a complete re-do.
If you need help understanding the outcome of your appraisal award, and whether that award should be modified, vacated, or amended, contact me.