A homeowner often needs help when dealing with a serious loss. While property owners and their insurers are frequently on the same page, the opposite is also a reality. The two parties may become entangled in a dispute over a given loss. The case we are examining in this newsletter, ironically, involves litigation over a policy provision that is supposed to help in avoiding litigation.

A home was damaged during a hurricane. Its owner sought the help of an independent adjuster to determine the extent of damage. Its total for damages was significantly higher than the amount determined by the insurer. The parties ran into another disagreement while submitting the matter to an appraisal.

Click below to see how the courts resolved whether one particular appraiser qualified as a disinterested party.

We are all familiar with the foundation of all insurance policies, right? Whether it was the old Standard Fire Policy or the latest, cutting-edged cyber policy, they are all contracts. They are formal agreements between the 1st and 2nd parties (in property policies) and 1st, 2nd and implicitly 3rd parties (in liability policies).

The situation we selected above revolves around a method for the parties to seek proper application of their agreement. Specifically, the parties wished to determine the amount of a property loss through appraisal. This provision lays out the steps that are to be taken in order to present each party’s position on valuation and, hopefully, reach a satisfactory compromise.

Click here for more information. It is from the General Principal section of Gordis on P&C Insurance found in Advantage Plus.

Appraisals are commonly used in insurance contracts. However, they can only be used when both parties acknowledge that a given loss is eligible for coverage. It is a method that assists in establishing the amount of coverage due, so it can function as a step to, possibly, avoid a lawsuit.

Appraisal provisions found in insurance policies are similar in some respects such as each party is able to evoke and appraisal, select its own appraiser, the appraisers must select a separate party to oversee the process. The appraisal judge hears the positions, attempts to negotiate an agreement and is responsible for assisting in reaching a decision that at least one of the other appraisers agrees with.

Click here to view valuable information from the Residential Insurance Section of PF&M found in Advantage Plus.

So, while there are similarities among appraisal provisions, there can also be differences such as the following:

• Require parties to select from a specified list of appraisal judges

• The decision reached by the process may be binding or non-binding

• Appraisal may be mandatory before any attempt to litigate a dispute

• Includes specifics regarding background or experience of appraisers

Any difference can have a tremendous impact on the decision to pursue an appraisal. Another item found in the litigated appraisal attempt above involved something that is, generally, assumed about an appraisal panel. The policy’s appraisal provision contained a requirement that appraisers be disinterested parties. That means that a participant in the process has to be free of any financial interest in the outcome. In this case, the greater good was met because of the requirement as the insured’s chosen appraiser was a party who, if approved, would have benefited directly from the decision since he was to be paid a percentage of the final loss valuation.

In this case, as it often is, communication and taking responsibility for what every party agrees to is critical. Failure to do so wastes time, money, and effort. The solution was to merely be aware of contract provision requirements and being willing to adhere to them.

Click here to see a brief article discussing two methods of resolving valuation disputes under an insurance policy. It is from Emarketing for Agents found in Advantage Plus.