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— Property Management Quarterly — November 2015
T
he definition for “appraisal”
depends upon the context
in which it is used. Many are
familiar with the word when
used to estimate the value
of a piece of jewelry, fine art or a
home. However, in a property and
casualty insurance policy, appraisal
provides a dispute resolution forum,
which can be invoked by either the
insured property owner or the insur-
ance company, if there are signifi-
cant unresolved issues in a property
claim. Rather than incurring costs
to pursue litigation to resolve a
claim, which may still be necessary,
appraisal is a more cost-effective
and time-efficient manner in which
to resolve a claim.
When appraisal is demanded, it is
a clear reflection that one or, per-
haps, both parties of the insurance
contract are not open to a proper
adjustment of the claim and a time-
ly resolution. The use of appraisal
to resolve claims is becoming more
frequent. While less expensive than
litigation, it is important to note
that coverage for the damage has
been acknowledged, yet the prop-
erty owner is required to spend
out-of-pocket funds to obtain the
benefits owed under the policy.
Many policies include standard
forms drafted by advisory organiza-
tions such as the Insurance Services
Office. Language used throughout
each policy is critical and insur-
ance companies choose to provide
definitions to a very limited number
of words. Often the language used
limits the carrier’s obligation under
the policy. Use of standard language
lessens the car-
rier’s regulatory
burden in having
states approve the
policy forms.
The appraisal
provision in most
policies is found
under the loss-
conditions section
of the policy. While
the language in
the provision is
similar in many
policies, distinc-
tions exist. Following is a typical
appraisal provision.
“If you and we disagree on the
value of the property or the amount
of loss, either may make written
demand for an appraisal of the loss.
In this event, each party will select
a competent and impartial apprais-
er. The two appraisers will select an
umpire. If they cannot agree, either
may request that selection be made
by a judge of a court having juris-
diction. The appraisers will state
separately the value of the property
and the amount of loss. If they fail
to agree, they will submit their dif-
ference to the umpire. A decision by
any two will be binding. Each party
will:
A. Pay its chosen appraiser; and
B. Bear the other expenses of the
appraisal and umpire equally.
a. If there is an appraisal, we
will still retain our right to deny the
claim.”
Returning to the importance of
language and the carrier’s choice of
words in specific policy provisions,
the word “coverage” is not found in
the noted appraisal provision. The
carrier already has acknowledged
coverage for the cause of loss. Yet,
it is not uncommon that after the
insured demands appraisal to set
the amount of loss, for the carrier
to suggest it will not participate
by citing a coverage issue. Cover-
age issues are not determined in
appraisals.
For example, consider hail dam-
aged the roofs on a 30-building
apartment complex, as well as gut-
ters, downspouts, vents, windows,
siding, lights, fencing, garage doors
and more. You have credible infor-
mation and records to support your
submitted claim. Consider repre-
sentatives of the insurance compa-
ny assert only one side of the roofs
were damaged by hail, “foot traffic”
from previous work on the roofs
and wear and tear the past five
years caused noted damages, and
asserts there was preexisting dam-
age to garage doors and fencing in
addition to the hail damage. Then
after months of attempting to reach
agreement and resolve the claim
so repairs can begin, the insurance
company assesses that repairs can
be completed for $500,000 less than
what your consultants have sup-
ported.
Given the difference, you submit
a written demand for appraisal to
set the amount of the loss. At this
point, many unanswered questions
leave the insured vulnerable to a
process made available in the poli-
cy. These questions include whether
the insurance company will agree
to participate, as well as whether
the insurance company will attempt
to limit the types of damages to be
resolved in appraisal. Other ques-
tions include: Will the insurance
company designate a “competent
and impartial” appraiser; will the
carrier’s appraiser recommend com-
petent and impartial candidates to
serve as the umpire; and will the
carrier’s appraiser improperly seek
direction and instruction from the
other carrier representatives during
the process? You may find yourself
asking if the process is fair.
Property owners and property
managers in Colorado will want
to be knowledgeable regarding the
purpose and need for appraisal in
property damage claims. Colorado’s
Department of Regulatory Agen-
cies, Division of Insurance, issued
Property and Casualty Bulletins in
efforts to address perceived abuses
and to protect Colorado Consum-
ers. Bulletin No. B-5.26 is specific to
appraisal, and although it has been
revised, abuses remain.
The questions raised above will be
addressed in a future article, spe-
cifically addressing competent and
impartial appraisers and umpires
and tactics employed by insurance
companies during appraisal.
If you have questions regarding
your policy, the appraisal provision,
coverage provided by your existing
policy, or the property insurance
claim process, contact a claim spe-
cialist or legal counsel before you
sustain a loss.
s
Insurance
Chris Rockers
Partner, Claim
Solutions Group,
Northglenn
