When there is a dispute regarding the amount of loss, submitting the matter to Appraisal is one option for resolving the issue. The appraisal process assists in determining both the scope of damage as well as the actual cost for repair.
An example where appraisal could be useful would be a hail loss where only portions of an older roof system were impacted. The policyholder often argues due to the extent of damage and age of the roof, the entire roof system has been compromised and will need to be replaced. The insurer’s position is that despite the age of the roof, only the damaged slopes need to be replaced In this situation, appraisal would be an appropriate forum to resolve the dispute and determine how much (if not all) of the roof should be replaced and the appropriate cost for same.
WHAT IS AN APPRAISAL?
Appraisal is a forum by which disputes over damage between the insured and insurer are resolved. This occurs when the carrier’s adjuster and insured’s representative are unable to reach agreement on the amount of loss.
In the typical appraisal forum, both the insured and insurer will choose an appraiser. Once chosen, the two appraisers will then select an umpire who, in theory, is completely unbiased and has no interest in the loss. In the event the appraisers are unable to agree on an umpire, a Petition will be filed with the Court and the presiding judge will select the neutral.
Serious business man working on documentsThe two appraisers will then inspect the damaged property and prepare independent estimates of the damage. They will then discuss their respective assessments and attempt to reach agreement on the amount of loss. In the event they cannot reach agreement, the two appraisers will then submit their differences to the umpire. Upon review, the umpire will then issue a ruling and prepare an Award. In order for the Appraisal to conclude, two of the three members of the Panel must execute the Award. Once this occurs, the Award is distributed to the insured/insurer and the matter is resolved.
IN WHAT SITUATION IS AN APPRAISAL WARRANTED?
The most common situations for an Appraisal include the following:
A dispute over when something should be repaired or whether it should be replaced.
A dispute over whether funds paid in the claim are adequate to complete all of the repairs.
Appraisal is not warranted in situations where there is a claim denial as evaluation of coverage is not part of the Appraisal Panel’s responsibility.
KEY POINTS WHEN CONSIDERING AND/OR HANDLING AN APPRAISAL
Consider Appraisal as an option when you are unable to resolve a covered loss with the insured or their representative. Avoid appraising the small dollar claims or where the cost/benefit analysis on the value in dispute does not make sense.
Be cautious when invoking Appraisal on losses in which there are coverage issues or where certain portions of the claim are not covered. If not properly addressed, the non- covered damages could end up in the Award making it difficult for the carrier to dispute payment of these items.
Choosing the Umpire is one of the most important tasks involved in the Appraisal process. The Umpire is the determining factor in resolving disputes between Appraisers. It is important your appointed Appraiser be knowledgeable with respect to potential candidates. He should also interview the candidates to discern their relationship (personal, professional, number of Appraisals, etc.) with the other Appraiser as well as their experience level in construction, claims and the appraisal forum.
Make certain the scope of the Appraisal is clearly identified denoting what coverages are to be addressed. Often, only one line (ie. Dwelling, Personal Property, etc.) of coverage is being appraised.
Appraisers should thoroughly review both the original adjustment as well as the Insured representative’s position in their analysis. By doing so, the Appraiser is able to identify the differences in the assessments and the nature of the dispute (s). This can be helpful during their inspection, retention of experts (if necessary) and Appraisal of the loss.
Once the matter is resolved and agreement is reached, the Appraisal Award should be comprehensive and reflect all damages to be appraised. This will avoid leaving open any items for which the insured can pursue/dispute in the future.
