Entrepreneurs and homeowners often run into problems filing a claim with their insurance company. Even when represented by a public expert or an attorney, it is common for there to be some sort of dispute between the value of the claim.
Virtually all property insurance contracts contain a review clause that can be invoked if there is a dispute between the policyholder and the insurance company over the determination of coverage, the process for handling claims or, most commonly, the settlement amount.
Often, after an insured makes a claim under their policy, the insurance company will offer a dollar amount to allow the policyholder to “come whole.” Unfortunately, it may happen that the insured finds this “calculated” amount insufficient, or even worse, only realizes it after the replacement/repair process has started.
With regard to personal property claims, there are often several thousand unique items that are subject to damage. Especially with residential homeowner claims, the scope is huge, and the time it takes to document and review each line item is often overwhelming. This basic fact increases the likelihood of a dispute tenfold, as a dispute can exist over any one of a thousand claimed items. This, coupled with the lack of professional personal property experts available on the open market, often results in the homeowner’s own documentation versus the carrier’s in-house loss prevention methods. Common sense can predict the difficulties a policyholder will face in making a claim with a knowledgeable and experienced insurance adjuster who represents the best interests of his or her employer.
Enter, the assessment facility:
VALUATION. If you and we cannot agree on the amount of the actual cash value or the amount of the loss, either one may require an appraisal. If either makes a written request for a valuation, each will choose a competent independent valuer and the other will communicate the identity of the valuer within 20 days of receipt of the written request. The two appraisers will then select a competent, impartial arbitrator. If the two appraisers cannot agree on an arbitrator within 15 days, you or we may ask a court judge in the state where the property is located to select an arbitrator. The appraisers then determine the amount of actual cash value and loss for each item. If the appraisers provide us with a written record of an agreement, the agreed amount will be the amount of actual cash value and loss. If the valuers fail to reach an agreement within a reasonable time, they will submit their disagreements to the arbitrator. A written agreement signed by two of these three determines the amount of actual cash value and loss. Each appraiser is paid by the party that selects the appraiser. Other costs of the appraisal and the arbitrator’s fee will be paid equally by you and us.
The title quote above is much like any standard assessment clause in an insurance policy. It is also something that the policyholder overlooks during a deadlock or dispute. When a policyholder is presented with a substandard settlement offer, they often fail to understand their rights under the policy contract and may feel they have no choice but to accept the amount charged by the insurance company. There can also be an intimidation factor when an inexperienced policyholder is faced with challenging a corporate superpower, such as the typical insurance company. Popular belief can expose only (two) different options; Accept the offer and move on, or prolong their lives further by hiring a lawyer to file a lawsuit. Clearly, this belief can antagonize and disable their proactive and assertive role in accepting the true amount of loss, nothing less.
An alternative method
In theory, appraisal should be used to provide a simple, quick, inexpensive and fair method of determining only the amount of the loss. Fire Ass’n vs. Ballard, 112 SW2d 532, 534 (Tex. Civ. App. – Waco 1938, no subpoena).
When the insured is faced with a settlement offer that they believe is much less than necessary, and finds that the business adjuster is unwilling to “re-adjust” the offer, they can invoke the review clause. When this clause is invoked, the many personalities involved in the claim are now removed and a new, fresh batch of individuals is appointed to determine the amount of damages. The “me vs. the world” or “David vs. Goliath” feeling has now been removed, and the entire claim has now been turned over to a 3-person panel. Now the insured is represented by one appraiser and the carrier is represented by one appraiser, who independently assesses the loss and calculates the amount of damage.
Citing the opinion of a Supreme Court, “The purpose of the clause is to ensure a fair and impartial tribunal to decide the dispute before them.”
While there is a clear difference between review and arbitration, many of the basic principles of the review process can be rooted in the Uniform Arbitration Act. An example of this is as follows:
Uniform Arbitration Act, §13-22-201 et seq., and in particular §13-22-211(2), which sets forth the standard of impartiality of an arbitrator, essentially as: a person having any material interest in the outcome of the arbitration is not considered neutral.
I believe that a surveyor contracted or employed by the carrier would not be considered a disinterested party as they could be argued to have a substantial relationship with the party evidenced by an ongoing financial relationship with that party. It is also my opinion that the public expert, who is retained by the insured, can also be considered uninterested as they are economically interested in the final amount paid to the insured. This, and any legal issues related to the assessment, should be discussed with an attorney.
Mechanics of the assessment process
Simply put, when the two appraisers are chosen by their respected parties, they usually contact each other and fill out all the required documentation to begin the process. Shortly after initial contact, the two appraisers will agree on an arbitrator. It is our opinion that the two appraisers should have an arbitrator before any issues of the dispute are discussed. This aspect of the process is, in our view, one of the most important mechanisms of the entire review. It should be duly noted that the selection of the arbitrator is essentially the agreement and election of the final authority in the matter of a dispute. This single person will have the capacity to make the final decision, after both valuers have formally presented their findings and supporting documentation. If the appraisers appointed by two parties cannot agree on an arbitrator, either party may request the court to appoint an arbitrator.
The appraisal before the appraisal
It is my custom and opinion to claim and demand a truly disinterested and neutral person to serve in the capacity of arbitrator, according to the language of the policy review clause. Our independent research shows that the carrier’s appraiser will often recommend individuals with whom they have a healthy relationship or pre-existing agreement.
It is clear that the aforementioned qualities may well lead a person to be biased, or at least subject to pre-existing opinions and beliefs that are the result of many years of protecting the interests of the Carrier. In addition, it is our practice to formally reject any attempt by the carrier’s appraiser to select a disinterested party to act as arbitrator. Any such attempt will result in a strict warning of compliance, with respect to the terms of the clause. Once all parties understand the proper process of the review, selection of a fair and disinterested arbitrator will preclude and prioritize all other issues and actions at hand. If the parties cannot agree on an arbitrator, either party will divide the local court having jurisdiction over the appointment of an arbitrator. It should be noted that an umpire must be very well versed in the judging process as he will exercise complete authority over the panel.
Once the arbitrator is in place, the (two) appraisers will establish a “protocol” to guide the panel in evaluating the loss. An example of a protocol is as follows:
Agreements about the size of the loss
Disputed items of scope noted
RCV agreement of loss, online per line
Disputed values noted
Agreement of ACV of loss, online per line
Disputed values noted
Confirmation of “agreed upon” aspects of loss
Confirmation of “open” or disputed aspects of loss
All open/disputed issues must be forwarded to the Referee
According to the protocol, each appraiser independently begins evaluating the loss. All documentation, evidence and information available at the time of the claim relating to the loss will be investigated. Property in dispute must be evaluated, witnesses and experts consulted, and a formal presentation of replacement value and actual cash value determined. Often costs associated with replacement or repair of claimed items have not been declared by the insured; all costs should be evaluated and calculated during the valuer’s evaluation. The claim documentation prepared by the policyholder should be examined and substantiated, due diligence should be carried out as to the correct valuations and calculations.
It is my opinion that neither appraiser is required to evaluate the amount of the loss in the presence of the other, in the opinion of the court.
“Appraisers are generally expected to act on the basis of their own skills and knowledge. It has been argued that they can reach individual conclusions….” Florida Farm Bureau Cas. Ins. Co. v. Sheaffer, 687 So.2d 1331. (very common in all other states)
That said, if the two appraisers find it mutually beneficial to meet at the location of the loss and discuss matters, it can of course be a productive approach to come to an agreement. Since every review is different and personalities, practices, opinions and methods can clash, get stuck or follow a smooth process, the procedure must be executed strategically to allow for the most efficient, accurate and fair resolution possible. When it is impossible for the two appraisers to agree on some or all aspects of the loss, they must back down and submit all findings to the arbitrator for a final decision.
It is our practice, research, support and substantiation of all aspects of our findings so that all other parties can understand and confirm our calculations. Knowledge is indeed a lever during the assessment.
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