What is appraisal?
In property insurance, the terms “appraisal” and “appraisement” refer to a private adjudicatory process created in an insurance policy by which disputes over the amount of a loss are resolved by competent and disinterested appraisers. The purpose of an appraisal provision is to provide a determination of the extent of the loss. When triggered, the appraisal process is mandatory unless the other party agrees to waive its right to appraisal.
What are the defining features of appraisal?
Although the language varies a little from policy to policy, appraisal provisions usually have the same general features:
What is the proper scope of appraisal?
Appraisal is not for determining coverage issues. Appraisal is only designed to determine the amount of a loss. Therefore, policyholders should also be careful to understand exactly what “loss” is being submitted to the appraisers. Often, an insurer will send the structural portion of the loss to appraisal but not the contents or alternative-living-expense portions of the claim to appraisal. To avoid surprises, it is always better to identify at the beginning all of the “losses” that will be considered in the appraisal.
What does it mean to be “competent and disinterested”?
The disinterestedness requirement is by far the most important part of an appraisal. Discovery in some of our cases has revealed that the insurance company dictated how the appraiser should conduct the appraisal, what evidence to consider, and even how to vote. In such cases, we have shown that the appraiser abdicated the requisite independence and that the insurance company deprived the policyholder of the valuable right to an efficient resolution of the loss by neutral appraisers.
After the appraisers are selected, how do the appraisers go about deciding the amount of the loss?
Appraisal is a time for advocacy. Counsel for policyholders should help select an experienced appraiser who will be fair to both sides. Then, counsel should advocate for the type of appraisal hearing that should occur—it will vary depending on the claim—and help gather evidence that supports the policyholder’s position. The point is that appraisal is not a passive process.
When can an insurance company trigger appraisal?
The insurance company must conduct a good-faith investigation before requiring a policyholder to undergo appraisal. This is based on the laws:
An insurance company cannot simply skip its obligation to conduct a full and fair investigation by invoking appraisal. With respect to their policyholders, insurance companies always have a duty of good faith, and they always have a duty to investigate. WAC 284-0-30-330(4)
The claims-handling regulations make insurance companies responsible for the accuracy of actual-cash-value evaluations. WAC 284-30-380(7)
Moreover, it is unlawful for an insurance company to compel “a first party claimant to initiate or submit to litigation, arbitration, or appraisal to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions or proceedings.” WAC 284-30-330(7)