Today I discuss and analyze appraisal issues with Steve Badger at the Insurance Appraisal and Umpire Association (IAUA). Bob Norton is the current president.
Appraisal awards often have one or both parties upset over the determination of the amount of loss. A case that was decided two days ago1 dealt with complaints by a policyholder who argued that the award must be set aside because an appraiser and the judge used the wrong method to determine the actual cash value of the loss.
The relevant facts are as follows:
[T]The parties then proceeded with the appraisal dispute resolution process required by Meier̵7;s policy. Meier selected appraiser Paul Hausz and Wadena selected appraiser Mark Stromberger. The appraisers chose William Marske as judge. Since the appraisers could not agree, they submitted their differences to Marske. He concluded that Hartland Inn’s actual cash value was $939,136.58, about $100,000 more than Wadena had previously offered. Stromberger agreed with Marske’s valuation and according to the simple terms of the policy, this determination of the amount of loss became binding. However, Hausz refused to sign, stating that he disagreed with Stromberger and Marske’s use of the broad evidence rule to calculate the actual cash value.
Less than a month later, Meier filed this lawsuit in Outagamie County Circuit Court, naming both Wadena and Judge Marske as defendants. She asserted claims for breach of contract and bad faith and sought to vacate the appraisal award, all on the grounds that Wisconsin law prohibited use of the broad evidence rule to calculate Hartland Inn’s actual cash value….
The first important lesson from this case is that appraisers and judges should seek liability insurance. The judge was sued by the policyholder. Although he was dismissed from the trial, it costs money to pay legal fees to fight the charges. Liability insurance pays for this. As the parties turn to panel members more frequently, those involved in the assessment process should obtain liability insurance.
The second lesson is more of a warning. Public adjusters should exercise caution when advising policyholders to choose adjudication over litigation. When public adjusters do this, they are providing legal advice.
In this case, the amount determined by the public adjuster as the amount of damages was much greater than the assessment result. Policyholders who accept the legal advice of a public adjuster to go to valuation and the award does not come out as determined by the public adjuster can sue the public adjuster for the incorrect legal advice given to go to valuation.
The court found in this case that the judgment was binding:
[B]Because the record confirms that Meier’s lawsuit is an improper attempt to circumvent the binding adjudication process required by the Wadena policy, Wadena’s motion will be granted and the complaint dismissed.
IN Farmers Automobile Insurance Association v. Union Pacific Railroad Company, 768 NW2d 596, 604-06 (Wis. 2009), the Wisconsin Supreme Court affirmed that a policyholder who agrees to resolve claims valuation issues through an appraisal process is bound by the outcome of that process. Because the “obvious point of contracting for a valuation process” is to leave valuation decisions to experts chosen by the parties, rather than judges and juries, courts have a duty to enforce the parties’ agreement and have “only limited authority to review valuation decisions .’ Thus, appraisals are “presumptively valid” and “should not be easily overturned,” even if the court would have arrived at a different valuation. Id. In other words, review is conducted with deference and humility; it is not the court’s job to determine whether the third-party experts appraised the object correctly (as if the court itself could do a better job), but [merely] whether the third party experts understood and performed the task assigned under the contract.’ “An assessment may be set aside only upon a showing of fraud, bad faith, a material mistake, or failure to understand or complete the contractually assigned task.” And judicial review is generally limited to the face of the award, not an autopsy of the appraisers’ analyses.
This court has no jurisdiction to rewrite the terms of the policy entered into by Meier. Nor is it the court’s job to interrogate the appraisers’ analysis. Yet these are precisely the measures Meyer seeks. She asks the court to find that Wadena initially used the broad evidence rule to calculate the value of the Hartland Inn and then improperly influenced the panel to do the same by providing an “Agreement for Submission to Appraisers” that contained several variations of the following language : ‘When deciding [actual cash value], the broad rule of evidence is used in the state of Wisconsin.’ This argument misunderstands the limited review courts apply to adjudication or other alternative dispute resolution processes. As the Wisconsin Supreme Court explained in detail in Farmers, such processes are favored because they “promote finality, are time and cost efficient, and place a difficult issue of fact—the exchange value of an item—in the hands of experts, not the judiciary. If Meier disagreed with Wadena’s argument before the appraisers, her remedy was to challenge them in that proceeding. For this court to do as Meier requests and second guess, the appraisers’ analyzes or conclusions are erroneous and would risk undermining the entire process. Therefore, judicial review is usually limited to the outcome of the judgment. Id. More expansive analysis, for exampleallowing the parties to argue points of law and fact rejected by the appraiser would erode the benefits (finality, efficiency and expertise) provided by the appraisal process.
Meier agreed to channel actual cash value disputes into a binding appraisal process. She cannot now claim that Wadena breached the contract by following that very process (which she invoked) just because she is unhappy with the outcome she got.
The final lesson is that most awards are binding. Parties to an award are usually subject to judges seeking to find the award binding. That is what this judgment established.
However, while this case found the decision binding, there are cases that find that the method of calculation can be a factor in reversing a valuation judgment. I will discuss some of them tomorrow.
What I’ve always liked about the playoffs is the playoff and knowing that it matters so much in every game.
1 Meier v. Wadena Ins. Co.No. 23-cv-0158, 2023 WL 3821346 (ED Wis. June 5, 2023).