The Insurance Appraisal and Umpire Association (IAUA) debate between Steve Badger and myself was “spicy”. Badger took so much heat from our debate that he took off his jacket halfway through the presentation.
Yesterday’s post, Can the appraisal award be challenged because the appraisers used the wrong methods to arrive at the price?, promised to discuss cases that allow a challenge of the price based on the methodology to determine the size of the loss. There are two points in this topic.
First, every state law is a little different on this issue. The case today will discuss Wisconsin law.
Second, parties should remember that most courts are not inclined to set aside judgments. This is why appraisers and judges must do their work responsibly and arrive at the most accurate award they can.
If we turn to the case,1 The Wisconsin federal court noted this regarding the policyholder’s attempt to set aside the appraisal award:
[T]The mere fact that Wadena paid Meier an award of $939,136.58 does not mean that the award itself is uncontested. Although appraisal awards are “presumptively valid,” they may be set aside based on a “showing of fraud, bad faith, a material mistake, or failure to understand or complete the contractually assigned task.” Meier invokes the last exception, accusing the appraisers of misunderstanding their contractually assigned task: to determine Hartland Inn’s “true cash value.” But the actual cash value is exactly what the appraisal price purports to calculate. Meier disapproves of the number the appraisers arrived at and the method they used to get there. However, “actual cash value” is never a matter of mathematical certainty, and there is no single correct method for calculating it. In this way, it is not unlike body fat. Doctors typically use two different tools to calculate a patient’s body fat percentage: skinfold calipers and Dual-energy X-ray absorptiometry (DEXA) scans. Looks DR Wagner & VH Heyward, Body composition assessment techniques: A review of laboratory and field methods, 70(2) Rs. Q. for Exercise & Sport, 135 (1998). The techniques practically always give slightly different results. But nothing is “wrong”. And if a party to a contract agrees to have their body fat assessed by an assessment panel, and that panel uses the DEXA method, that party cannot seek reversal on the grounds that the panel should have used skinfold calipers. Still, that’s essentially the basis of Meier’s lawsuit. Her complaint is not that the appraisers failed to calculate “true cash value”; it’s that they did so under the broad rule of evidence, a viable method but not her preference. However, the debate about expert methodology is not to be resolved in this court. “Ultimately, the greater danger in reviewing appraisal awards is not an unjust award, but litigation that second guesses an award obtained as a result of a process they agreed to.”
Meier analogizes her case to Coppin’s, where the Wisconsin Court of Appeals took the extraordinary step of issuing a review award. However, Meier’s situation is more similar to that of the insured Farmers. Just like Meier, the insured in Farmers challenged an appraisal “award due to the appraisers’ failure to understand their role in the process.” The Wisconsin Supreme Court rejected that argument because “the face of the award shows.”[d] that the appraisers have understood and fulfilled their contractual task.’ The same applies to the valuation judgment in this case. It compiles estimates from various experts and averages them to arrive at the actual cash value of the Hartland Inn. Calculating the actual cash value—not calculating the actual cash value according to any particular method—was the assigned task. And the appraisers completed it. Had they instead returned an award that appreciated the Hartland Inn’s sentimental value, Meier would have a point. Looks Quinn v. New York Fire Ins. Co., 126 NW2d 211 (Wis. 1964) (awarding an appraisal award that did not calculate “actual cash value” as required by the contract). But nothing in the contract, nor in Wisconsin law, prohibits use of the broad evidentiary rule to determine actual cash value as a general matter.
I can appreciate that many argue that what the panel did to determine the actual cash value was inconsistent with Wisconsin law. But judges often come up with extraordinary reasons to decide the case and the award binding. In this case, the court went so far as to say the following:
Meier could, of course, have negotiated a provision that would have assigned Wadena a more active role in the dispute resolution process. But she didn’t. And freedom of contract necessarily means freedom to enter into agreements that one can ultimately undo.
This is an ignorant statement. One of the basic principles of insurance law is that most insurance contracts are adhesion contracts. There is no bargaining power for the vast majority of policyholders. It’s a “take it or leave it” proposition. These are form contracts with many insurance competitors sharing the same adhesion forms. Except in rare cases, the insurance companies write the contracts and the policyholders have no say in the terms.
Today, the same insurance companies are addressing the issue of methodology in their favor by rewriting the standard assessment clause. We discussed this trend in State Farm New police filing in California should apply to everyone in the property insurance industry – one example is the new appraisal language. State Farm is not negotiating with policyholders on this new language.
The point of this post is a warning that it’s hard to beat the methodology for a price. When an appraiser pushes a crazy idea, which most people would never agree with, as part of a value proposition in an appraisal, it can take a very skilled and prepared opposing appraiser and competent judge to understand how ridiculous the proposition might be.
This brings me to my final point – the choice of an appraiser is important. In my afternoon presentation to appraisers and judges, I discussed the need for them to take their duties seriously and be the best educated and skilled they can be. Steve Badger said the panelists should see their roles as an “honour”. I agree with.
The answer to today’s post is “yes”. But the success rate of doing so is small.
- Lloyd Christmas: I want to ask you a question, straight up, straight up, and I want you to give me the honest answer. What do you think are the chances of a guy like you and a girl like me ending up together?
- Mary Swanson: Well Lloyd, it’s hard to say. We really don’t…
- Lloyd Christmas: Hit me with it! Give it to me right away! I came a long way just to see you Mary, just… The least you can do is level with me. What are my chances?
- Mary Swanson: Not good.
[the background soundtrack music suddenly stops]
- Lloyd Christmas: [he gulps, his mouth twitching] You mean, not as good as one in a hundred?
- Mary Swanson: I would say more like one in a million.
- Lloyd Christmas: [long pause while he processes what he’s heard] So you say there is a chance. YES!
– Stupid and stupider – 1994
1 Meier v. Wadena Ins. Co.No. 23-cv-0158, 2023 WL 3821346 (ED Wis. June 5, 2023).