The proper and ethical role of an insurance appraiser and adjudicator has been on my mind as I prepare my presentation for next week’s PLAN Assessors & Judges Certification Conference in Denver, Colorado. I’m sure anyone reading this post who has participated in an evaluation thinks they have the right idea about these roles. I supported certification for these roles at a time when certification was in its infancy. In the 1990s—before valuation became such a big industry and a more common method of property insurance dispute resolution—I led a project to study possible ways to make valuation more fair. So, the subject has been in my head much longer than most people have been in this business.
Most people reading this post will say that the appraiser’s role is to determine the amount of the loss. In fact, the Standard Appraisal Clause states thus:
The appraisers will then determine the amount of loss and the actual cash value of each item. If the valuers provide a written statement of an agreement to the insurer, the agreed amount shall be the amount of the claim. If the appraisers do not agree within a reasonable time, they shall submit their differences to the judge. Written agreement signed by any two of these three shall determine the amount of the loss.
But states may apply a different standard to that role. For example, a case in California from 20081 pointed out that appraisers are really arbitrators:
Arguing that the district court should uphold his payment obligation without leave to amend, Carneghi argued below that the appraisal process prescribed by the Insurance Code and described in appellant’s complaint constituted an arbitration proceeding and that he was entitled to arbitration immunity because of his role as an appraiser. was analogous to that of an arbitrator. In their objection, appellants essentially conceded that the appraisal process in this case was a form of arbitration, referring to Carneghi as “a party appraiser or arbitrator.” The plaintiffs argued that because Carneghi allegedly played a role as a party-appointed attorney, he was not subject to arbitral immunity. The trial court found at the mock victim hearing that Carneghi had prevailed, but left open the question of whether it would grant the appellants leave to amend. The court finally confirmed the payment order without leave to amend.
…
…It is well settled that ‘[a]n agreement to carry out an assessment included in an insurance policy constitutes an “agreement” in that sense [Code of Civil Procedure] § 1280, subdivision (a), and is therefore deemed an arbitration agreement subject to the statutory Agreements to Arbitrate Act.’
So the first lesson is to check state statutes, common law and insurance. These opinions of an appraiser may be right in one state but very wrong in other states.
The second lesson is that the law changes and is especially changing when it comes to values. In fact, even the policy language changes and may violate the terms of the standard fire policy, as stated in State Farm’s assessment regulations violate the standard fire policy.
Still, in my opinion, in most states and most insurance appraisals, I believe the sole role of ethical appraisers is to determine the entire loss and damage. The word “full” is, in my opinion, because you don’t get justice by having half justice or 95% justice. Full justice is only done when it is 100%. All insurance companies tell me they expect their policyholders to receive 100% of all benefits. Shouldn’t the valuers appointed by the insurers have the same mindset and obligation?
And yes, that means giving 150% is not fair to the insurance company.
I hate for insurance companies to choose appraisers on “savings” to the company based on the opposing appraiser’s estimate. It is unethical if the insurer believes in good faith. Likewise, I hate to see appraisers advertising the opposite to policyholders. It makes the process one of “how much can I get the award to be” or “how low can I keep this award down” vs – “what is the total loss?”
Granted, my point of view is more from the policyholder because that’s who I represent, and most of my current view is what I stated in Texas appraisers are supposed to be disinterested, unbiased and not biased: I doubt this is the reality of Texas appraisals:
The problem is that the view of “fair” is dependent on what you have analyzed to be an accurate estimate of the damage and claim. I have yet to see an insurance company appraiser come to one of my clients to seek information about the damage, property history and observations as to why my client believes the damage is more than the insurance company estimates. The reason is obvious – the insurance company does not want its appraiser to have access to information that could increase the value of the damage estimates made by its appraiser. Insurance company appraisers usually have a previous relationship with the insurance company’s adjuster or independent adjuster and are looking for future business. I really think most want to keep the dollar value as low as possible – a number have admitted as much over drinks at the various conferences I attend.
And in many jurisdictions, the policyholder’s appraiser also acts as an attorney. In fact, I ask that clients I represent at appraisals have an appraiser work as hard as possible to find out all the information about the damage from both my client’s and the insurer’s point of view. It is my impression that the harder and longer one works to analyze injuries after a loss, the more injuries are found that would simply go unreported due to ignorance. Getting an accurate and fair independent estimate of the damage by either appraiser requires accuracy, information, expertise, and then an understanding of why other opinions are not accurate or subject to criticism.
This type of critical analysis is normal for us in insurance disputes. But it is often the exception rather than the rule in assessments…
Since writing that blog post in 2009, I have come to realize that an appraiser should be allowed to advocate his position and assessment of the amount of loss as more accurate and correct. However, I think some may view the role of a lawyer as an advocate for a party, which is not the ethical role of the appraiser.
One of the reasons I am thinking about this topic is that PLAN has a unique description of the training of a judge on its website:
This course is the Advanced Appraisal Umpire Certification Program which focuses on the role of the Property Loss Appraisal Umpire in the property loss appraisal process and their duties, authority and expected conduct to:
1. Demand respect and authority for the panel.
2. Maintain control of the evaluation and panel members when you and they are formally involved in the process.
3. Provide and follow expectations, schedules, procedures and protocols for the process.
4. Ensure that both appraisers are heard equally.
5. Maintain Non Ex Parte Communication between Panel.
6. Eliminate external influence or interference in the assessment process.
7. Adherence to ethical behavior by and on the panel.
8. Extinguish volatile environments and situations created by the panel or their clients.
9. Create amicable solutions to controversial situations created by the panel or their clients.
10. Ensure and maintain procedural adherence and fluidity of panel and process.
11. To recognize the ‘Trojan Horse’, ‘Ambush Evaluation’ and other common ‘tactics’ of the assessors.
12. Understand the referee’s rights, authority and responsibility to proceed in an “Empty Chair” assessment.
13. Make correct awards based on a careful examination of the loss under assessment and information from the panel.
14. “Draft” an award for “panel discussion”.
15. Provide panel members with justification for the “draft” and “final” award decision.
16. Understand that and why “Splitting The Baby” is an inappropriate way to complete a property loss assessment.
Item number 11 is important. I mentioned this and Steve Patrick’s courses in Thoughts on Badger vs Merlin and other topics for consideration at IAUA:
Historically, many policyholder appraisers were inexperienced and often naïve about the games that can go on in a valuation. Experienced insurance appraisers would introduce last-minute evidence before judges associated with the insurance industry. When this kind of gamesmanship improperly affected the outcome, it was upsetting to me. I taught and wrote in presentations that policyholder appraisers could not accept this type of insurance company appraisal games and had to “get down in the mud” to stop these practices. Steve Patrick has really highlighted how to stop the gamesmanship of insurance companies in appraisal so that both sides have a fair chance to get an honestly derived and fair appraisal result.
To be fair, I also mentioned that reading some of the comments from others on the Level the Playing Field forum, some seem more interested in getting the most they can rather than getting a fairly earned and honestly supported value award. So I made the comment that insurance company appraisers may need to educate themselves to “get down in the mud” so they don’t play with the non-existent appraisal rules. The point for all that I thought I made was that the goal is to have an honest and fair forum where positions can be explored and considered ethically. Steve Patrick has always taught ethical and honest techniques as far as I know, and he is not the “somebody” I was referring to.
The appraiser takeaway that I intend to make for those attending is to be the best and most competent appraiser you can be. The appraisal process is dependent on the appraiser’s ability to honestly determine the full amount of loss and be able to back up that position and show the other side’s wrongdoing.
Adjudication should only be an alternative dispute resolution process if it is fair to both the policyholder and the insurer. While it’s hard to regulate ethics, I think it’s hard to have a fair appraisal unless both appraisers first see their role as seeking 100% fairness. This means that the policyholder receives full payment.
Today’s thought
Justice in the life and conduct of the state is possible only when it first resides in the hearts and souls of the citizens.
— Plato
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1 Lambert v. Carneghi158 Cal.App.4th 1120 (Cal.App.2008).
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