02/24/2022
When Appraisals Go Awry
What is an Appraisal?
If you are reading this article you likely just found out your insurance policy has an appraisal provision and your carrier just invoked it and you’re wondering what to do. Appraisal is a type of dispute resolution. For the reasons below you might say it’s the wild wild west of alternative dispute resolution. Without deep diving the history books one could surmise it was implemented by carriers and allowed by insurance regulators in homeowner’s policies as an attempt to curb litigation and “bring down costs” as the industry often touts. The typical appraisal provision is utilized when the parties (the carrier and Insured) have determined there was a covered loss under the policy but however disagree as to value of that particular loss. When that happens and the carrier, or insured, invoke appraisal as specified in the insurance policy then each party is typically entitled to appoint their own appraiser. These two appraisers typically evaluate the property creating competing estimates and attempt to come to medium that is suitable to both. If those appraisers don’t come to terms then they appoint what is known as an umpire to “break the tie”. Two out of the three persons coming to an agreement and signing an appraisal award (i.e. setting value of loss) then becomes binding outside some very narrow exceptions.
Sound scary and uncertain? That is because it is. But it gets better. . .
What makes someone an Appraiser and/or Umpire?
As of the date of this publish there is no licensing requirements for an appraiser or an umpire in the State of Florida. Yes, you heard it right, the individuals tasked with creating a value for your most priced asset in life has no licensing requirements.
Is this uncertain appraisal process avoidable?
Unfortunately this process is not only being enforced by courts when invocation is made pre-lawsuit but also post-lawsuit and the judiciary is allowing carriers to invoke appraisal—for the first time—even after a lawsuit has been filed inhibiting Floridians constitution rights for access to the courts. Some insurance carriers appear to deliberately make an attempt to open coverage for nominal amounts—instead of denying coverage—as it leaves open the door for invoking appraisal should the homeowner seek out legal counsel. Florida’s new law Fla. Stat. 627.70152 (2021) in fact appears to potentially allow the insurance carrier to invoke mandatory appraisal when the carrier receives a “Notice of Intent letter to Sue” that homeowners are now required to give to the carrier and State when an insurance company has wronged that Insured and a lawsuit is needed to right that wrong.
Hypothetical #1
The Insurance Company originally undervalued my loss at $5,000 and I disputed the amount and they invoked appraisal. The appraisal process determined the loss amount was $12,000.00 does that mean they will pay the costs of the appraisal?
No (typically). The insurance carriers mess up actually requires you to come out of pocket for your appraiser and half the umpire (when an umpire is used). These costs can range from one thousand to a several thousand dollars on a typical residential home. And again, think of it as a tattoo artist, will you (should you) go with the cheapest appraiser you can find?
Although there may be ways for a law firm to recover these unnecessary costs for the homeowner it will typically require the firm to be very involved early on. Contacting a law firm dealing with these claims on a daily basis so you can be better equipped to know what the current law and the underlying policy allows is crucial.
Hypothetical #2
My appraiser and the insurance companies appraiser came to a value in the appraisal award I don’t agree with, what is my recourse?
This is where it gets tricky, fast, grey and legal. Florida doesn’t actually have rules specifically designed for the appraisal process and how an appraisal award may be challenged, modified and/or vacated. Instead the answer to the above question is better answered through an extrapolation of common law, the policy, and borrowing from law on a similar process known as arbitration. Case law makes it clear that appraisal is not arbitration but without any guiding principles on appraisal and vague policy language courts have looked to the arbitration rules and concepts. Using those Arbitration rules, specifically Fla Stat. 682.14 and 682.15, an attorney may find refuge or recourse for an otherwise unfortunate client. To what extent an Insured is confined to timelines or elements of these arbitration rules (or whether broader common law principles may apply) needs to be flushed out by the courts. Yes you may have to be the guinea pig. For the time being, you as the homeowner should know time is of the essence when dealing with appraisal awards and any delay to contact an experienced attorney may result in a loss of rights.
It’s this authors opinion that the appraisal process can be uncertain but is also unfair to Florida homeowners whom not only must come out of pocket for their deductible which may be thousands but are then subjected to unknown appraisal costs which some homeowners may find difficult or impossible to pay. I would encourage Florida citizens to contact your representatives to have this process changed. Until then, I would encourage you to lean on your legal representatives on how to best navigate the appraisal process and insurance recovery process in general.
