defined in this context as an appraiser who has a reasonable basis for reaching an intelligent decision.712 The competence of the appraiser is generally not an issue or subject of challenge as it is patent that a party to the policy will endeavor not to select an incompetent to represent his interests. To the extent that a party hires one not “competent,” that party will bear the consequences when the opinions and arguments of the appraiser are weighted.
Different formulations of policy language present a common theme with minor twists.
American Union Ins. Co. v. Stull Bros. Co., 126 N.J. Eq. 64, 7 A.2d 866 (1939).
Some formulations contain the word “competent” as found in many HO 3 homeowner forms. Other formulations include “competent and disinterested,” “competent and impartial,” as well as “competent and independent.”
While it is generally accepted that the appraiser appointed must be competent and disinterested,713 an appraiser in other losses, 714 or an appraiser who has been a public adjuster,715 or an appraiser who has been employed by the same carrier to appraise prior losses have all been held to be qualified.716 As long as there is no evidence that the appraiser's actions are performed in a dishonest manner or with a lack of integrity or where he or she has acted improperly in making an award, or has an interest in the result, the appraiser generally will be deemed competent.717
Appraisers need not be experts as to the type of property being evaluated but must only
N.Y. Ins. Law §3404 (Lines 123-140 of the Standard Fire Policy); 44 Am. Jur.2d Insurance §1688 (1982).
Continental Ins. Co. v. Vallandingham & Gentry, 116 Ky. 287, 76 S.W. 22 (1903);
Stemmer v. Scottish Ins. Co., 33 Or. 65, 53 P. 498 (1898); Van Winkle v. Continental
Fire Ins. Co., 55 W. Va. 286, 47 S.E. 82 (1904).
Meyerson v. Hartford Fire Ins. Co., 16 Misc. 286, 38 N.Y.S.112 (1896), aff’d, 17
Misc.121, 39 N.Y.S. 329 (1896).
Remington Paper Co. v. London Assur. Corp. of England, 12 A.D. 218, 43 N.Y.S 431 (4th Dept. 1896).
Levin v. Northwestern Nat’l. Ins. Co., 185 F. 981 (D.C.N.D. 1911).
show a reasonable level of intelligence. It has been held that an appraiser need not be an expert in handling the kinds of property insured.718
The same court additionally did not find an appraiser’s lack of training and unfamiliarity with state procedures and law to be indicative of bad faith. There, the adjuster was based out of state and had over 20 years of experience in the field, though had no specific training pertinent to Oklahoma. The adjuster’s absence of knowledge as to various legal concepts at his deposition “[struck] the court as proving little or nothing as to the fitness of [the adjuster], a non-lawyer, to perform the claims handling tasks assigned to him” and no aspect of state law which unique to the state and relevant to the case was raised.719
The Michigan Court of Appeals offered a concise and accurate explanation of what is required of the appraiser when it comes to independence.
6 Appleman, Insurance Law & Practice §3927 at 551 (1972); American Union Ins. Co. v. Stull Bros. Co., 126 N.J. Eq. 64, 7 A.2d 866 (1939) (case involved a public adjuster serving as appraiser of building and machinery damage who was neither builder nor machinery expert, held competent); Gear v. Webster, 258 Cal. App.2d 57, 65 Cal. Rptr. 255 (5th Dist. 1968).
LeBlanc v. The Travelers Home & Marine Ins. Co., 2011 WL 2748616 (W.D. Okla 2011).
“The definition of ‘independent’ is “[not] dependent; not subject to control, restriction, modification, or limitation from a given outside source.” Blacks Law Dictionary (6th ed.) The definition of “impartial” is “[f]avoring neither; disinterested; treating all alike; unbiased; equitable, fair and just.” Id. The implication is that the independent appraiser may be biased toward the party who hires and pays him, as long as he retains the ability to base his recommendation on his own judgment. The umpire, in contrast, may not favor either party; he must serve only equity, fairness and justice.
Because “independent appraisers” may feel biased toward the party who hired them, this construction leaves intact the rule that appraisers are not disqualified from their appointments on the basis of having previously served as adjusters...”720
Auto-Owners Ins. Co. v. Allied Adjustors & Appraisers, 238 Mich. App. 394, 605 N.W.2d 685 (Mich Ct. App. 1999); See also, Hartford Ins. Co. v. Miller, 2006 WL 2844124 (E.D. Mich. 2006).
Michigan’s current statutory provision on this issue requires that a “competent, independent appraiser” be chosen upon a written demand, and that appraisers then select a “competent, impartial umpire.” The court has recently identified the legislature’s intent in enacting this language, which prior to 1990 required that both appraisers and umpires adhere to the same standard of “competent and disinterested.” In the court’s view, the amended language reflects the legislature’s expectation of a higher standard of fairness required by an umpire than by an appraiser.721 This view is largely universal.
With respect to policy mandated competence, parties are free to specify the credentials of party-appointed appraisers. (Subject, of course, to the Standard Fire Insurance Policy in states where it applies.) Competent is not synonymous with neutrality or independence. An appraiser appointed by an insured who had experience in more than 1800 appraisals and has been published in the field of appraisals was found to be competent despite being involved in his own personal lawsuit against the carrier in which he had the same counsel as the insured, worked on a contingency fee basis and had demonstrated animosity against the carrier. It was held that
Auto-Owners Ins. Co. v. Allied Adjustors & Appraisers, 238 Mich. App. 394, 605 N.W.2d 685 (Mich Ct. App. 1999) citing MCL 500.2833(l)(m).
the appraiser was competent by virtue of his vast experience and was not required to be neutral or unbiased.722
In that case, where the insurer’s complaint actually centered around the appraiser’s neutrality or independence, the court found the appraiser to be competent to render an appraisal as the term is ordinarily used. The language in the instant appraisal provision provided only that a “competent” appraiser be selected by the parties without defining the term further. Absent a definition within the policy, the court adhered to the presumption that absent a contractual definition it “must presume that this word was intended to be used in its plain and ordinary way as can be ascertained by reference to a dictionary.” Dictionary definitions included “properly or sufficiently qualified or capable,” “adequate for the purpose”, “legally qualified or fit to perform an act”, among many others. The court ultimately held that the appraiser’s “unquestionable prior experience and/or expertise” rendered him competent as consistent with these definitions.723
Citizens Prop. Ins. Corp. v. M.A. & F. H. Prop., Ltd., 948 So.2d 1017, 32 Fla. L. Weekly D537 (Fla. App. 3 Dist. 2007).
Citizens Prop. Ins. Corp. v. M.A. & F.H. Prop,, Ltd., 948 So.2d 1017, 32 Fla. L. Weekly D537 (Fla. 3d DCA, 2007).
Attorneys have been deemed competent to act as appraisers, though they can not act as attorney for the party hiring them.724
In California, lawyers, non-lawyers or those with special expertise in a particular field have all been held competent as appraisers.725
The prevailing view as enumerated in Produce Refrigerating Co. v. Norwich Union Fire Ins. Co.,726 is that an appraiser chosen by the insurer did not meet the fair and disinterested standard where there was evidence that the appraiser received a considerable sum each year from the insurer for his appraisal service. When an appraiser chosen by the insurer is a professional appraiser for insurers for a considerable amount of time and derives a substantial amount of his income from insurers, he is not deemed a fair and impartial appraiser.727
One California court criticized an overly rigorous standard. There, an insured’s appraiser disclosed that he lacked a financial interest
Glens Falls Ins. Co. of N.Y. v. Garner, 229 Ala. 39, 155 So. 533 (1934); Couch on Insurance, §15:134 (2d rev. ed. 1982).
Gear v. Webster, 258 Cal. App.2d 57, 63 (1968) (real estate agents and brokers are held competent as appraisers).
726 91 Minn. 210, 97 N.W. 875 (1904).
Mason v. Fire Assoc. of Philadelphia, 23 S.D. 431, 122 N.W. 423 (1909).
and had no prior dealings with the parties, but was working at the time as an expert for a different client of the law firm representing the insureds. The court cited a United States Supreme Court holding that impartial arbitrators are required to disclose dealings which may “‘create an impression of possible bias’”, an objective test. It cited a frequent cause of such bias to be a present or past business relationship between an arbitrator and a party, witness or counsel. The court noted that the relationship must be a substantial one; it deemed the compensation for services as relevant to one’s ability to serve impartially but not determinative in the instant case, since any party-selected appraiser must be paid by the retaining party. In short, “[i]mposing overly rigorous standards on party-selected appraisers in informal proceedings…would be both short- sighted and naïve about the realities of modern litigation practices.”728
It has been held that if the insured knows or has reason to know that the appraiser selected by the insurance company is not disinterested but fails to assert a challenge,
Mahnke v. Superior Court, 180 Cal. App.4th 565, 103 Cal. Rptr.3d 197 (Ct. App. 2009), citing Commonwealth Coatings Corp. v. Continental Cas. Co. 393 U.S. 145, 149, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968).
there are no grounds for a subsequent complaint by the insured.729
Where an insurer made representations, false at the time, that the insurer’s chosen appraiser was not a professional appraiser and had never appraised for the insurer involved, the appraiser was not unbiased, unprejudiced and disinterested within the meaning of the policy.730
The carrier’s appraiser may not be employed by the insurance company. The courts have defined employment narrowly. An appraiser who draws a salary from an insurance company is deemed employed by that company, but an appraiser paid on a per diem basis was not deemed employed by said company.731
In Missouri, an insurer’s appraiser was not disinterested as a matter of law where his conduct demonstrated bias and included, among other behavior, seeking advice from the insurer as to an umpire appointment, allowing the insurer to edit his draft proposal for appraisal, and prior business dealings with the
Bradshaw v. Agricultural Ins. Co., 42 N.Y. St. Rptr. 79, 16 N.Y.S 639 (1891), aff’d,
137 N.Y. 137, 32 N.E. 1055 (1891).
Kaiser v. Hamburg-Bremen Fire Ins. Co., 59 A.D. 525, 69 N.Y.S. 344 (4th Dept. 1901)
aff’d, 172 N.Y. 663, 65 N.E. 1118 (1902); Bradshaw, Id.
Equitable Fire & Marine Ins. Co. of Providence, R.I. v. Stieffens, 154 Va. 281, 153
S.E. 731 (1980).
insurer which provided an indirect financial stake in the appraisal’s outcome. In Missouri, where a policy allows an amount of loss to be determined through the process of appraisal, individuals selected to act as the appraisers or umpire “must not be interested, biased or prejudiced.” The standard of fairness and impartiality is strictly applied, and Missouri courts have declared awards to be void and unenforceable where interested appraisers have been involved in formulating an award. The Missouri Supreme Court has said “The fairness and impartiality of an appraiser should be, like that of a juror, not only above reproach, but above suspicion.” The court supplied examples of circumstances where bias may be implicated, such as frequent or habitual employment for a party as an apprai ser, conduct whi ch clearly communicates acting in their interest, or any financial interest.732
A Georgia court correctly rejected an award where the absence of impartiality on the part of an insurer’s appraiser was shown by uncontradicted evidence. The appraiser in question had been employed by the insurer for several weeks prior to the meeting of the appraisers, received payment of ten dollars a
Tamko Bldg. Products, Inc. v. Factory Mut. Ins. Co., 890 F.Supp.2d 1129 (E.D. Mo. 2012), citing Orr v. Farmer’s Mut. Hail Ins. Co. of Missouri, 356 Mo. 372, 201 S.W.2d 952, 957 (1947).
day for his services, and even swore, “After they employed me as adjuster, paying me $10 a day, I came up here investigating this loss and had them name me as appraiser.” The requirement that an appraiser be impartial and disinterested was found to be substantiated in law, the insurance contract and the oath taken by the appraisers.733
Because of the obvious bias, employees of one of the parties or agents or sub-agents of the insurer are disqualified from acting as appraisers.734
A professional appraiser employed over a thousand times by insurance companies has been held not to be a disinterested person. Where an appraiser has acted for the insurance company for a significant period of time and has received a significant amount of compensation, he is no longer deemed disinterested.735
While a single prior experience working for either party as an appraiser will not, in and of itself, disqualify the appraiser, an extensive history of working for or with one company over
National Fire Ins. Co. of Hartford v. Bennett, 137 S.E. 570 (Ga. Ct. App. 1927).
Couch on Insurance §50:142 (2d rev. ed. 1982).
Coon v. National Fire Ins. Co. of Hartford, 126 Misc. 75, 213 N.Y.S 407 (1925),
aff’d, 213 A.D. 812, 218 N.Y.S. 722 (4th Dept. 1926), aff’d, 246 N.Y. 594, 159 N.E. 635
(1927); Sterling Spinning & Stamping Works v. Knickerbocker Ins. Co. of N.Y., 137 Misc. 349, 242 N.Y.S. 201 (1930).
a period of years will often disqualify the appraiser.736
However, it has been held that an appraiser selected by an insurer was not shown to be biased against the insureds even though the adjuster had hired him as an engineer to inspect the house and determine the damage from a plumbing leak. The appraiser was not an employee of the insurer and nothing indicated that the insurer influenced or exercised control over him particularly where, as here, the insureds’ appraiser and the umpire entered the final award. The mere showing of a pre-existing relationship, without more, does not support a finding a bias of an insurer’s appraiser.737
In determining whether to disqualify one of the appraisers, it is not necessary to establish actual fraud or bias on the part of the appraiser. Rather, it has been held sufficient to establish merely an impression of possible bias.738
44 Am. Jur.2d Insurance §1689 (1982); Couch on Insurance §50:139-140 (2d rev. ed. 1982).
Franco v. Slavonic Mut. Fire Ins. Assoc., 154 S.W.3d 777 (Tex. Ct.-Houston 14th Dist. 2004).
Commonwealth Coating Co. v. Continental Cas. Corp., 393 U.S. 145, 89 S.Ct. 337, 21
L. Ed.2d 301 (1968); Johnston v. Security Ins. Co., 6 Cal. App.3d 839, 86 Cal. Rptr. 133 (2d Dist. 1970); Ceriale v. Amco Ins. Co., 48 Cal. App. 4th 500, 55 Cal. Rptr.2d 685 (1996).
Appraisers may not be subject to the direction of either of the parties.739 Appraisers are not agents of the party appointing them. It is for this reason they cannot be found guilty of the illegal practice of law. If the appraisers were subject to the direction of the party who appointed them, the entire appraisal proceeding would be a useless ceremony.740
One court declined to invalidate an award despite the fact that the umpire and insurer’s appraiser met without the insured’s appraiser in order to sign the award. The insured admitted that its appraiser had submitted its position to the other two and the umpire had testified that he “fully considered all submissions” before rendering the award. The communication was not deemed sufficient to invalidate the award, as the insured was given both notice and an opportunity to be heard by both and did not show fraudulent intent.741
Obviously, an insured may never act as their own appraiser under any circumstances. Any award made under these circumstances must be vacated.
Shawnee Fire Ins. Co. v. Pontfield, 110 Md.358, 72 A.835 (1909); Fritz v. British America Assur.Co., 208 Pa. 268, 57 A. 573 (1904); 6 Appleman, Insurance Law &
Practice, §3927 at 547 (1972).
Norwich Union Fire Ins. Soc. Ltd. v. Cohen, 68 F.2d 42 (10th Cir. 1933); Hyland v.
Millers Nat. Ins. Co., 58 F.2d 1003 (N.D. Cal. 1932), aff’d, 91 F.2nd 735 (9th Cir. 1937).
741Glendale LLC v. Amco Ins. Co., 2012 WL 2917920 (W.D.N.C., 2012).
Courts around the country have had varied views on the independence and qualifications of an appraiser who is working on a contingency fee basis.742
In California, though the arbitration statutes differentiate between a party appraiser and the neutral appraiser, the courts have stated that they are held to the same “competent and disinterested”standard.743 The insurance company’s duty of good faith and fair dealing in its claims practices with the insured, coupled with the obligations of appraisers generally, require that all of the appraisers in the appraisal process be disinterested.744
The Michigan Court of Appeals has held that an appraiser is not necessarily interested because he was once under contract with the party who hired him to appraise the loss. The fact that he has previously made a calculation of the loss also does not automatically disqualify him in the absence of a showing of
742 Michelle L. Lehmann, Setting Aside Arbitration Awards On The Grounds of Interest or Bias of Arbitrators-Insurance Appraisals or Arbitrations, 62 ALR 5th 675 (1998); Linford Lounge, Inc. v. Michigan Basic Property Ins. Ass’n., 77 Mich. App. 710, 259 N.W.2d 201 (1977); Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257 (Iowa 1991); Galvis v. Allstate Ins. Co., 721 So.2d 421 (Fla. Dist. Ct. App. 3d Dist. 1998); Rios v. Tri-State Ins. Co., 714 So.2d 547 (Fla. 3d DCA 1998); contra: Aetna Cas. & Sur. Co. v. Grabbert, 590 A.2d 88 (R.I. 1991).
743 Gebers v. State Farm General Ins. Co., 38 Cal. App. 4th 1648, 45 Cal. Rptr. 2d 725 (1st Dist. 1995).
744 Id.
prejudicial conduct.745
In White v. State Farm Fire & Casualty Co.,746 State Farm challenged the insured’s decision to hire his public adjuster as his appraiser since the insured and the adjuster was under contract which assigned to the adjuster’s firm, ten percent of the total payment on the insured’s claim. State Farm argued that the adjuster had a pecuniary interest in the appraisal’s outcome and was not “independent” as required under the statute.
In making its determination, the Michigan court turned to cases from other jurisdictions. In Florida, courts have held that an appraiser may be independent while working under a contingency-fee contract with the party who hired him as long as the other party is made aware of said agreement.747
Similarly, the White court held that “a contingency-fee agreement does not prohibit an appraiser from being ‘independent’ under MCL 500.2833" but that the opposing party must be made aware of such an agreement. Because the insured’s adjuster was capable of exercising his own judgment regarding the
745 Linford Lounge, 259 N.W.2d 201.
746 2011 WL 3208150 (Mich.App. 2011).
747 See Rios v. Tri-State Ins. Co., 714 So.2d 547 (Fla 3d DCA 1998).
value of the loss, he should not be disqualified to serve as the insured’s appraiser under the “competent [and] independent” standard set forth in the statute just because the appraiser and the party who hired him were under contract.
However, in 30-40 East Main Street Bayshore, Inc., et al v. Republic Franklin Ins. Co. and Utica Mut. Ins. Co.748 it was held that an insurer’s appraiser who performed the initial inspection and submitted an estimate to the carrier at its request was disqualified from acting as appraiser as being not “disinterested” as required by the policy and CPLR §3404 (Standard Fire Policy).
A disqualifying interest can be small, but it has been held that the interest must be direct, definite and certain in order to disqualify the appointed appraiser.749
It has been held that where both parties complained that the appraiser selected by the other party was not disinterested but the parties nevertheless agreed to proceed with knowledge of the facts, the parties could not later complain after the award that the other
748 2007 N.Y. Supp. Op. 30400(6).
McCabe v. State Farm Mut. Automobile Ins. Co., 36 F. Supp.2d 666 (E.D.Pa. 1989);
Couch on Insurance §50:136-137 (2nd rev. ed. 1982); National Fire Ins. Co. v. O’Bryan, 74 Ark. 198, 87 S.W. 129 (1904).
party’s appraiser was not disinterested.750
An appraiser who has had previous business relations with the insured is not deemed ineligible.751 Logic would suggest that the insured’s selection of an appraiser is more likely to survive a challenge than the insurer’s selection when the challenge is based upon a prior relationship between the appraiser and the party who hired him or her. This is generally so because an insured may typically have had prior dealings with an adjuster, appraiser, or builder on an isolated prior claim or two, whereas the insurer, being in the business of adjusting losses, may have hired its nominated appraiser on literally hundreds of prior claims. Where the appraiser derives a substantial amount of his or her income from the nominating insurer, such an interest would destroy the independent nature of the relationship between an insurer and its appraiser.
In Texas, in a case where an appraiser for insureds held a preexisting business relationship with them, the appraiser was found to have lacked independence. The court designated the circumstances before it “unique” in that
In re 176 & 178 East Main Street, Amsterdam, New York, 263 N.Y. 197, 188 N.E. 647
(1934).
Meyerson v. Hartford Fire Ins. Co., 16 Misc. 286, 38 N.Y.S.112 (Civ. Ct. 1896),
aff’‘d, 17 Misc. 121, 39 N.Y.S. 329 (App. Div. 1st Dept. 1896).
the appraiser had been hired as an inspector prior to his appointment and became an advocate for the insured rather than a mere inspector. Texas law has established that “a pre-existing relationship, without more, does not support a finding of bias” and requires “‘evidence that the [challenged] appraiser performed ‘some act or conduct tending to exhibit his serving the [insurer’s] interest as a partisan would.’’” The court held that alone, the appraiser’s pre-existing relationship or the fact that he was used as an expert to inspect the property before appraisal were not sufficient grounds to set aside the award. However, it observed a fact issue warranting a trial as as to whether his conduct demonstrated that he was an unbiased and impartial appraiser as required by the subject policy.752
In Louisiana, where a challenge is asserted by a party to the use of a particular appraiser, evidence must establish that such appraiser’s “honesty or integrity is suspect.” Further, the trial court established guidelines to ensure an appraisal process was “fair, impartial and efficient” after it became concerned that
Amtrust Ins. Co. of Kansas, Inc. v. Starship League City, L.P., 2013 WL 1222329 (E.D. Tex. 2012), citing Franco v. Slavonic Mut. Fire Ins. Ass’n, 154 S.W.3d 777, 786 (Tex.App.- Houston 2004) and Gardner v. State Farm Lloyds, 76 S.W.3d 140, 143 (Tex.App.-Houston
[1st Dist.] 2002).
the umpire in the matter was “overwhelmed” b y p e r t i n e n t d o c u m e n t s a n d communications.753
In a Colorado dispute over the value of insured artwork where neither the insured’s nor the insurer’s appraisers were sufficiently impartial, the selection of new appraisers was required pursuant to standards established by the state Division of Insurance Bulletin and the Uniform Arbitration Act for appraisal and disclosure of interest. In that case, the insured’s appraiser was deemed not impartial due to a contingency agreement for recovering his fee, while the insurer’s appraiser had previously been hired by the insurer to appraise the insured’s property.754
The State of Colorado Division of Insurance has issued a Bulletin entitled “Insurance Requirements Related to Disputed Claims Subject to Appraisal.” The purpose was to clarify the consumer’s rights when an insured has invoked their rights related to appraisal.
It states in relevant part:
“It has come to the Division’s
Dufrene v. Certain Interested Und. at Lloyds of London, 91 So.3d 397 (La. App. 5 2013).
Gold v. State Farm Fire & Cas. Co , 2010 WL 3894141 (D. Colo., 2010).
attention that insurers may not be selecting “fair and impartial” appraisers. Furthermore, disputed claims subject to appraisal are being delayed and insurers are not communicating in a fair and consistent manner causing significant harm to the Colorado consumer.
The position of the Division is that an insurer must comply with its own policy language when selecting an appraiser and/or umpire under the appraisal clause. For purposes of requiring impartiality of appraisers and umpires, the Division will follow the Uniform Arbitration Act, §13-22- 201 et seq., and in particular, §13- 22-211(2), which sets forth the standard for impartiality of an arbitrator as: “An individual who has a known, direct, and material interest in the outcome of the arbitration proceeding or a known, e x i s t i n g , a n d s u b s t a n t i a l relationship with a party may not serve as an arbitrator if the agreement requires the arbitrator to be neutral.” This same standard will apply to appraisers and umpires, and to ensure compliance
with this standard the Division requires the following:
The appraiser and umpire must disclose to all parties, any other appraiser, and any other umpire, as well as any known facts that a reasonable person would consider likely to affect the impartiality of the appraiser including:
A financial or personal interest in the outcome of the appraisal; and
A current or previous relationship with any of the parties to the agreement to appraiser or the appraisal proceeding, their counsel or representatives, a witness, or another appraiser or the umpire.
The appraiser shall have a continuing obligation to disclose to all parties to the agreement to appraise, the appraisal proceeding and to any other appraisers and the umpire, any facts that the appraiser learns after accepting appointment that a reasonable
person should consider likely to affect the impartiality of the appraiser.
In accordance with §12-33 212(3), C.R.S. if a party timely objects to the appointment or continued services of a selected appraiser the objection may be a ground under §13-22-223(1)(b),
C.R.S. for vacating an award.
The insurer must not have ex parte communications with the appraiser, the umpire and the insurer shall include the insured or the insured’s representative.
Upon reaching an agreed upon value (either through the selected appraiser or an umpire) the insurer shall comply with the clean claim standards found in Colorado Regulation 5-1-14.755
In Virginia, each appraiser and umpire shall take an oath confirming that he is not employed by the insured, the insurer or any other insurer and that he will faithfully discharge
Colorado Department of Regulatory Agencies, Division of Insurance, Bulletin No. B-
5.26 “Insurer Requirements Related to Disputed Claims Subject to Appraisal.”
his duties.756
The Federal District Court sitting in the Eastern District of Virginia stated that under Virginia law, the level of disinterest of a selected appraiser pertains only to the partiality of that appraiser for or against the specific parties to the dispute. Further, employees of either the insured or insurer may not be appraisers because they do not satisfy the disinterested requirement. However, an independent contractor who is retained almost exclusively by insurers was disinterested within the meaning of the Virginia statute.757
Appraisers can and should advocate on behalf of the party who appointed them, but must maintain a sufficiently independent mind so as to bring the matter to a conclusion by a reasonable exercise of judgment under the circumstances.
Courts have found that as long as the appraiser makes his own determinations regarding the loss and calculates his own recommended settlement amount, the fact that the appraiser is being paid a contingency fee as the insured’s public adjuster is
Appraisers and Umpire to be Citizens of Virginia; Oath to be Taken, Va. Code Ann.
§38.2-2122 (Michie 2002).
Tiger Fibers, LLC v. Aspen Specialty Ins. Co., 2008 WL 3849367 (E.D. Va. 2008); Va. Code Ann § 38.2-2105, 38.2-2122.
immaterial.
The concept of an independent advocate is well described in the case of Dennis v. Standard Fire Ins. Co.,758 where the court stated as follows:
It was hardly to be expected that the appraisers would agree in all matters. They were partisans within bounds, but were nevertheless unbiased and unprejudiced and disinterested within the meaning of the contract of insurance. Their attitude was that approved of by Vice Chancellor Pitney in American Central Ins. Co. v. Landau, 62 N.J. Eq. 93, 49 A. 745 where he said that
– ‘the appraiser chosen by each party is supposed and expected, in a restricted sense, to represent the party appointing him, and within reasonable limits see to it that no legitimate consideration favorable to the party so appointing him is overlooked by the other appraiser.’
It is the existence of this independence that prevents an appraiser from being considered an agent of the party that
758 90 N.J. Eq. 419, 107 A. 161 (1919).
nominated him.759
In Texas, it has been held that the qualifications required of the appraiser are that they be competent and independent. “The appraisers should be competent with respect to identification of damage and independent insofar as appraisers are unbiased and free of control to arrive at their own evaluation of the loss. In short, the appraisers should have knowledge in identifying damage and act fairly, without bias, and in good faith.”760
In Gardner, the court went on to state:
The insured in Terry argued that the insurance company’s appraiser was not impartial because the company had selected him as its appraiser “many times before” and he “consistently served with partiality and bias in making awards of amount of damage.
The court held:
...[E]ven if true, this fact alone would not necessarily or probably be inconsistent with his impartiality
759 Remington Paper Co. v. London Assur. Corp., 12 A.D. 218, 43 N.Y.S. 431 (4th Dept.
1896).
760 Gardner v. State Farm Lloyds, 76 S.W.3d 140 (Tex. App.-Houston [1st Dist.] 2002).
in the present case, in the absence of some act or conduct tending to exhibit his serving the company’s interests as a partisan would.761
The Gardner case certainly suggests the outer limit of permissible partiality and even then there is patent inconsistency within the court’s reasoning by permitting this appraisal to stand, once the court assumes that the carrier’s appraiser “had consistently served with partiality and bias in making awards” on behalf of the nominating insurer. The court found this record of partiality to be inconsistent with the allegation that the appraiser was being “partisan,” when logically it would appear otherwise.
Objections to an appraiser on the basis of his competence or interest should be made promptly or may be considered to have been waived.762
It has been stated that in making a determination of whether to disqualify an appraiser, the issue to be determined is
761 Gardner, 76 S.W.3d at 144, citing, American Central Ins. Co. v. Terry, 298 S.W. 658,
662 (Tex. Civ. App.-Texarkana 1927).
Hyland v. Millers Nat. Ins. Co.,91 F.2d 735 (9th Cir. 1937); Fireman’s Fund Ins. Co. v.
Flint Hosiery Mills, Inc., 74 F.2d 533 (4th Cir.1935); Heller v. Hartz Mountain Ind., 270 N.J. Super 143, 636 A.2d 599 (1993); Land v. State Farm Mut. Ins. Co., 410 Pa. Super 579, 600 A.2d 605 (1991); Central Life Ins. Co. v. Aetna Cas. and Sur. Co., 466 N.W.2d 257 (Iowa 1991); Palmieri v. Ins. Co. of N. A., 67 A.D.2d 96, 413 N.Y.S.2d 461 (2nd Dept. 1979);
Couch on Insurance §50:136 (2d rev. ed. 1982).
whether a reasonable person would, based upon the appraiser’s history and past actions, objectively entertain doubts about that appraiser’s neutrality.763
Attorneys should take precaution to clarify to the party hiring them as appraiser that their relationship is not “attorney-client” in the technical sense. That is, there are distinct differences between the duties owed by the attorney to her client, as against the appraiser who enjoys an element of independence and cannot satisfy the demanding fiduciary obligations of the attorney to their client. In most jurisdictions, the attorney-client privilege does not apply within the relationship between the appraiser and the hiring party even where the appraiser is an attorney.
Banwait v. Hernandez, 205 Cal. App.3d 823, 252 Cal. Rptr. 647 (3d Dist. 1988).
Disinterested But Permissibly Predisposed
Generally
Appraisers do not violate their commitment of impartiality by acting as advocates for their respective selecting party.764 Appraisers need not be totally impartial, as is required by the umpire or a jurist in a court of law.
Traditional appraisal law did not allow the adjuster for either of the parties to serve as an appraiser. However, modern decisions have held that an appraiser can permissibly be predisposed toward the position of the party that appointed him or her, as long as the appraiser acts fairly and reveals his or her interests in the result.765 Modern courts generally hold that the intent of the appraisal procedure is not to provide appraisers who possess the total impartiality that is required in a court of law. However, the appraisers must act fairly and be free from suspicion of unknown interest.766
One case interpreting the issue of partiality is Commonwealth Coatings v.
Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257 (Iowa 1991).
Id.
Id.
Continental Cas. Corp.767 The United States Supreme Court, in interpreting the Federal Arbitration Act with respect to the term “partiality” held that an interest would be found to exist if the relationship between the arbitrator and one of the parties is of such a nature as to give clear grounds for a suspicion of the proceedings and, render it unlikely that the proceedings constituted the fair and impartial tribunal to which the other party is entitled.768
Similarly, a Wisconsin court denied a motion by insureds to disqualify a court- appointed appraiser on the grounds of bias where it observed no evident partiality. Though appraisals in Wisconsin are generally governed by the common law, the court in this instance looked to the state’s arbitration code for guidance as it deemed an independent appraiser’s role similar to an arbitrator’s. An arbitration award may be set aside where evident partiality exists, in other words “when it ‘is clear, plain, and apparent’ that partiality is so likely that a reasonable person would take action to stop the arbitration of a dispute.” The insureds believed the appraiser was biased in favor of the insurer because he had worked for
767 393 U.S. 145, 89 S. Ct. 337, 21 L.Ed.2d 301 (1968).
768 Johnston v. Security Ins. Co., 6 Cal. App.3d. 839, 86 Cal. Rprt. 133 (5th Dist.1970);
Michael v. Aetna Ins. Co., 88 Cal. App.4 925, 106 Cal Rptr.2 240 (Cal. App. 2 Dist. 2001).
a company which had worked for the insurer and continued to receive payment pursuant to a stock redemption plan. However, no partiality was found since the appraiser had stopped working for the company years prior, the insurer had never been one of its major clients and the appraiser had no control over the company’s operations.769
An appraiser's preconceived opinion will not of itself disqualify him because the courts have considered his knowledge and experience resulted in the appraiser being better qualified to ascertain the true value as long as he is free from bias and prejudice.770
In Auto-Owners Ins. Co. v. Allied Adjusters & Appraisers, Inc.,771 the court found that an “independent appraiser may be biased toward the party who hires and pays him, as long as he retains the ability to base his recommendation on his own judgment.”
Even where an insured has established that the carrier exercised undue influence over its own appraiser, it has been held he would still have failed to establish partiality or corruption
769 Gronik v. Balthasar, 2013 WL 5376025 (E.D. Wis.2013), citing Wis. Stat. 788.10(1)(b) and quoting Borst v. Allstate Ins. Co., 291 Wis.2d 361, 717 N.W.2d 42 (Wis. 2006).
770 Produce Refrigerating Co. v. Norwich Union Fire Ins. Co., 91 Minn. 210, 97 N.W.
875 (1904).
771 238 Mich.App 394 (1999).
unless he also showed that the umpire was incompetent or had an interest in the matter.772
In California, Insurance Code §2071 requires a party-selected appraiser to be “disinterested.” It has been held that the failure by a party-selected appraiser to make a disclosure required by the Insurance Law constitutes “corruption” within the meaning of the Code of Civil Procedure (§1286.2) and justifies the vacation of an appraisal award if that party timely requests such relief. A party- selected appraiser therefore must disclose any facts that might cause a reasonable person to doubt that the appraiser would be impartial. This standard is objective, and does not require actual bias. A prior or continuing business relationship or business dealings between an appraiser and a party or a person affiliated with a party ordinarily must be disclosed if the appraiser had a substantial pecuniary interest in the relationship.773
Public Adjusters
It has been held that a public adjuster
Fireman’s Fund Ins. Co. v. Flint Hosiery Mills, 74 F.2d 573 (4th Cir. 1935); Casper v. Allstate Ins. Co., unreported decision of the Maryland Court of Special Appeals # 1583, June 28, 2000.
DaimlerChrysler Services of North America LLC v. Zurich American Ins. Co., 2005 WL
1208961 (Cal. App. 2 Dist. 2005); Michael v. Aetna Ins. Co., 88 Cal. App.4 925, 106 Cal
Rptr.2 240 (Cal. App. 2 Dist. 2001).
may serve as an appraiser even on the same claim in which he or she worked in the capacity of public adjuster. This includes the situation where a public adjuster submits a building damage estimator’s report as the basis of the insured’s claim or a situation where the claim was premised on the loss calculations of the adjuster himself while under contract with the insured. Of course, even in the jurisdictions which permit this situation, the adjuster must usually renounce any contingent fee interest. Judicial approval is more likely where the claim under review is the first business relationship between the insured and appraiser and additionally where there is no evidence of prejudicial misconduct.
However, where a public adjuster had written numerous acrimonious and fruitless correspondence with the carrier’s claims representative, and where he was working on a contingency basis, it had been held that the appraiser-adjuster was not an impartial appraiser within the terms of the policy.774
The fact that an appraiser appointed by the insured has previously made a computation of the loss does not automatically disqualify the appraiser, absent a showing of
Allstate Ins. Co. v. Wojciechowski, 1995 WL 283893 (Conn. Super Ct. 1995); See also, Chardonnay Village Condominium Ass’n, Inc. v. James River Ins. Co., 2008 WL 3285908 (E.D. La. 2008).
prejudicial misconduct.775
As a matter of law in the state of New York, simply because the individual appointed by the insured as his appraiser served as the insured's public adjuster, the public adjuster is not deemed incompetent or biased.776
In Florida, it has been held that even when the appraiser was hired as the insured’s public adjuster on a percentage fee basis, he could resign his adjustment contract and still qualify as a “disinterested” appraiser on the same loss.777
It has been held that an appraiser paid by a contingency fee percentage of the award is still an “independent appraiser” within the meaning of the appraisal clause requiring the insured and insurer to select independent appraisers. In Rios v. Tri-State Ins. Co.,778 it was held that an appraiser paid by a contingency percentage of the insurance award should disclose his interest in the outcome. Furthermore, it was held that a direct financial
44 Am. Jur.2d Insurance §1689 (2002); Linford Lounge, Inc. v. Michigan Basic Property Ins. Ass’n., 77 Mich. App. 710, 259 N.W.2d 201 (1977) (The public adjuster’s contract to adjust the loss was canceled before he was appointed as plaintiff's appraiser).
Meyerson v. Hartford Fire Ins. Co., 16 Misc. 286, 38 N.Y. S. 112 (1896), aff’d,17
Misc. 121, 39 N.Y.S. 329 (1896).
Linford Lounge, 77 Mich. App. 710; Figi v. New Hampshire Ins. Co., 108 Cal. App.3d
772, 166 Cal. Rptr. 774 (1980).
778 714 So.2d 547 (Fla. 3d DCA 1998).
interest in the outcome of the appraisal would not necessarily require disqualification of the party’s duly appointed appraiser. The rationale of this decision is premised upon the fact that the phrase “independent appraiser” is not defined in the insurance policy drafted by the insurer and is thus subject to the insured’s reasonable understanding of the term. The court points out that the dictionary definition of “independent” includes “not subject to control, restriction, modification or limitation from a given outside source.”779 The court further pointed out that though the appraisal clause requires each appraiser to be paid by the party selecting that appraiser, it does not limit or direct the type of compensation which may be paid. As the insurance policy must be read favorably to the insured when any ambiguity is discerned, the insured’s appointment should prevail.780
Indeed, in Pennsylvania, it has been held that the existence of a contingency fee under certain circumstances will not disqualify an appraiser from serving.781
The Michigan Court of Appeals has considered the issue of an appraiser’s
Black’s Law Dictionary 770 (6th Ed. 1990).
Rios, supra; See also, Birkshire Life Ins. Co. v. Adelberg, 698 So.2d 828, 830 (Fla. 1997).
Hozlock v. Donegal Mut. Ins. Co., 2000 Pa. Super. 25 ,745 A.2d 1261(2000).
independence where insureds nominated their adjuster, already obligated to receive a percentage of the total claim pursuant to a contract, to also serve as their appraiser. The court relied upon a Florida decision in ultimately concluding that a contingency fee agreement would not prohibit the adjuster from being independent under state statute. It reasoned that the adjuster was “‘not subject to control, restriction, modification, or limitation by anyone’” nor was he an employee or “under any other legal duty to [the insureds] with the exception of the public adjusting contract. As such, he is capable of exercising his own judgment regarding the value of the loss in this proceeding and should not be disqualified to serve as [the insureds’] appraiser in this dispute under the ‘competent and independent’ standard set forth in MCL 500.2833(l)(m).”782
However, in the state of New Jersey, it has been held that a public adjuster working on a contingency fee basis had a direct financial interest which disqualified him from service as appraiser.783
White v. State Farm Fire and Cas. Co., 953 So.2d 340 (Ala. 2008), citing MCL
§500.2833(1)(m); Rios v. Tri-State Ins. Co., 714 So.2d 547 (Fla.3d DCA 1998); Auto- Owners Ins. Co. v. Allied Adjustors & Appraisers, 238 Mich. App. 394, 605 N.W.2d 685 (Mich Ct. App. 1999) and Black’s Law Dictionary (6th Ed. 1990).
Commercial Door & Hardware v. Hanover Ins. Co., 2008 WL 302341 (N.J. Super .A.D. 2008).
It has also been held that even if a public adjuster is or recently was a partner of the plaintiff’s agent, as a matter of law that does not render him incompetent or biased under a provision of a fire policy which requires the appointment of a disinterested appraiser.784
An appraiser appointed by the insured was deemed disinterested and hence was not subject to disqualification where he had submitted an estimate of loss while previously under contract with the insured as a public adjuster. The circumstances were that the estimate was the first business relationship between the insured and the appraiser and no evidence of prejudicial misconduct was otherwise produced by the insurer.785
In Iowa and Texas courts have held that where a public adjuster was working on a contingency basis, an award produced by him as appraiser should be vacated on the basis of a lack of impartiality.786
For example, in Texas it has been held that where the appraiser’s contingent percentage increases if the award exceeded
Meyerson, 38 N.Y.S 112.
Linford Lounge, 77 Mich. App. 710.
Central Life Ins. Co. v. Aetna Cas. & Sur. Co., 466 N.W.2d 257 (Iowa 1991); General Star Indem. Co. v. Spring Creek Village Apts. Phase IV, Inc., 152 S.W.3d 733 (Tex. App.- Houston [14th Dist.] 2004).
a certain pre-set amount, the appraiser had a sufficient financial interest in insuring that the appraisal award exceeded that amount and a fact issue was created as to the appraiser’s impartiality.787
In Indiana, where a public adjuster was hired to be the insured’s appraiser at a rate of “$250 per hour with the maximum fee not to exceed 10% of the claim payments,” the agreement gave the appraiser a “vested interest and that determination is not even a close call.”788 A similar result has been seen in Louisiana.789
California has examined this issue in the context of a public adjuster’s alleged unauthorized practice of law in representing an insured at an appraisal proceeding. The court there discerned no authority to support the contention that an award must be vacated on the grounds that a public adjuster represented an insured at an arbitration proceeding rather than an attorney, thereby engaging in the unlawful practice of law. The court clarified that a public adjuster may “act on behalf of or aid in any manner, an insured” in adjusting a
General Star Indem. Co. v. Spring Creek Village Apts. Phase IV, Inc., Id.
Shree Hari Hotels, LLC v. Society Ins., 2013 WL 4777212 (S.D. Ind. 2013).
Chardonnay Village Condominium Ass’n, Inc. v. James River Ins. Co., 2008 WL 3285908 (E.D. La. 2008).
claim, although may not practice law without a license to do so. It found an Arizona authority non-persuasive which characterized such behavior as the unlawful practice of law because it did not apply to California law nor did it establish that an award must be vacated where an adjuster acts as an attorney. The court went further and stated that even if this adjuster had engaged in conduct considered as unlawful practice of law, it failed to see any unfair advantage in the appraisal proceeding as a result or effect on the legitimacy of the award. It stated that the insurer could not honestly claim its interests were prejudiced by this behavior when it was represented by a licensed attorney at the same proceeding.790
Building Damage Estimators
Where an appraiser derives the greatest part of his or her income and livelihood from acting on behalf of insurance companies to quantify losses, the court will often hold that he or she was not a disinterested appraiser.791
In Arkansas, the fact that a person selected by the insured to appraise the loss had previously made an estimate of the loss at
Fidelity Nat. Ins. Co. v. Yolanda Owens, Alameda County Superior Court No. RG11589323)(6/18/15).
Sterling Spinning & Stamping Works v. Knickerbocker Ins. Co. of N.Y., 137 Misc. 349, 242 N.Y.S. 201 (Mun. Ct. 1930).
the request of the insured is a fact to be considered on the issue of his competency and whether he is sufficiently disinterested to act as an appraiser, but does not of itself disqualify him to act in that capacity.792
Where the insurance carrier’s appraiser conducted himself in the interests of the insurer to such a degree that he might be regarded as an agent of the insurer, he will be deemed such and his misconduct will be imputed to the insurer.793
Where a prior relationship exists with one of the parties to the appraisal, the appraiser is not necessarily incompetent to participate, but it is his duty to disclose the facts that might create an impression of bias. The parties should not be required to engage in discovery on the issue and it is the appraiser’s duty and obligation to reveal those facts voluntarily.794
Some states have amended their statutes to require a detailed disclosure by the appraiser. For example, in California, the Code of Civil Procedure §1281.9 requires that within 10 days of notice of the proposed nomination, the proposed neutral and both appraisers must
National Fire Ins. Co. v. O’Bryan, 74 Ark. 198, 87 S.W. 129 (1904).
Slepski v. German Fire Ins. Co. of Peoria, 141 Ill. App. 614 (1st Dist. 1908).
Kaiser Foundation Hospitals, Inc. v. Superior Court, 19 Cal. App. 4th 513, 517, 23 Cal.
Rptr.2d 431, 433 (2d Dist. 1993).
disclose all of the following for the proceeding five years:
[T]he names of the parties to all prior or pending cases to which he was acting as an appraiser or umpire; any prior attorney-client relationship between any of the parties; any significant professional or personal relationship between the neutral, the appraisers, and any of the parties or the spouses of the parties.”
C] Fees
Appraisers have traditionally been hired by written agreement on an hourly basis, plus expenses. As discussed in Chapter VII [C], contingent fees are generally discouraged but have been approved in a number of cases.
Pursuant to the Standard Fire Policy, generally, “[E]ach appraiser shall be paid by the party selecting him and the expenses of the appraisal...shall be paid by the parties equally.”795
Hourly rates vary from place to place and can accumulate in complex and time consuming appraisals. Good practice dictates periodic billing and often involves the payment of an initial advance to cover at least a portion of the anticipated fee where this is financially possible.
It is also permissible for an insured to authorize an appraiser to have a separate check cut to the appraiser from the settlement proceeds in satisfaction of fees where the insured was unable to fund the appraisal costs
See e.g., N.Y. Ins. §3404, Lines 137-140; Virginia, for example provides in its Standard Fire Policy that “[I]f the written demand is made by this Company, then the insured shall be reimbursed by this Company for the reasonable cost of the insured’s appraiser and the insured’s portion of the cost of the umpire.” Standard Provisions, Conditions, Stipulations and Agreements for such Policies, Va. Code Annot. §38.2-2105 (Michie 2002) (Lines 144- 47).
from his or her pocket due to financial constraints.
Where the appraiser is to be paid out of the proceeds of the claim, it would be appropriate for the appraiser to be named on a separate check and, in the event of an interpleader action to determine the proper payees of an appraisal award, the appraiser should properly be paid directly from the interpleader fund.
To the extent significant expenses can be anticipated under the circumstances of the particular appraisal, these should be discussed and provided for in writing at the time of the appraiser’s hiring or immediately thereafter. Expenses can include the cost of travel and in complex claims, experts such as accountants, inventory counters, mold remediation experts, engineers, architects, market value appraisers, salvors, building damage estimators, attorneys, and the cost of laboratory analysis of samples (in cases of suspected mold, smoke damage or asbestos, for example).
While most appraisals will be conducted successfully without any expert assistance, expert involvement should be considered, particularly in claims where the insured was not represented by a public adjuster. One of the distinct advantages of the involvement of a
public adjuster on behalf of the insured is the assistance they provide with respect to claim preparation and presentation.
To the extent an insured is in difficult financial straits and may be unable to fund the cost of appraisal, an advance payment from the insurer representing the amount not in dispute should be sought to help finance the undertaking. Indeed, it is often wise to request payment by the insurer of any undisputed amounts, or those amounts which represent the portion of the insured’s claim which the carrier agrees is due and owing prior to the onset of the appraisal.
It is always advisable to confirm the appraiser’s hiring by a written agreement setting forth at the minimum, the names of the parties, a provision as to the payment of fees and expenses, and a statement of the appraiser’s authority, designating him or her to act as appraiser on behalf of the party nominating them.
As stated earlier, it has been held that a contingency fee arrangement with an appraiser might under certain circumstances be acceptable. In Hozlock v. Donegal Mut. Ins.
Co.,796 it was held that the mere existence of a contingency fee agreement between a party and his or her appointed appraiser does not render the appraiser unfit per se, when the policy’s appraisal clause requires only that the appointed appraisers be “competent.” Unless the policy provision specifically requires the appraisers to be completely neutral, a contingency fee payment scheme does not disqualify the appraiser. Without a specific clause, and without the appraiser having an independent fiduciary duty, the appointment would likely not be vacated.
Similarly, in White v. State Farm Fire & Casualty Co.,797 the Michigan Court of Appeals held that “a contingency-fee agreement does not prohibit an appraiser from being ‘independent’ under MCL 500.2833" but that the opposing party must be made aware of such an agreement. Because the insured’s adjuster was not the insured’s employee or under any legal duty to the insured with the exception of the public-adjusting contract, he could be capable of exercising his own judgment regarding the value of the loss.
A similar result was reached in the state of
2000 Pa. Super. 25, 745 A.2d 1261(2000); See also, Rios v. Tri-State Ins. Co., 714 So.2d 547 (Fla. 3d DCA 1998); Central Life Ins. v. Aetna Cas.& Sur. Co., 468 N.W.2d 257 (Iowa 1991); White v. State Farm Fire & Cas. Co., 2011 WL 3208140 (Mich.App 2011).
797 2011 WL 3208150 (Mich.App 2011.)
Florida where an appraiser was considered competent despite working on a contingency basis.798
In Georgia, it has been held that where the Declaration of Appraisers concluded the “appraisers are impartial, independent and competent” and where the insured’s appraiser had disclosed a percentage fee interest in the claim, the insurer could not later void the award based upon a claim of partiality.799
However, where the policy required a “competent and impartial appraiser,” a fee agreement which quoted an hourly rate but also included an alternative percentage of recovery formula which increases as the money recovered from the insurer increases disqualified the appraiser. In this Louisiana matter growing out of Hurricane Katrina, it was held that such a contract impermissibly renders the appraiser a partial and interested party.800 A similar result was seen in Indiana where an award was set aside.801
798 Citizens Prop. Ins. Corp. v. M.A. & F.M. Prop., Ltd., 948 So.2d 1017, 32 Fla. L. Weekly D537 (Fla. App. 3 Dist. 2007); Galvis v. Allstate Ins. Co., 721 So.2d 421 (Fla. Dist. Ct. App. 3d Dist. 1998); Rios v. Tri-State Ins. Co., 714 So.2d 547 (Fla. 3d DCA 1998).
799 Colony Ins. Co. v. 9400 Abercorn, LLC, 2012 WL 3985088 (S.D.Ga. 2012).
800 Chardonnay Village Condominium Ass’n, Inc. v. James River Ins. Co., 2008 WL 3285908 (E.D. La. 2008).
801Shree Hari Hotels, LLC V. Society Ins., 2013 WL 4777212 (S.D. Ind. 2013).
For a further discussion of the appropriateness of certain types of fee arrangements, see the discussion under “Public Adjusters” at page 404.
For a sample form of a written agreement between an appraiser and insured or insurer, see the forms contained in Appendix A.
Replacement Of An Appraiser
An insured had not waived the right to object to the selection of an appraiser and was not estopped from doing so, despite the fact that it did not file a formal objection until 8 months after the appraiser in question had been appointed. Under those circumstances, the insured’s counsel had expressed concerns about the insurer’s appraiser to the insurer, and the insured had even sent a letter to this effect in connection with a different appraisal with the insurer. Further, the insured had sought discovery as to the relationship between the appraiser and insurer on multiple occasions. The court found the circumstances did not show the insured had “‘clearly and unequivocally’ relinquished its ‘known right’ to object to [the appraiser’s] appointment” and that failure to formally object did not “forever preclude” a challenge to the appointment given the efforts to investigate the bias and the insurer’s role in concealing the information.802
Tamko Bldg. Products, Inc. v. Factory Mut .lns Co., 890 F.Supp.2d 1129 (E.D. Mo. 2012).
Liability Of The Appraiser
In the rare case when an appraisal fails, it is not unheard of for one of the parties to consider holding one of the participants responsible. Generally, appraisers enjoy the same immunity as arbitrators.803 Arbitral immunity, like judicial immunity, promotes fearless and independent decision making and for this reason, courts have been reluctant, absent evidence of fraud or deceit, to hold those involved in this process liable for their “judicial” actions and in many cases in which their misconduct in arriving at decisions has been alleged, courts have cloaked appraisers and arbitrators with immunity.804
A disinterested appraiser had immunity from suit over his role as an appraiser in a fire insurance appraisal proceeding. California law recognizes such a benefit because the role he or she executes is analogous to that of a judge.805
In Alabama, the court found no valid cause of action for negligence, wantonness or
Coopers and Lybrand v. Superior Court, 212 Cal. App.3d 524, 260 Cal. Rptr. 713 (2d
Dist. 1989).
Baar v. Tigerman, 140 Cal. App.3d 979, 189 Cal. Rptr. 426 (2d Dist. 1983) (note that
this case was superceded by statute, Ca. Civ. Pro. §1280.1, which itself appears to have been repealed effectively Jan. 1, 1997).
Lambert v. Carneghi, 158 Cal. App.4th 1120, 70 Cal. Rptr.3d 626 (Cal. App.1 Dist.
2008).
civil conspiracy by an insured against an insurer’s appraiser following the issuance of an appraisal award. The court found that Alabama law “clearly imposes a duty on adjusters who are acting pursuant to an appraisal provision, who have been appointed to act as appraisers, and not merely adjusters.” However, here there was no duty by an insurer’s adjuster to an insured; any duty owed would have been to the insurer to appraise the loss on its behalf. As to an adjuster, the Alabama Supreme Court has “consistently failed to recognize a cause of action for the negligent handling of insurance claims, and…[does] not recognize a cause of action for the alleged wanton handling of insurance claims.”806
In Connecticut, it has been held that an independent insurance adjuster does not owe a duty of care to an insured but rather only to the insurance company which hired them to adjust or investigate the claim of one of its insureds. The court relied upon a previous decision, which clarified “‘[t]his is partly based on the public policy ground that if the adjuster also owed a duty of care to the insured, it would thrust the adjuster in to what could be
St. John’s Deliverance Temple v. Frontier Adjusters, 2012 W.L. 629056 (S.D. Ala. 2012).
an irreconcilable conflict between such a duty and the adjuster’s contractual duty to follow the instructions of its client, the insurer.” Interestingly, while the appellate court had not yet addressed an appraiser’s liability to third parties, it had been decided that such liability may be applicable to builders, contractors, architects, engineers and attorneys without privity of contract. 807
Savanella v. Kemper Independence Ins. Co., 2011 WL 7049491 (Conn. Super. Ct. 2011), citing Grossman v. Homesite Ins. Co., 2009 WL 5357978 (Conn. Super. Ct. 2009).
Expenses For Consultants Hired By The Appraiser
Where an appraiser hired a certified public accountant to perform work in connection with an appraisal on behalf of an insured, upon the appraiser’s failure to pay, an action by the accountant was commenced claiming quantum meruit. The court held that the action was properly maintained against the appraiser, based on a variety of reasons: that the accountant had been hired by the appraiser, was asked to sign a confidentiality agreement and a consulting and non- disclosure agreement with the appraiser, had discussed an hourly rate of compensation with the appraiser, his work had been managed by the appraiser throughout the appraisal, and worksheets had been prepared for the appraiser detailing work performed and amounts due. Additional elements of the quantum meruit claim, that he had provided “valuable services” which were “accepted, used and enjoyed, were not disputed. The decision pointed out that the accountant acknowledged that insurance proceeds payable in the matter were to be the source of compensation for the appraisal team but was also aware of the agreement between the appraiser and insured regarding payment of
appraisal costs.808
The lesson for the practitioner is that clarity is critical as to the method and source of payment for consultants or experts hired by the appraiser and should be confirmed in writing.
808 Fulgham v. Fisher, 349 S.W.3d 153 (2011).