Qualifications
The Standard Fire Policy’s appraisal clause states in relevant part:
“The appraisers shall first select a competent and disinterested umpire;”
Thus, appraisers must appoint an umpire who is competent and disinterested.
Other qualifications have been stated and reviewed in assessing the appropriateness of a particular selection. For example, in selecting an umpire, the appraisers should not
hire an individual who lives outside a reasonable distance from the loss location, regardless of whether said umpire is disinterested or not, as long as there are competent parties that can be found nearby.809
The umpire appointed under the appraisal provision of a policy is required to possess judicial qualifications of fairness to both parties, so that he or she may render a faithful, honest and disinterested opinion.810 Stated another way, it has been said that the umpire must be competent and impartial.811
Many courts have likened an umpire in an insurance appraisal to an arbitrator in an arbitration. Umpires have the obligation to be unbiased and further, to disclose any dealings that might create an impression of possible bias. Left intact, such an impression would undermine the appearance of propriety and confidence in the fairness of the
Fowbele v. Phoenix Ins. Co., 106 Mo. App. 527, 81 S.W. 485 (1904).
Mizrahi v. National Ben Franklin Fire Ins. Co., 37 N.Y.S.2d 698 (City Ct. 1942) (quoting American Eagle Fire Ins. Co. v. New Jersey Ins. Co., 240 N.Y. 398, 148 N.E. 562 (1925)).
Middlesex Mut. Ins. Co. v. Levine, 675 F.2d 1197 (11th Cir. 1982); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lambros, 1 F.Supp.2d 1337 (M.D. Fla. 1998); Schwartzman v. London & Lancashire Fire Ins. Co., Ltd of Liverpool, England, 318 Mo. 1089, 2 S.W.2d 593 (1927); Figi v. New Hampshire Ins. Co., 108 Cal. App.3d 772, 166 Cal. Rptr.774 (4th Dist. 1980); 6 Appleman, Insurance Law & Practice §3928 (1972).
proceedings.812
Logic dictates a more exacting standard for umpires then for appraisers.813
In Weinger v. State Farm,814 the umpire had worked regularly on behalf of the insurer and had been retained by State Farm on other matters during the course of the prior year. As the appearance of impartiality is paramount, the failure to disclose a potential source of conflict alone has been held to require a court to vacate an appraisal award.815
It may be unnecessary to show actual bias once it is demonstrated that there is a failure to disclose information that reasonably should have been disclosed.
In discussing just such a situation, the California Court of Appeals stated this is so because, “[T]he failure to disclose such matters,
Weinger v. State Farm Fire & Cas Co., 620 So.2d 1298 (Fla.4th DCA 1993); Commonwealth Castings Corp. v. Continental Cas. Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968); International Ins. Co. v. Schrager, 593 So.2d 1196 (Fla. 4th DCA1992); Middlesex Mut. v Levine, 675 F.2d 1997; National Arbitrators; Disclosure of Information; Disqualification; Waiver, Cal. Civ. Proc. §1281.9 (2003) (California Code of Civil Procedure §1281.9 requires a neutral appraiser to disclose the details of his relationships with the parties and appraisers for a period of five years within 10 days of his proposed nomination).
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).
814 620 So.2d 1298 (Fla. Dist. Ct. App. 4th Dist. 1993).
815 Michael v. Aetna Ins. Co., 88 Cal. App.4 925, 106 Cal. Rptr.2 240 (Cal. App. 2 Dist.
2001).
even if no actual bias is present, represents a kind of ‘corruption’ by creating the appearance that the appraiser or arbitrator is concealing something important and relevant to his or her impartial participation in the appraisal or arbitration procedure.”816
A California umpire was not found to be “corrupt” however after submitting a declaration in support of one party’s petition to confirm an appraisal award, which neither made him an advocate for that party nor cast any doubt on the impartiality of the award. The insurer’s reliance on a rule of evidence precluding an arbitrator from “be[ing] competent to testify, in any subsequent civil proceeding, as to any statement, conduct, decision, or ruling, occurring at or in conjunction therewith” the arbitration, did not indicate that submission of an inadmissible declaration by the umpire was evidence of corruption.817
In the states that impose their statutory arbitration machinery on insurance appraisals, the umpire or neutral may well have duties of disclosure with respect to prior relationships with
816 Id. at 248.
Fidelity Nat. Ins. Co. v. Yolanda Owens, Alameda County Superior Court No. RG11589323)(6/18/15).
the parties. For example, pursuant to California Code of Civil Procedures §1281.9, within 10 days of the proposed nomination of the neutral, he or she must disclose information such as the names of the parties to all prior or pending cases where the neutral was acting as a party appraiser or neutral, as well as other personal relationships that the neutral may have had with either party. While this may appear burdensome, it tends to discourage inappropriate appointments.
An individual who had been nominated to be an appraiser by another insurance company liable for the same loss is not suitable to act as an umpire as to the same event.818
An accountant who had worked for the insurer and derived income ranging from $8000 to $61,000 annually over a number of years was deemed not to be impartial and though he was court appointed, the award he participated in was vacated.819
Solicitation by the umpire to do the actual repair work during appraisal is sufficient to destroy the umpire’s impartiality and any subsequent award should be vacated.
Braddy v. New York Bowery Fire Ins. Co., 115 N.C. 354, 20 S.E. 477 (1894).
Weinger v. State Farm Fire & Cas Co., 620 So.2d 1298 (Fla. Dist. Ct. App. 4th Dist.
1993).
A North Carolina court examined whether a “pre-existing relationship” between an umpire and an insurer’s appraiser would create an impermissible conflict of interest. There, the insurer asserted an appraiser’s affirmative duty to disclose prior dealings with another party’s appraiser. Contacts called into question included representation of opposing parties in another insurance matter (deemed “hardly the type of ‘pre-existing relationship’ that would lead to the inference of a conflict of interest”), as well as the appraiser’s request that the umpire in this case create plans and elevations based on photographs in an unrelated claim which arose several years prior and for which no information as to his compensation was presented. The court observed no evidence that the umpire’s neutrality was affected.820
Florida has observed an absence of authority where an umpire engaged in continuous delay in rendering an appraisal award. In that matter, the insured’s appraiser had terminated the umpire for such behavior, an issue which ultimately led the court to evaluate whether this constituted a material breach of policy conditions and compliance with necessary pre-suit conditions.821
Glendale LLC v. Amco Ins.Co., 2012 WL 2917920 (W.D.N.C., 2012).
Jyurovat v. Universal Prop. & Cas. Ins. Co., 84 So.3d 1238, 1239 (Fla.2d DCA 2012).
The Michael822 court stated that a substantial prior or continuing business relationship with a party or with a party’s representative, even if the business activity does not occur during a pending appraisal or arbitration, is enough to disqualify the umpire.
823
Where the umpire is acquainted with one of the appraisers, the umpire should disclose that fact to the other party.824
In Alberta, Canada, a duty of impartiality has also been conferred upon an umpire in one matter where repeated failure to disclose a prior relationship with insureds contributed to an impermissible “apprehension of bias.” The court opined that the standard by which to measure impartiality involved the existence of this reasonable apprehension, and thus the question: “would a reasonable person, well- informed and viewing the circumstances in this case, objectively have a reasonable apprehension that [the umpire] may not act in an impartial manner?” In that case, although the umpire was questioned about his prior knowledge and business dealings with the parties, he replied that none existed - concealing the fact that he had been involved
Michael, 88 Cal. App.4th 925.
823 Id. at 249.
824 44 Am. Jur.2d. Insurance §1689.
in several real estate transactions involving the insured. Section 204 of the Insurance Act provides in part that each party to an appraisal equally bear the cost of appraisal and umpire, a requirement the court deemed “fundamental to impartiality;” moreover, the court found it inconceivable that it would not require an umpire it appointed in absence of an agreement by the parties to be impartial.825
An Alabama court delineated its umpire selection criteria when it addressed the parties’ umpire proposals where the pertinent policy did not outline any criteria defining the umpire selection process. The court was petitioned to appoint a neutral individual to fill this role. In undertaking this responsibility, the court relied upon general insurance principles in finding that “an umpire selected to arbitrate a loss should be disinterested, unprejudiced, honest and competent,” and “impartial..and should not live an unreasonable distance from the scene of the loss.”826
One possible remedy if an umpire appears to violate the prohibitions against the umpire being interested is to move for a hearing to set the award aside on the basis of
825 McPeak v. Herald Ins. Co., (1991) 115 A.R.83, I.L.R. 1-2774,1991 CarswellAlta 400;
Insurance Act, R.S.A. 1980, c. I-5, s. 204 s. 235, statutory condition 11.
Pennsylvania Lumbermens Mut. Ins. Co. v. Buettner Bros. Lumber Co., 2012 WL 1748028 (N.D. Ala. 2012).
fraud.827
In small communities, it may be necessary for the parties to go outside the local community to find a qualified, impartial and unbiased umpire. However, generally it is preferable for an appraiser to nominate an umpire who lives in the vicinity where the loss occurred. Without good cause, it is inappropriate to refuse to agree to anyone residing in the locality, who might otherwise be qualified.828
The State of Colorado Division of Insurance has issued a Bulletin defining the standards for impartiality of Umpires.829
The Umpire’s Duties and Responsibilities The appraisal process may proceed in
the manner thought best by the umpire or upon stipulation of the parties. However, where the policy specifically provides for a definite
In re 176 & 178 East Main Street, Amsterdam, New York, 263 N.Y. 197, 188 N.E. 647 (1934); Bradshaw v. Agricultural Ins. Co., 137 N.Y. 137, 32 N.E. 1055 (1893).
Hartford Fire Ins. Co. v. Asher, 30 Ky. L. Rptr. 1053, 100 S.W. 233 (1907); Niagra Fire
Ins. Co. v. Bishop, 49 Ill. App. 388 (2d Dist. 1893), aff’d, 154 Ill. 9, 39 N.E. 1102 (1894);
Hickerson v. German-American Ins. Co., 96 Tenn. 193, 33 S.W. 1041 (1896); Brock v.
Dwelling-House Ins. Co., 102 Mich. 583, 61 N.W. 67 (1894); Young v. Aetna Ins. Co., 101
Me. 294, 64 A. 584 (1906).
Colorado Department of Regulatory Agencies, Division of Insurance, Bulletin No. B-
5.26 “Insurer Requirements Related to Disputed Claims Subject to Appraisal.”
methodology, the parties must abide by it. Failure to follow the procedure set out by the policy or statute provides grounds for setting aside the award.830
For example, an award will be set aside where the record contains no evidence the appraisers first failed to agree on what they could and submitted only disagreements to the umpire as required by the policy.831
In some jurisdictions, the award generated may be vacated as invalid if the umpire does not set forth the methodology used at arriving at a value of the insured's loss. Therefore, in this jurisdiction the umpire should generally reflect in detail the value of the goods destroyed rather than in gross.832
Note that in those jurisdictions that equate arbitration and appraisal, it has been held that the technical formalities of an arbitration must be observed, with the invalidation of an appraisal award being the result of the failure to follow statutory procedure. For example, in Connecticut, it
St. Paul Fire & Marine Ins. Co. v. The Tire Clearing House, 58 F.2d 610 (8th Cir. 1932); Aetna Ins. Co. v. Murray, 66 F.2d. 289 (10th Cir. 1933).
Richardson v. Allstate Texas Lloyds, 2007 WL 1996387 (Tex. App.-Dallas 2007); Fisch v. Transcon Ins. Co., 356 S.W.2d 186, 189-190 (Tex. Civ. App.-Houston, 1962, writ ref’d n.r.e.).
Coffin v. German Fire Ins.Co., 142 Mo. App. 295, 126 S.W.253 (1910).
has been held that the failure of the umpire and the appraisers to be sworn is sufficient to invalidate an award.833 The California Code of Civil Procedure requires the umpire to disclose his prior affiliations and relationships with the parties for a period of five years prior to his nomination.834
By equating arbitration and appraisal, these jurisdictions fail to give life to the true intent of the policy, as well as the legislative intent behind the Standard Fire Policy. This is accomplished by giving the appraisal clause an overly technical and formal reading when what was intended was a relatively simple and user-friendly process for determination of loss and value. A review of the Vandrilla court’s decision portrays the intellectual struggle in trying to accommodate the contractual process of appraisal with the strict statutory requirements of formal arbitration.835
It is generally held that in determining the loss under a Standard Fire Policy the appraisal team may proceed in such a manner as they think proper and are not bound by the strict rules of judicial investigation.836 An appraisal proceeding is not an ordinary arbitration. It has
Vandrilla v. Middlesex Mut. Assur. Co., 1994 WL 668756 (Conn. Super. Ct. 1994).
834 Cal. Civ. Proc. §1281.9.
Vandrilla, supra; Hartford Lloyds Ins. Co. v. Teachworth, 898 F.2d 1058 (5th Cir. 1990).
American Steel Co. v. German American Fire Ins. Co., 187 F.730 (3d Cir. 1911).
been said an appraisal is strictly an ascertainment, in a particular manner, of the amount of the loss, made by two or three parties as the case may be in which they act on their own judgment with such information as they may obtain in an informal way and in which the appraiser chosen by each party is supposed and expected in a restricted sense to represent the party appointing him and within reasonable limits to see to it that no legitimate consideration favorable to the party so appointing him is overlooked by the other appraiser.837 The umpire should not only be competent, but fair and unprejudiced as between the parties to the award.
It was the duty of each party’s appraiser to consult together and if they do not agree, to call on the umpire, whose function it is to deliberate with them. It is improper to consider evidence or information not submitted to the others.838
Except in a few states like Connecticut and Massachusetts, formal hearings, witnesses, cross examination, etc. are not the required or usual practice in appraisals. Appraisers are not bound to the strict judicial investigation of an arbitration, except in those states that have
American Central Ins. Co. v. Landau, 62 N.J. Eq. 73, 49 A.738 (Ch. 1907).
Id.
mandated otherwise by statute.839
In the more formalistic state of Connecticut for example, an undisclosed ex- parte conversation between a representative of the carrier and the umpire prior to the appraisal was deemed sufficient to constitute actual misconduct and the award was set aside pursuant to §52-418(a)(3) of the Connecticut General Statutes.840
While the umpire should receive all of the submissions, materials and evidence that the appraisers had the opportunity to review, the parties should remain focused on the fact that it is only the differences between the appraisers that the umpire should rule on under most policies in most jurisdictions. In those situations where such language is contained within the policy, it represents a material limitation on the umpire’s authority. The umpire has no authority to opine in those areas of agreement between the appraisers.
In an Ohio claim, although the umpire’s methods may have deviated from the procedures the insurer was accustomed to, the umpire was well qualified, the umpire’s
For example, Massachusetts has adopted a more formalistic procedure for carrying out the appraisal called a Reference Proceeding. Referees; Selections, Mass. Gen. Laws Ch. 175
§100 (1977).
Gordon v. Amica Mut. Ins. Co., 2004 WL 2943244 (Conn. Super 2004).
methods were within industry standards and the umpire’s placement of his dog in the insured’s fenced yard while the property was inspected did not demonstrate an improper personal relationship.841 In attempting to set aside an appraisal award, it was held that the insurer failed to demonstrate “evident partiality or corruption” as required to set aside an award.
It has been said that the appraisal process is an ex parte investigation during which the appraiser will come into contact with information that may or may not simultaneously be seen by the other appraisers and umpire. If the two appraisers cannot agree on a value then a third is appointed and the value agreed upon by two of the three is determinative.842
It has been held that an umpire’s neutrality was not tainted by ex parte communications with counsel for the insured as, unlike in an arbitration procedure, appraisals are generally less formal. Thus, where the umpire independently attempted to resolve differences in the appraisals offered by both sides, the court found no impropriety in the umpire requesting the parties’ respective positions to aid him in resolving these
Cousino v. Stewart, 2005 WL 3120245 (Ohio App. 6th Dist. 2005).
John R. Casolaro, A Primer on Appraisal to Resolve Valuation Disputes-Part I, 65
N.Y. St. B.J. 10 (1993).
differences.843
An award by appraisers will be sustained unless it clearly appears that it was the result of fraud, mistake or accident or if, in fact, is was made by participants who were incompetent, interested, partial or negligent.844
The language of the Standard Fire Policy describes the relationship between the appraisers and umpire where it states that the appraisers, once failing to agree, "[S]hall submit their differences only to the umpire. An award in writing...of any two...shall determine the amount of actual cash value and loss." It has been held that on the basis of this language, the umpire was not an arbitrator who was given sole authority to make a determination. He was to act only in concert and in conjunction with one or both of the other appraisers.845
An umpire and one of two appraisers may not arbitrarily disregard pertinent evidence presented by the other appraiser.846
Preferred National Ins. Co. v. Miami Springs Golf Villas, Inc., 787 So.2d 1156, 2001 Fla. App. 9161 (3rd Dist. 2001); Allstate Ins. Co. v. Suarez, 786 So.2d 645 (Fla. Dist. Ct. App. 3d Dist. 2001), aff’d, 833 So.2d 762 (Fla. 2002); Liberty Mutual Fire Ins. Co. v. Hernandez, 735 So.2d 587 (Fla 3d DCA 1999); Preferred Ins. Co. v. Richard Parks Trucking Co., 158 So.2d 817 (Fla. 2d DCA 1963); Harleysville Mut. Ins. Co. v. Narron, 155 N.C.App. 362, 574 S.E.2d 490 (N.C. App. 2002).
Home Ins. Co. v. Walter, 230 S.W. 723 (Tex. Civ. App.-Dallas 1921).
FC&S Bulletins, The National Underwriter Co., Misc. Property, April 1995.
Gervant v. New England Fire Ins. Co., 306 N.Y. 393, 118 N.E.2d 574 (1954).
An award would not be set aside because the umpire and appraisers acted jointly but where the umpire did not confer with the insured's appraiser, the appraisement was held to be ineffective.847
The appraisers may hire an umpire prior to disagreeing on the value of a loss, but the umpire may not participate until such a disagreement occurs.848
Where an appraisal award is concluded by adding the amounts allowed by each appraiser and the umpire and dividing by three, this method will not be upheld where it is used in accordance with a previous agreement between the appraisers.849 Where the appraisers and umpire agree to an award arrived at by dividing the aggregate of the amounts of their individual estimates by the number of appraisers, in disregard of their individual judgment, the award or appraisal was held to be invalid.850
The obligation of the umpire to act in concert and in conjunction with one or both of
Headley v. Commercial Standard Ins. Co. of Dallas Texas, 17 La. App. 25, 134 So. 305 (1931).
Enright v. Montauk Fire Ins. Co., 15 N.Y.S. 893 (Sup. Ct. 1891), aff’d, 142 N.Y.
667, 37 N.E. 570 (1894).
Schreiber v. Pacific Coast Fire Ins. Co., 195 Md. 639, 75 A.2d 108 (1950).
Round v. Bellows, 21 Mass. 179 (1826); Schreiber, 195 Md. 639.
the appraisers was illustrated by the New York supreme court in its decision setting aside an umpire’s determination that included an award in the amount of $90,000. The umpire arrived at this number after being confronted with a $45,000 written appraisal by the insurance carrier’s representative and a
$220,000 written appraisal submitted by the insured’s appraiser. A lower court had initially allowed the umpire’s award to stand finding the umpire’s “common sense approach” to be appropriate when the umpire selected a figure between the two appraisals he was presented with. In overturning the lower court’s decision, the court cited the policy language which prescribes the relationship of appraisers and umpire: “The appraisers, failing to agree, shall submit their differences, only, to the umpire. An award in writing...of any two...shall determine the amount of actual cash value and loss.” The court concluded that based on this language, the umpire was not an arbitrator given sole authority to make such a determination and was to act only in concert and conjunction with the other appraisers.851
It has been held that a sitting jurist may not directly participate in the appraisal process except with respect to award enforcement
851 Allstate v. Kleveno, 81 A.D.2d 648, 438 N.Y.S.2d 384 (2d Dept. 1981).
proceedings.852 The two statutory schemes of litigation and alternative dispute resolution are mutually exclusive and independent of each other. Attempts at creating a hybrid or mutation of the two will generally not be countenanced by a reviewing court.853
However, under somewhat unusual circumstances, a federal district judge considered assuming the role of umpire with respect to an appraisal being conducted pursuant to the Standard Fire Policy.854
The Umpire’s Scope of Authority
The functions of the appraisers and umpire in the appraisal process are defined to a limited degree in the policy. Actions by the umpire or appraisers which exceed the scope of the policy or the appraisal agreement may result in an award being set aside. The problem is the simple appraisal paragraph leaves a lot to the parties’ imaginations.
In addition to guidance directly from the policy, the umpire should also look at the
Wages v. Smith Barney Harris Upham & Co., 188 Ariz. 525, 937 P.2d 715 (1997); Dodd
v. Ford, 153 Cal. App.3d 426, 200 Cal. Rptr. 256 (4th Dist. 1984).
Dodd, Id.
S.R. Intern. Bus. Ins. Co., Ltd. v. World Trade Center Properties, LLC , 2002 WL
1905968 (S.D.N.Y. 2002) (where the District Court considered appointing himself as the neutral in an appraisal being conducted with respect to the September 11, 2001 attack on the World Trade Center).
appraisal agreement and submission signed by the parties and appraisers and which resulted in the umpire’s hiring. The parties should have set forth the issues to be determined and the requisite specificity that the parties have agreed to require with respect to the ultimate award.
The powers and authority to be asserted by the umpire are also determined by the submission of the appraisers or the appraisal agreement which gave rise to the appraisal. In addition, the insurance contract which exists between the parties, as well as any relevant law, regulation or judicial precedent which controls in the jurisdiction where the property is located,855 may impact on the power and authority of the umpire. Examples would be policy definitions of such terms as actual cash value, co-insurance and the extent of covered property and the policy’s settlement provision.
An Ontario court which considered the approach used by an umpire in making his appraisal valuation determined that “the terms of the insurance policy govern the use that can be made of the umpire’s determination of what the loss is.” There, the umpire had relied upon the replacement cost of the property as
44 Am. Jur. 2d Insurance §1691 (2002); Town of Trumbull v. Trumbull Police Local 1745, Connecticut Counsel of Police Unions, 1 Conn. App. 207, 470 A.2d 1219 (1984).
stipulated in the policy. The court reasoned that the umpire was correct in his statement that “Whether or not the insured replaces is irrelevant for the purpose of determining the ‘loss’, such determination being on a replacement cost basis. This of itself does not make the insurer liable for that amount because the insurer limits its liability by the various alternatives set forth in the section.” The court could not determine how useful the umpire’s determination would be, but stated that even if it turned out to have little use in settling the matter only the expense of a hearing before the umpire would be incurred.856
With respect to the Standard Fire Policy, it offers little guidance with respect to the authority granted to the umpire. Once making provisions for the selection of the umpire, it requires merely that the appraisers to submit their “differences only, to the umpire.”
It is critically important for the umpire to educate him or herself with respect to the provisions of the policy regulating the determination of actual cash value (or other value insured by the policy) as well as the amount of loss. The umpire should also be
Sehdev v. State Farm Fire & Cas. Co., 47 O.A.C. 223, 25 A.C.W.S. (3d) 940, 1991
CarswellOnt 868.
familiar with local precedent, insurance regulations and laws which pertain to those definitions of value as well as the insurance appraisal process itself. Particular care must be taken in situations where the umpire has no prior experience with insurance appraisals and may be tempted to rely upon past experience with arbitration, mediation, other types of appraisals such as real estate or market value appraisals, or litigation, all of which have little bearing on the process and procedures of the insurance appraisal.
As the “neutral” in the appraisal process, it may fall upon the umpire to resolve issues of procedure as well as practical issues such as scheduling, the location of meetings, hearings and the order of presentation of evidence and information. While an effort should be made to resolve these issues by consensus and acclamation, as a practical and logical matter, the umpire should have ultimate authority to make reasonable judgments on these matters in order to insure that the purpose of the parties’ participation in appraisal is fulfilled fairly.
A British Columbia court, however, declined to confer authority to determine the disposition of salvage where the umpire’s action in question had been discussed by appraisers but no agreement or authorization
by the parties existed, nor was there statutory authority. In that case, the court concluded that an umpire had exceeded the scope of his authority in assessing a stock loss and directing that the disposition of salvage go to an insurer. The court referenced the Insurance Act, s. 200, stat. cond. 11, which authorized appraisers only to determine value of the insured property, value of saved property and amount of the loss.857
The general guideline in performing this mission should be an overriding focus on doing justice to the claim submitted, in a fair and expeditious manner, giving due consideration to all of the arguments.
As discussed in Chapter I, certain jurisdictions, particularly those which equate arbitration and appraisal, impose statutory authority upon the umpire. In these states, umpires have available all of the powers granted arbitrators in carrying out their appointed mission. These powers include subpoena power,858 the scheduling and conduct of hearings,859and the right to
British Columbia Ins. Corp. v. Dawd Holdings Ltd., (1989) 35 C.C.L.I. 193, I.L.R. 1-
2391, 12 A.C.W.S. (3d) 380, 1988 CarswellBC 400; Insurance Act, R.S.B.C. 1979, c. 200,
s. 11 and 15 Sechion 220.
Subpoenas and deposition, Conn. Gen. Stat. §52-412 (a)(b) (2003).
Hearing; time and place, adjournments, Conn. Gen. Stat. §52-413 (2003); Additional
arbitrator; Rehearing; Oath, Conn. Gen. Stat. §52-414 (2003).
administer oaths to witnesses.860
An umpire has the authority to make findings of fact such as identifying the items on an inventory that were actually lost or damaged. In the case of such findings, they are conclusive.861 This view is not universal.
An arbitrator enjoys a level of arbitral immunity, like judicial immunity, is said to promote fearless and independent decision making. Courts have refused to hold judges liable for their judicial actions and, in cases in which misconduct in arriving at decisions has been alleged, have also clothed arbitrators with immunity.862
860 Conn. Gen. Stat. §52-414(e).
Schreiber v. Pacific Coast Fire Ins. Co., 195 Md. 639, 75 A.2d 108 (1950).
Baar v. Tigerman, 140 Cal. App.3rd 979, 211 Cal. Rptr. 426 (1983).
B] Fees
Pursuant to the Standard Fire Policy, generally “[E]ach appraiser shall be paid by the party selecting him and the expenses of appraisal and umpire shall be paid by the parties equally.”863
However, this rule is not universal. 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.” 864
While the splitting of the umpire’s fee is overwhelmingly the rule, the amount of the fee should certainly be discussed in advance of hiring and be confirmed in writing, signed by the parties to the appraisal, as well as the umpire so as to avoid any misunderstanding.
Though appraisal is generally a less expensive proposition than its more contentious alternative of litigation, it can still be expensive.
e.g., Standard Form, Conn. Gen. Stat. §38a-307 (2003); Standard Policy Provisions,
N.Y. Ins. Law §3404(e) (McKinney 2003); Standard Policy Provisions, 40 Pa. Cons. Stat.
§636 (2003) (statute originally enacted on May 17, 1921); Insurance Act. R.S.O. 1990 Condition 11, §143 (Ontario, Can); Standard Provisions, Conditions, Stipulations and Agreements for such Policies, Va. Code Ann §38.2-2105 (Michie 2002).
Standard Provisions and Agreements for such Policies, Va. Code Annot. §38.2-2105 (lines 144-147) (Michie 2002).
Umpire’s fees are generally hourly and can range typically from $150 to as high as $400,
$500 or $600 per hour. Some jurisdictions have ready-made pools of independent umpires or arbitrators who may be called upon on a given claim to render assistance. In other jurisdictions, umpires are often culled from lists of insurance company and consumer claim estimators who are participating in the insurance claims process generally.
Good success can be achieved by utilizing the rosters of one of the private companies who are engaged in alternative dispute resolution (A.D.R.) and make available retired judges to act as the neutral. These candidates often have judicial temperament and experience in issue determination and do not have the troublesome ties to the insurance claims industry which may become problematic.
As complex appraisals can be long winded, the process can become expensive and the parties should agree to make provision for periodic payments to the umpire where appropriate.
Contingent fees for the umpire are obviously unacceptable.
Where a party refuses to pay his fair share
for the work of the umpire, the attorney who petitioned the court for his appointment cannot be required to pay on behalf of his client where the attorney’s petition for the appointment of the umpire was a strategic effort taken on behalf of his client.865
Dorsey v. Nationwide Ins. Co., 345 Pa. Super. 254, 498 A.2d 387 (1985).
C] Written Agreement With The Umpire
It is often advisable for the parties to appoint the umpire by way of a written agreement which sets forth clearly and unambiguously the issues to be determined pursuant to the appraisal provision, as well as the fees and expenses of the umpire.
The parties and their appraisers have discretion to make the agreement hiring the umpire as simple or as extensive as they choose within their reasonable judgment. For example, it could provide for a chronology of the proceedings, setting forth the anticipated timing of each step in carrying out the process. It can set forth the time within which the team must render its final decision after the proceedings are concluded. At a minimum, it should reference the appraisal agreement between the parties which should be made an exhibit thereto.
As with the appraisal agreement itself, the agreement hiring the umpire should be executed by the parties as well as the appraisers, as the appraisers do not act as agents of the party hiring them and thus may not have the technical legal authority to bind the party that retained them with respect to commitments made to the umpire.
A sample form of agreement hiring the umpire is contained in Appendix A.
It has been held that where a party to an appraisal agreement agrees in writing on the appointment of a certain umpire, that party will be estopped from challenging the selection of the umpire based on a claim of lack of authority where the individual making the designation is the corporate treasurer of the insured and acted in the absence of the president of the company who was away at the time of the loss.866
Remington Paper Co. v. The London Assur. Corp. of England, 12 A.D. 218, 43 N.Y.S. 431 (4th Dept. 1896).
Court Appointment Of The Umpire
The Standard Fire Policy states the following with respect to the appointment of the umpire:
“The appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree to such an umpire, then, on request of the insured or this company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located.”867
In order to accommodate the appraisal provision’s mandatory court involvement once the appraisers fail to reach agreement on the selection of an umpire, most states provide a statutory method for appointing an umpire.
For example, §3408 of the New York Insurance Law governs the procedure for the selection of an umpire upon the failure of the parties to agree:
“(a) Whenever application shall be made for the selection of an umpire pursuant to the provisions
867 See e.g., N.Y. Ins. Law 3404 (Lines 128-32).
relating to appraisals contained in the standard fire insurance policy of the State of New York it shall be made to a justice of the Supreme Court residing in the county or to a county judge of the county in which the lost or damaged property is or was located. The application shall be on five (5) days notice in writing to the other party. Any such notice in writing, when served by the insured, may be served upon any local agent of the insurer.
(b) The Court shall, on proof by affidavit of the failure or neglect of the appraisers to agree upon and select an umpire within the time provided in such policy, and of the service of notice pursuant to subsection (a) hereof, forthwith appoint a competent and disinterested person to act as such umpire in the ascertainment of the amount of such loss or damage.”868
What constitutes a “court of record” may vary from jurisdiction to jurisdiction. Texas for example, requires that the appointing judge
868 See, In the Matter of Merrimack Mut. Fire Ins. Co. v. Seibert, 31 Misc.3d 523, 917 N.Y.S.2d 839, 2011 N.Y. Slip Op. 21060 (Monroe Cty. 2011).
be a judge of a district court of a judicial district where the loss occurred, thereby preventing county court judges as well as other members of the judiciary from making such an appointment.869
In a rare and extremely complex claim involving multiple policies and extensive damage, a court of competent jurisdiction may consider substituting itself as the neutral.870 Historically, this appears to be a very unusual event. In S.R. International Business Ins. Co. Ltd. v. World Trade Center Properties and Allianz Ins. Co.,871 a federal district court was confronted with managing the insurance claims arising out of the World Trade Center attack of September 11, 2001. The property at risk was vast, its destruction total and the policies numerous. Many of the carriers who shared the risk had either issued incomplete policies or had failed to deliver their policy at the time of the loss. Confronted with an appraisal demand by one of the carriers, the district court, in recognizing the binding effect of the appraisal clause, considered naming himself as the neutral. No other examples of this can be found.
Note that a technical lack of authority on
869 Texas Standard Fire Policy (Lines 109-110).
870 S.R. Intern. Bus. Ins. Co., Ltd. v. World Trade Center Properties LLC, 2002 WL
1905968 (S.D.N.Y. 2002).
871 Id.
the part of a justice to appoint a referee will generally not upset the award if the parties failed to timely object.872
It has been held that the order of a federal district court appointing an umpire is not an appealable final order pursuant to 28
U.S.C. §1291. A final decision is one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.873 In Camden Fire Ins. Assoc. v. KML Sales, Inc., it was stated that the final appealable decision which ended the litigation on its merits was the decision to grant the insurance carrier specific performance on the insurance contract and send the dispute to appraisal. That decision was the final decision and was in fact appealed and upheld. If the carrier is unhappy with the outcome of the appraisal process, it could institute a separate proceeding in the district court to vacate the award on the basis of the umpire’s alleged bias.
However, in an action to appoint an umpire, the court may not also define the appraisers’ and umpire’s role under the insurance policy, unless agreed to by the parties. In an Ohio case, the Court of Appeals
872 Salganic v. U.S. Fire Ins. Co., 80 N.H. 450, 118 A. 815 (1922).
99 Fla. Appx. 367, 2004 WL 1147055 (Ca 3. Pa.)(3d Circuit Court of Appeals 2004);
Catlin v. U.S, 324 U.S. 229, 233, 65 S. Ct. 631, 89 L. Ed. 911 (U.S. 1945).
reversed a decision made by the trial court directing the appraisers and umpire not to make any determination as to causation of the damage to the insured’s property. In reversing, the court held that because the insured did not request a declaratory judgment and only requested that the court select an umpire, an act agreed to by the parties in the contract, the trial court lacked authority to impose specific conditions on the way in which the appraisers would complete their task.874
Similarly, in New York it has been held that an action to appoint an umpire is not the proper forum to determine the extent of the issues sto be considered in appraisal and is beyond the scope of an application to appoint an umpire.875
Where an action to compel appointment of an umpire is brought by special proceeding pursuant to statute (i.e. Ins. Law § 3408), “there is no basis for the court to issue a declaratory judgment regarding competency of [any] appraiser.”876
It is important to note that an action to appoint an umpire does not confer jurisdiction
See Hull v. Motorists Ins. Group, 2011 WL 2040958 (Ohio Ct. App. 2011).
In the Matter of Merrimack Mut. Fire Ins. Co. v. Seibert, 31 Misc.3d 523, 917 N.Y.S.2d
839, 2011 N.Y. Slip Op. 21060 (Monroe Cty. 2011).
Id.
on the court to limit the scope of appraisal. In New York, the Court declined a request by parties to limit or define an umpire’s damage assessment in terms of value of the loss, actual cash value, repair and replacement costs and other issues. It asserted that an appraisal decision pursuant to policy terms determined the amount of loss and “[t]he amount of loss shall be determined according to the policy terms and applicable provisions of the Insurance Law by the appointed umpire.” 877
In the Matter of Merrimack Mut. Fire Ins. Co. v. Seibert, 31 Misc.3d 523, 917 N.Y.S.2d 839, 2011 N.Y. Slip Op. 21060 (Monroe Cty. 2011).
When To Appoint The Umpire
There is a dichotomy in thinking regarding when an umpire should be appointed.
It has been stated that the appraisers should discuss and agree on the identity of the umpire before discussing the merits of the issues raised by the appraisal. The advocates of this approach point out that the Standard Fire Policy requires it, stating in relevant part, (lines 128 and 129) “[T]he appraisers shall first select a competent and disinterested umpire.” This is contained in the passage immediately after the provision providing for the appointment of the appraisers. Additionally, an argument has been made that the umpire should be agreed upon immediately in order to avoid confrontation and contention in that selection process which might arise once a disagreement on the merits occurs.
While the umpire may often be selected immediately upon the appointment of the appraisers and their arrival on the scene, the umpire generally does not become directly involved in discussions until the appraisers have failed to reach an agreement between themselves. Involvement of the umpire in formal substantive discussions is generally not appropriate until a reasonable effort has been made on the part of the appraisers to reach an
agreement. This is so unless, by their various positions, and in the exercise of their reasonable and independent judgment, it is clear that the appraisers will not be able to agree and that further efforts would be fruitless absent the involvement of the umpire.
It may also be appropriate to appoint an umpire when one party has failed to respond to the demand for an appraisal. There is case support for the proposition that the appraisal may nevertheless proceed; even upon a party’s failure to appoint an appraiser, with the matter being determined by the single appraiser and the umpire. The other party is deemed to have waived its right to participate.878
The most common procedure is for the appraisers to select an umpire before they actually reach disagreement on a particular issue.879 The umpire then awaits a disagreement to materialize between the appraisers and then assists in resolving that disagreement.
After an umpire is appointed, the appraisers still have power to act without the umpire if a disagreement does not exist
Saba v. The Homeland Ins. Co. of America, 159 Ohio 237, 112 N.E.2d 1 (1953).
Atlas Const. Co., Inc. v. Indiana Ins. Co., Inc., 160 Ind. App. 33, 309 N.E. 810 (2d Dist.
1974).
between the appraisers at the time of the umpire's hiring. The fact that the umpire was chosen before a disagreement does not deprive the appraisers of their power to act without him.880 For example, if an appraisal agreement provides that two persons are named as appraisers with a third to be appointed by them, it has been held that the position of such third person was that of an umpire, who should act only when the appraisers differed.
The predominant approach is to appoint the umpire after the appraisers have initially conferred, agreed to any portion of the claim and identified the nature and extent of the disagreements.
This approach may be more efficient if it appears to the appraisers that there may be a realistic possibility of resolving the claim without the intercession of an umpire.
Unless the policy provides otherwise, there must be a disagreement between the appraisers before an umpire may participate. In fact, an umpire's signature on the award has been held to be ineffective if it occurred prior
Enright v. Montauk Fire Ins. Co., 15 N.Y.S. 893, (Sup. Ct. 1891), aff’d, 142 N.Y.
667, 37 N.E. 570 (1894).
to any disagreement by the appraisers.881 Additionally, the fact that the umpire did not participate in the appraisal from the beginning, but only after the appraisers disagreed, did not negatively effect the validity of the award.882
Additionally, once the appraisers have refined their understanding of areas of disagreement it may better enable them to select an appropriate umpire. For example, in the homeowner’s policy context, if they can resolve issues of personal property, a builder may be a more appropriate choice for umpire.
As it is in both parties’ interest to expedite repair and re-occupancy of the damaged premises, it may be appropriate to encourage an immediate appointment of the umpire to allow for an immediate inspection of the damaged premises so both demolition and the appraisal may proceed simultaneously. It would also facilitate the discovery of hidden damage when there is still time to consider it in the appraisal.
Fisch v. Transcon Ins. Co., 356 S.W.2d 186 (Tex. Civ. App.-Houston 1962, writ ref’d n.r.e.); Collings Carriage Co. v. German American Ins. Co., 86 N.J. Eq. 53, 97 A. 726 (1916).
Home Ins. Co. v. Walter, 230 S.W. 723 (Tex. Civ. App.-Dallas 1921).