I was dumbstruck. After all, the person that I was speaking to was an attorney, smart and well versed in many areas of insurance. I had just told him that insurance professionals needed to have updated knowledge on the intricacies of appraisals and the appraisal process. I told him that I was preparing to do a program on appraisals and the claims process. My attorney friend replied “Good luck on that. Can’t imagine that there is anything that claims professionals need to know about real estate valuations!”
I paused for a moment, not really sure that I heard him correctly. This man—who was so very wise on so many things—clearly did not know the difference between a real estate appraisal, which is used to determine the fair market value of real property, and the appraisal process that is set forth in standard fire and casualty policies. I took a breath, then stopped. No use giving an explanation that would embarrass my friend. I decided that it would be a better use of my time to simply write an article on the subject and then, perhaps later, I would slip him a copy.
So first the basics. As noted in Aetna Cas. & Sur. Co. v. Insurance Com’r, 293 Md. 409, 445 A.2d 14 (1982), appraisal clauses are pretty ‘standard’ in a typical fire insurance policy. When an insurer and an insured fail to agree on “the amount of the loss,” either or both can invoke the appraisal provisions of the policy so that the “amount of the loss” is subject to an out-of-court dispute resolution process. Generally, the insurer designates an appraiser who is knowledgeable about its concerns and the insured does the same. Under most policies, these two appraisers are required to attempt to resolve the dispute as to the “amount of loss.” If this cannot be done, the two appraisers select a neutral umpire to review the issues. Ultimately, the umpire has to come up with a determination that at least one appraiser agrees with. In the world of appraisals, two out of three decision makers determine the “amount” of the loss at issue. If the appraisal works correctly, decisions are made quickly and without costly and pesky litigation.
The major grey area for appraisals is that it is not always clear what it can and cannot be used for in terms of a particular claim. Everyone is familiar with common platitudes such as “everything happens for a reason”, “there are plenty of fish in the sea”, and “the Baltimore Orioles should be better next year.” Such platitudes are rarely helpful in one’s daily life. Neither are the platitudes about appraisals. The platitude that one hears most often with respect to the appraisal process is “coverage issues are not subject to appraisal.” That may be true, but what does that mean when considering a real claim?
Too often, it is thought that that an appraisal is limited to “the monetary valuation of items which the parties agree are covered by the policy”—a position that was directly rejected by Wausau v. Herbert Halperin, 664 F.Supp. 987 (D.Md. 1987). As that court noted, disputes as to the “amount of loss” are not simply the same thing as disputes as to actual cash value. This court noted that the appraisal process could be used where there was a dispute as to whether a larger area than that immediately damaged by an occurrence needed to be repaired. Based upon this opinion, if there is a dispute as to whether there was a covered cause of loss or whether the loss was excluded, then the appraisal provisions of the policy would not apply; but if the disputed issue was what damage was factually caused by a covered loss, then the appraisal provisions applied. While these concepts may be clear in the abstract, they are often muddied when trying to be applied to a specific claim.
Appraisals can also be difficult because, frankly, the appraisal panel can sometimes just get things wrong. Generally, if the panel makes a decision, a court will not review the findings made—even if the panel misinterprets policy provisions. As indicated in Schreiber v. Pacific Coast Fire Ins. Co., 195 Md. 639 (1950), an honest mistake of judgment or interpretation is not grounds for impeachment of an award. Rather, there must be a mistake that was induced by fraud or so plain and palpable to cause a court to reject it. A court can also refuse to enforce an award if it is beyond the scope of the issues submitted to the appraisal process. For this reason, it is important that the scope of the issues to be considered by an appraisal panel be made clear, even on such minute issues as the application of deductibles and internal policy limits.
Ultimately, the issue of an appraisal is about value. The value of a claimed loss is considered and ruled upon by an appraisal panel. Plus, there is a value to be considered for an early and less expensive dispute resolution process. In some ways, valuations made during the appraisal process actually have something in common with real estate valuations; they both provide information as to how much something is worth.
Ms. Lambert has over 35 years of experience in handling complex commercial litigation and insurance matters. Ms. Lambert has worked on national class actions, significant litigation and regulatory matters for Fortune 500 companies. She has also assisted small and mid-sized companies and business executives with contract, real estate, liability assessment and commercial disputes that needed to be resolved quickly and efficiently. Ms. Lambert is best known as an attorney who knows the field of insurance. She has represented insurers, policyholders, and insurance producers in disputes both in court and before the Maryland Insurance Administration.
Ms. Lambert is the firm’s Co-Liaison for Harmonie, a national network of high quality law firms that serve the special needs of the risk industry, and was recently appointed to Harmonie’s Board. She can be reached by phone at 410-339-6759 or email email@example.com.
Ms. Demir is an Associate in the firm’s General Litigation Group. Prior to joining PK Law, Ms. Demir was a litigation associate focusing on civil and commercial litigation matters involving product liability, worker misclassification, insurance, data breaches, and wage and hour disputes, many of which involved class action and multidistrict litigation.
Ms. Demir graduated from Syracuse University College of Law in 2019. She is admitted to practice law in California and the District of Columbia and took the Maryland Bar Exam this past February.