Insurance Appraisals
The Insurance Appraisal Process
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The Appraisal Process
The process is fraught with pitfalls that can result in unreasonable and sometimes totally useless awards. Regardless of where you sit, what follows is a simple and systematic approach to producing fair, useful, and final results.
Scope of AppraisalIt is absolutely crucial that the scope of appraisal be clearly defined for the appraisal panel. Neither the umpire nor appraisers should be in the position of deciding what they should be doing, although far too often this is the case. It is an unfortunate reality that those who cannot agree on the value of a loss must be willing and able to set aside their differences in order to reach an agreement on what to appraise.
Appraisal is a contractually mandated process unique to the first-party property insurance world. Insurance policies generally contain language that contemplates the value of a loss in a dispute and provides for naming an appraiser by each party. The appraisers then name an umpire who hears and decides only their differences. If appraisers cannot agree on an umpire, a court decides the issue.
The real problem, however, is that insurance policies really don't give the parties any further guidance about what to do or how to do it. Therefore, the single most overriding and important point is that the parties must always agree on the scope and rules governing the appraisal.
Items to Include in Appraisal AgreementCareful definition of the scope of the appraisal and the valuations that are being sought ultimately will result in an award that is useful to both parties and will help finalize the claim. It makes no sense to demand an appraisal without defining exactly what is being appraised, particularly when there are multiple values that need to be determined.
The scope of coverage and appraisal is determined in the first instance by the applicable policy language. Where the policy is silent, the following is a typical but incomplete list of values that can be determined by appraisal:
1. Replacement Cost Loss ‐ Scope and value2. Replacement Cost Loss ‐ Value only (when scope is agreed)
3. Limited Replacement Cost Loss ‐ When a single or finite set of items needs to be determined
4. Actual Cash Value Loss
5. Time Period of Restoration
6. Demolition Cost
7. Code Upgrades/Law and Ordinance
8. Additional Living Expenses
9. Extra Expenses
10. Expediting Expenses
11. Rental Loss
12. Business-Interruption Loss
13. Other (usually as agreed by the parties)
After agreeing on what is going to be appraised, the next step is reducing the agreement to appraise a loss to writing. (As previously noted, neither the insurance policy nor case law is likely to provide guidance in this area.)
Structure of the Appraisal AgreementA written agreement to appraise the loss requires both understanding of the nature of the dispute regarding loss and value, and clarity about how the values need to be reported by the panel to the parties. At a minimum, the appraisal agreement will do the following:
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1. Identify the name of the parties and the date and type of loss.
2. State the scope of the appraisal and clearly list the values that are going to be determined by the process. It may be appropriate to identify legal issues and make clear that the appraiser and umpire cannot decide questions of law or coverage in this section.
3. Name the appraisers.
4. Determine the procedure for selecting the umpire, if not already agreed upon.
5. Set out the procedure for appraisal, which may include:
a. Timetable and location.
b. Discovery issues and subpoena power of the panel.
c. Use of experts.
d. Manner in which the loss will be appraised.
e. Sample award form or instructions on how the award will be reported.
f. Definitions of terms and coverage.
6. Determine general items
a. Communication between parties and appraiser.
b. Communication between appraisers and umpire.
c. Confidentiality issues.
d. Hold-harmless language protecting the appraisers and umpire.
Without proper foresight, the appraisal process can be likened to a hike in the wilderness without a compass. In order to avoid confusion, post-appraisal litigation, and the possibility of producing an award that is incomplete or of little practical use to the parties, policyholders and insurers are urged to reach agreement on the scope of the appraisal. Use of a clear, concise, and complete agreement to appraise a loss is a key element in ensuring the finality of a claim.
Alvin L. Davis, Inc. is a Licensed General Contractor providing you with complete insurance estimate using Xactimate estimating software. We will work from your adjuster's Xactimate estimate, if provided to us. With over 56 years in the construction and repair business and over 114 years combined experience, We stand ready to help you with a complete estimate of your Fire, Smoke, Wind, or Water damage.I will work for you!
Call us with your questions and concerns.
912-355-7611
Contact us at:ajd@alvindavisinc.com