The Insurance Appraisal Process Part IV

Some  New Ideas

Part IV

There is a set of persistent problems in dealing with Umps, namely their selection; the problem is buried in a series of steps for the "opposing" appraisers. (1) Each of the two appraisers are appointed by one of the sides. (2) They frequently see themselves as advocates not a cooperative committee of two. (3) Frequently, they don't know how to agree on an Ump, or they don't know the same people, or they are not paid enough to put much time into the matter, or one of them jumps the gun and goes to a judge and gets and Ump appointed before s/he is needed. (4) There is are no explicit standard governing both of the first two participants as to how to select an Ump.  If the opposing parties in the appraisal process together imposed standards of Ump selection on their appointees some of the problems arising out of Umps might be solved. 

(5) There are no rules on how to deal with the judges appointing the ump. There should be (i) Surely there should be notice of application by the side that wants an Up chosen to the other side.  (ii) Surely when there is a disagreement about who to appoint as ump there should be a hearing if possible. It need not be a long one. (ii) Surely both sides should present a list of candidates and their qualifications. Of course it would be best there was agreement about the names of the list. 

(6) Umps must understand that they do not work for anyone involved. They work only to establish justifiable truth.

(7) A candidate should not have a history that suggests bias. A person who has been a life long adjuster for the This-&-That Insurance Company, Inc., should not be appointed as an Ump.

To qualify to be on the list of the qualified, candidates should not only know about and be sympathetic to the subject of  reasonable adjustment and the logic of reasonable and rational argument, but must have  a drive to embrace these behaviors and ideals.  A musicologist should not be involved in adjusting a loss involving a giant bridge--and probably any other physical item other that a piano, etc.

(8) Perhaps there should be a type of agreement entitled "Selection of the Umpire Principles," or maybe "Criteria of Selection of  Umpire." It may be a short document, but expressly require everything of an Ump that is required of the appraisers, and at the same level of the bar, and above all require the Ump to sign, and maybe swear to his having specified qualifications and that he will determine the dispute if the original two cannot.

(9) The requirement and the "sheet" should be adopted as industry wide as possible.

(10) Umps should be required to have signed it, and maybe even swore to it. 

There is another special problem.  It focuses on Umps but it spreads out across all those involved in appraisal. Umps are not judges. Thinking of umps as judges distorts the process of appraisal The paradigms for Umps are to be found in sports. Consider baseball. The Ump there must know more about the game than the player and usually more than the coaches. The same is true in football. The competence of Umps is not to make reasoned decisions based on what others argue to them, as judges are conceived. Umps are in the field. It is not, for example, characteristic of judges to go out to a site and make realistic and informed empirical observations of alleged damages, yet this is exactly what is generally involved in being an Ump. Judges need not have expertise on the issues in dispute; Umps must.

Thus, as already stated, Umps are not judges. Umps must gather at least some of their own empirical data. Judges rarely do this. I have already discussed this fact, this problem; I have already suggested some solutions to it. Sometimes it is said that Umps are so much like judges that they should be thought of like that. Judges try cases about welding without themselves being welders, that is not exactly true about Umps. They have to know a good deal more than basic fundamentals. They themselves must find independent support for their decisions. They do not usually have witnesses, transcripts, depositions, or arguments. 

Similarly, just stepping up to the plate as an Ump does not make you suddenly and particularly knowledgeable about roofs and hail for most purposes. An Ump in a hail case, for instance, should not look merely to the estimates provided by the opposing appraisers. An Ump needs to have enough information, and enough background and experience, to review the claim and the damage before it and make a reasoned decision. 
 
Umps are not judges. The fact that the word "quasi-judicial" is sometimes used to describe appraisals does not make the Ump judge-like. The term is for the whole process. The whole process is designed to avoid litigation-type situations, and there is an underlying idea of cooperation designed to reach just results quickly. Granted, Umps are not mediators, but they also are not the messenger-servants of one side or the other. And they are required to be knowledgeable about the kind of damages at issue. It takes judges some time to learn topics about which they know nothing or little, at least usually speaking. Appraisals cannot work that way; otherwise speed is undermined, and that is one of the chief purposes of appraisal. 

Judges may not be satisfactory Umps. It is also worth pointing out that/although some are, many, many Umps are not and never have been judges. They may not even have a really good feel for what it is that judges really do. It is much more important that an Ump, like an appraiser, know more about the substantive issues of a case: about hail, about smoke, about arson, about interruptions of business income.  

Judges may not even be good appointers of Umps.  I have "seen" (or otherwise be acquainted with stories about) judges pick their long-time friends, associates, pals, and lawyers- in-need as Umps, and those selections have not always been successful.

Conclusion

The point of this blog--all four parts of it--is to set forth or vindicate the proposition that appraisal is intended to be a relatively rapid rational process. Such a process requires that all the members of the temporally changeable committee must be appropriately knowledgeable, reasonable, rational, dedicated, dedicated to getting to as much truth as possible. The appraisers must be able to reason with others; they must not be biased in favor of the side that appointed them and the side appointing them must be dedicated to the same idea. The Ump must recognize and accept the proposition that that he is not in control of the operation, that he is not the lone, ultimate decider. The Ump might consider the idea that he should try to create reasonable debate before he takes a side, in other words, the Ump might consider the idea of fostering (even more) cooperative discussions.

*Michael Sean Quinn

2630 Exposition Blvd  #115

Austin, Texas 78703

mquinn@msqlaw.com

The Insurance Appraisal Process--Part III

 

 Insurance Adjustment and Appraisal

Michael Sean Quinn*

Part III

The question now becomes: How do Umps figure into all this?



What an ump should be like is the same as that of the appraisers, but it also involves additional dimensions. Some of these are not obvious from the Appraisal Clause. Some think that if an ump can more-or-less think through the work of the opposing appraisers, they are qualified to resolve the issues.  Under many--and probably most--situations, this view is false.This can be determined, in my opinion, simply by considering what the roof problem would look like if the ump was not knowledgeable about roofs.

Surely, umps must have at least the same competence that the two appraisers do. Imagine an Ump who could not evaluate the work of the other members of the panel. You might as well have an Ump who reads and speaks and understands only French and does not speak or understand English at all. In addition, there will be a discussion presently of this Ump's explicitly stated obligations to which he agreed and how they were not met in this case. Given the requirements for panel members internal to the appraisal, it is obvious that all members of the panel must have been honest and accurate in presenting themselves as potential members of the panel, e.g., in a nomination-selection process. Unquestionably, the same would apply even more stringently to a potential Ump. 

Here are some simple and obvious requirements. It is impossible for an Ump to be part of an appraisal panel if he does not know how to appraise. He cannot make sound decisions by himself, rising above a deadlocked panel. He cannot use best judgment and cannot genuinely pursue a just result, if he does not know the process involved. He is not deciding which side is making the better case, although he may look at those issues. He is deciding the appraisal himself. Imagine Cinderella deciding the cash value of the palace of the Wicked Queen, when the architect and the general contractor of the realm cannot agree.

Here are some "extra" requirements to be placed on Umps:

1. Extensive knowledge as to how the physical factors that are the focus of the adjustment fit together, whether and how the damaged objects can be repaired replaced, and the costs involved.
2. the proper computation of losses under the relevant insurance policy, e.g., the difference between repair, restoration, and replacement, plus what types of monetary amounts should be employed, e.g., local sums, national sums, amounts used from higher priced regions, amounts used from lower priced regions
3. grasping and using sound techniques of examining the work of the appraisers
4. the ability and willingness to defend his computation
5. proper methods of calculation
6. the willingness to resist simple but generally invalid methods of calculation, such as averaging the two different numbers the appraisers suggest.         

See Karl A. Schulz, "Accurate Outcomes in APPRAISAL: The Importance of the Ump's Subject Matter Expertise," Journal of Consumer Law (2012)

The Insurance Appraisal Process--Part I

Insurance Adjustment and Appraisals

Michael Sean Quinn*

Part I

There are two types of appraisals. Those performed by one person, e.g., that of art works, the value of real estate, etc.  The others are performed by perfectly stable committees as to size, e.g., those consisting of X number of persons all through the process, and usually their is an odd number.  Then there are less than stable committees as to size; those expand if the first membership cannot reach a decision. Insurance appraisals are of the last type. They start with two members, and then expand to three members if the two original members cannot reach a solution, or do not do so over a reasonable period of time.

One purpose of appraisal is to reach a solution as to the size of the insured's damages and the amount the insurance company shall pay.  It is designed and intended to shorten the length of time arguing over disputed amounts both with respect to probability and its amounts.  At least in theory, the language of the clause explicitly states that the amount of recovery is THE issue. Courts and litigant-participants don't always either realize.  Or maybe they know it, but just ignore it.  This is a fact I shall ignore in this set of blogs. 

In order to discuss appraisal in a meaningful way, it is necessary to have the contractual provision clearly in mind. It is a standard provision included in (at least virtually) all first-party property insurance policies, unless deleted.  It is currently found in the ISO "form" property policies, and it has been there for several generations, whether residential or commercial. 


 Appraisal clauses are to be found in insurance contracts all over the world and is not restricted to first party property insurance.  It generally applies to first party insurance of all types, including for intangible "objects" and/or "processes."  They are found in the "Conditions" section of the ISO policies.

 The ISO language, entitled "Appraisal [,]" is as follows:

If we and you disagree on . . . the amount of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding. Each party will:

            Pay its chosen appraiser; and

        Bear the other expenses of the appraisal and umpire equally.

        If there is an appraisal, we will still retain our right to deny               the claim.

Appraisal clauses are enforceable by legal process under a variety of circumstances, usually when an umpire ("Ump") has decided the issue. It is extremely difficult to avoid the enforcement of an appraisal by judicial process; it very rarely ever happens, although it should happen more often when a principle of sound adjustment appraisal has been violated by one or more of those doing the appraising. Almost always these violations are connected with Umps.  (I will return to this topic.)  Appraisal clauses are enforceable under a great many circumstances, and the finality that often goes with them is quite often enforced. Dividing up the clause and thinking about it step-by-step might be a good idea. The propositions shall be entitled "P," and numbered, e.g., "P#76", to create a fictional number for illustration. Some of the following are explicit requirements found right on the surface.  Others are just under the explicit wording:

P#1.    There must be a written demand for an appraisal of the loss.

P#2.    There must be evaluations of the amount of the loss by each of the appraisers.

P#3.    There is no reason why the appraisers may not try to reach an agreement on their own. The probability of reaching an agreement is increased by there being separate thinking and cooperative mutual discussions and dedication.  Appraisal is not intended to be adversarial advocacy.

P#4.    Each appraiser nominated by either side must be competent.

P#5.    Each appraiser nominated by either side must be impartial.

P#6.    Together the appraisers "will select" and appoint [or attempt to appoint] an umpire.

P#7.    If they cannot do so, either party may request that an umpire be appointed by a judge of a court of jurisdiction.

P#8.    Each of the appraisers shall, separately, state [presumably in writing] both the value of the property and [the] amount of loss.

P#9.    If their statements are not in agreement [or if they fail to agree otherwise], they will submit their differences to the umpire.

P#10.    If two of the three agree, than that agreement is the result and it is binding. I now turn to an analysis of the propositions, and express opinions. [For obvious reasons, the ump will be one of the two.]

The propositions, unamended and unsupplemented, are to be found in virtually all property policies. Of course, they can be changed by agreement, and they can even be eliminated, but both of these are very rare, and they never happen at all in smaller policies. There are some variations, and one will be discussed later.

Part II will be mostly concerned with analyses of the forgoing "Big Ten."



 *Michael Sean Quinn

2630 Exposition Blvd #115
Austin, TX 78703

mquinn@msqlaw.com