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 Apppraisal Process--Part II

Insurance Adjustment and Appraisals

Michael Sean Quinn*

Part II

  The blog now turns now to an analysis of the listed propositions. 

 P#1 requires a written demand; without one, there has been no valid appraisal. One might wonder what counts as a written demand. Obvious letters qualify, and—of course—that was the traditional way in which to make such a demand. One would think that emails would now do the trick. The only question there is what if it is sent to Adjuster X, in the maritime office when it was Adjuster G, in Nashville, who was working on the case. One suspects that if it were an accident or simply a harmless act, the sending to X when it should have gone to G, then there would be not question about there being a satisfactory demand. What if it were in the language of Tibetan from a professor of such things? Written on the back of an envelope, signed, but without a claim number? And so forth. (I suspect that all of them would be demands, even if they were intended to make the insurer's "life" difficult. Obviously, there must be some limits.) 

P#4 requires that each of the appraisers must be competent. The interests of the insured requires that each appraiser know a fair amount about that which is being appraised and the economic and financial realities surrounding what has happened. In many jurisdictions, they also must have a good idea about how insured objects get injured. Thus, P#4 requires that the appraisers must know enough about that which has been injured and/or damaged, to work on valuing the loss. 

Here is a simple concrete example. Consider proof loss--roof damage--resulting, at least in part, from hail damage.  What do the members of the appraisal committee need to know?  They will need to know:

1. about roofs of the specific kind involved in the claim and therefore the appraisal, including different components of a given roof,

2. about hail (e.g., size, likely speed, solidity), wind, and so forth,

3. about locating hail damage to the type of roof involved,

4. about the look of hail damage to a particular type of roof,

5. about other relevant engineering matters pertaining to the building and the claim,

6. about distinguishing between hail damages caused by the storm out of which the claim arose and such damage caused by something else, (i.e., a previous storm, the use of a hammer, jumping up and down, and so forth),

7. about evaluating the monetary value of the loss, including distinct components of the loss,

8. about the proper computation of losses of a 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 prices regions,

9. there is no reason to think that a former or retired judge is automatically competent to make a decisive decision, and

10. so forth.

Competence requires relevant skill and knowledge, at an appropriate level. Although the definitions of "competent" and "impartial" are commonly known, the idea of competence requires that all who are involved must be competent to do what the appraisers are doing.

Competence does not require agreement. Competent appraisers can disagree. Disagreement up to a point and over some time is rational. Debate is often rational. Recognition of this elementary fact is crucial. That is why there are Umps. Umps can disagree with the two named appraisers. Umps are not there to decide a controversy for one appraiser (party) or the other, although that may happen, and it is permitted to happen if the Ump's decision is reasonable and at least one of the appraisers agrees enough to concur on the award. Umps and related problems will be discussed later.

P#5. Each appraiser must be impartial. Someone is impartial if and only if they are objective and disinterested. Being disinterested is not restricted to having a material interest, creditor interest, or something of the sort, for example, physical property, or some other pecuniary interest on one side of the controversy. Having some sort of substantial attachment to or involvement with (e.g., friendship) one of the parties, an attachment that is unreasonable from the point of view of avoiding partiality—whether direct or indirect, is inconsistent with a hypothesis of impartiality. Impartiality entails fairness between the two parties and includes not seeing a positive result for one of the parties from soliciting favorable treatment from another person.  Objective evidence should be used in evaluating the retention of a given appraiser.

P#6. The idea that the two parties shall attempt to select an umpire, or try to do so implies that they will try to do so together. If there is no reasonable attempt to try and select an umpire, there is no actual appraisal. A failure to attempt to accomplish this purpose genuinely and reasonably is inconsistent with the language, the clause and the purpose of the appraisals.

P#7. If the two appraisers appointed by the insurer and the insured do not agree, either party may seek the appointment of an umpire from a judge. An umpire is impliedly someone who is competent and who will seek an objective and impartial decision, so this goal controls any appointment of an umpire. This idea suggests that both parties should be present for the formal presentation of any such request. Even if this is not required by the exact language of the clause, it is implied by the clause; it is probably inconsistent with the language of the clause to do otherwise; there is certainly no language to the contrary; there are no Texas cases to the contrary; there has never been serious controversy in any significant secondary literature; it violates principles of impartiality to fail to do so; and if it is done by the insured, it violates the requirement of cooperation to be found in the Conditions section, in so far as that concerns the context of settling claims.

It has already been stated that umpires must be competent in the same ways the appraisers must be competent. It is not the case that the umpire may simply be competent to make decisions. Umpires are not judges. The paradigms for umpires are to be found in sports. Consider baseball. The umpire must know more about the game than the player and usually more than the coaches. The same is true in football. Umpires are not just competent to make reasoned decisions based on what others tell them, as judges are conceived. 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 umpire. Judges need not have expertise on the issues in dispute; umpires must. Thus, as already stated, umpires are not judges.
   
P#8. This proposition is an interesting requirement. It requires the appraisers to present evaluations of both the worth of the property and the amount of the damage. This explicit requirement in the policy makes something mandatory, which was not previously, in the clause, been asserted to be required in the work of the appraisers. P#8 also suggests how calculations of damages must be conducted. I shall pass over these requirements—explicit though they are—for the time being, at least.

P#10. In an appraisal, if two of the three agree, then that agreement becomes binding. Obviously, if there has been no appraisal or valid appraisal, then this mode of decision is not binding. In addition, the method of reasoning must be as set forth in the clause. Moreover, it is clear that not every agreement need cover the entire claim. It might cover some of it, but it is not the case that it must cover all. 

Finally, the agreement must least be in the range of reasonable. One of the central purposes of appraisals is to obtain a reasonable result more quickly and cheaply than litigation. In my experience, at least in a first party property policy, if an insured's demand for compensation under a policy is larger than the insurer's evaluation, the insured's demand is probably exaggerated. Of course, the fact that a decision in an appraisal is binding, does not make it reasonable.

Most of these principles are epistemological--how to maximize sound  beliefs and therefore satisfactory conclusions from the point of view of disputed truth. Most of them are also moral--how should a person in this situation act and act honorably. A good deal has been written on the epistemology of the adjusting process, but less has been written on its moral structure. There is a little bit, however.

The Code of Ethics for Umpires in Insurance Appraisals Windstorm Insurance Networks, Inc. (2007) (Windstorm). (This appears to be a non-profit corporation, a wing of which certifies umpires and perhaps trains them.) The other code is the Umpire and Appraiser Code of Conduct (2010). (Digitory Solutions Inc.) (This appears to be a for-profit that firm identifies itself as a tech firm rendering services to P.A.s. At one point the code is said to be an internal "regulation.") I shall discuss some of the rules found in these Codes later.

*Michael Sean Quinn

2630 Exposition Blvd.

Austin, Texas 78703

mquinn@msqlaw.com