Westlake Village, California based Gidon R. Vardi, Ph.D, a construction and insurance appraisal expert witness, is once again using his experience with over 300 insurance appraisals to help homeowners and insurance companies understand how to properly use the Appraisal provision within their property insurance policies. A recognized expert in his field, Dr. Vardi has taught and been consulted on best practices by many of his insurance dispute resolution colleagues.
Dr. Vardi points out to real property owners and insurance companies that every homeowner policy and many commercial policies carry a standard Appraisal provision. In California that provision reads as follows:
In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon the umpire, then, on request of the insured or this company, the umpire shall be selected by a judge of a court of record in the state in which the property covered is located …..
The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of appraisal and umpire shall be paid by the parties equally. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either the insured or this company but shall not be compelled.
In most states the above provision is the standard language for an Appraisal provision. In California additional language is found:
…Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section,”informal” means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings.
This additional language, states Dr. Vardi, was an attempt to reduce the cost of the appraisal process. After the 1994 Northridge earthquake hundreds, if not thousands, of appraisals were undertaken by both insureds and insurers at astounding cost. Appraisals became a variation of arbitration with extensive discovery, court reporters, and lengthy hearings. That is simply not what the appraisal process is supposed to be says Dr. Vardi who handled many such appraisals as both appraiser and umpire.
The process should be handled by experts in the field or trade in dispute. “You would not want a contractor to do brain surgery; on the other hand, an experienced, reputable licensed contractor would certainly be qualified to evaluate property damage” says Gidon R. Vardi, Ph.D.
Two qualified and reasonably minded experts should be able to go through a list of issues to be appraised and come to a joint decision. This does not happen all the time Dr. Vardi explains. For that reason the provision demands that “an Umpire,” an impartial third expert, be selected by the appraisers to deal with the differences between the two values and facilitate finalizing an award. Together the three are referred to as the “appraisal panel.”
Dr. Vardi been involved in cases where the umpire selection included retired judges, attorneys, and professional mediators and arbitrators. Dr. Vardi maintains that a qualified expert is again best suited to fill that position. Too often the non-expert umpire becomes what has been referred to as the “50/50” judge. Meaning that you can count on the difference between the appraiser to be split 50%/50%. That is not the intention of this process says Dr. Vardi. Dr. Vardi further states, that the true value should be pursued, not a convenient “split the baby” route.
Understanding the rules, regulations, and laws governing the appraisal process is important. Different states have different laws and regulations. Some are more demanding and others are less so. Each person or company that finds a need to be in an appraisal should become familiar with the process within the state where the property is located or at least make contact with experts who can guide them through the process.
Appraisal is not a substitute for adjusting a loss says Dr. Vardi. Policy coverage is almost never allowed to be discussed or examined within the appraisal process. Coverage should be determined prior to any appraisal. The insurance adjuster makes coverage decisions for the insurance company and for the insured. If the insured disagrees with the adjuster’s decision then he/she needs to obtain an opinion from an attorney who specializes in insurance coverage. Just because a claim does end up in the appraisal process does not mean that the claim was improperly adjusted. The appraisal provision is available because disagreement over value is most often due to subjective ideas over what something is worth by either the insured or insurer.
One of the most common claims that reach the appraisal process is water damage. Two years ago a house in Santa Barbara suffered extensive water damage due to a broken pipe. The house was built in the 1940’s with extensive refinements including hardwood flooring, interior plastered walls, custom built in cabinets, specialty lighting and more. Due to the extensive damage and the presence of asbestos in the house the cost of repair was significant and so was the difference in cost valuation between the insured and insurer and complicated by coverage issues.
Dr. Vardi was hired as the Umpire. The first order of business was to remove any coverage issues from consideration. Dr. Vardi instructed the parties to provide clear instructions regarding the scope of the appraisal in order to remove any threat of the appraisal award being set aside in any later court action.
Once coverage and scope were cleared up by the parties the next step was to assist in reducing the difference between the two appraisers. The appraisers were also miles apart from each other in their evaluation. The Umpire and appraisers spent hours on the claim reviewing, evaluating and discussing each and every item.
The hardest part of the process is for the appraisers to disengage themselves from their clients. Too often positions are taken by the appraisers as advocates rather than as neutral experts. There is a natural tendency to want to fight for your client states Dr. Vardi. Worse is the threat perceived by the appraiser that if he/she does not perform they will not be paid, not receive another assignment, and not be referred to others for the same service. There is also apprehension by the umpire that if he/she rules one way or the other then the “losing” appraiser will never consider him/her for another appointment. All of these perceived are in fact real and often justified says Dr. Vardi. “I have lost clients and angered colleagues with some of my decisions” says Dr. Vardi on his role as Umpire “yet I would not change a thing” he goes on to say “because you can buy my time but you cannot buy my opinion.” Each appraiser and umpire must have the integrity to overcome their fears and concentrate on the task at hand.
Before entering into the appraisal process consider the cost of doing so. Is the difference between the parties so great that negotiation between them is fruitless? Will the anticipated cost of the appraisal process be greater than the difference? Perhaps the difference be resolved by hiring a single neutral expert is another option says Dr. Vardi who has done so many times over the past 20 years of consulting. Generally, the cost of the appraisers is born by the individual parties and is not recoverable. The cost of the Umpire is shared equally 50%/50% between the parties. It is unethical and may be illegal in various states for any appraisal panel member including the umpire to accept a contingency based assignment. Doing so makes that person have an interest in the outcome of the case which defeats the process.
Only hourly paid professionals should be considered. It is standard and customary for appraisers and umpires to require a retainer before commencing work. This practice makes it possible for the experts to remove bias and work undeterred by personal pecuniary concerns.
The insurance appraisal process insures, in almost all cases, that the appraisal panel will arrive at a resolution, commonly known as the Award, because it can be signed “by any two” of the three panel members, in any pairing. Policy holders may have confidence in this insurance dispute resolution method because, while they often occur, unanimous decisions are not required.
In the case of the Santa Barbara claim the appraisal panel under the leadership of Dr. Vardi did reach a unanimous decision and all three appraisal panel members signed the Award.
Gidon R. Vardi, Ph.D is an expert in the insurance appraisal process and can be reached at (818) 735-4757 or https://xl.wexco.net.
