After an Appraisal Award is Signed, Can One Side Unilaterally Change It?

J. Ryan Fowler | Property Insurance Coverage Law Blog | April 2, 2019

With appraisal becoming more popular in first-party insurance cases, I often get asked: When is the appraisal completed? As most answers for a first party insurance case – it depends on the policy. Recently a Federal District Court in Florida was asked to determine which of two appraisal awards was final and enforceable.1

The insureds filed a claim for hurricane damage with their insurance company. The claim eventually let to a lawsuit in federal court where the parties didn’t contest coverage and agreed to an appraisal under the insurance policy.

Each side appointed an appraiser: Kunzman (for the insurer) and Thomas (for the insureds), and the trial court appointed Leiby to serve as an umpire. The Appraisers and Umpire performed a property inspection in August of 2018. The trial court then outlined the following e-mail exchanges:

September 5, 2018:

1:54 p.m. – Umpire Leiby circulated an appraisal award (the “Disputed Award”) in the amount of $121,800.30 that included his electronic signature. The email stated, “See attached for review and comment. If one or both of you find this agreeable, please sign, scan, and return to me. I will then get out the originals.”

2:27 p.m. – Appraiser Kunzman expressed his objection to the Disputed Award, asked for a breakdown and itemization of the award amount and a copy of Appraiser Thomas’ estimate.

2:35 p.m. – Appraiser Thomas emailed Umpire Leiby and Appraiser Kunzman a signed copy of the Disputed Award that Umpire Leiby had circulated at 1:54 p.m., stating, “Please see the attached award signed by me.”

3:59 p.m. – Umpire Leiby responded to Appraiser Kunzman’s 2:27 p.m. email, requesting Appraiser Thomas forward him the missing documents and indicating that he would “hold off on the final until [Appraiser Kunzman] gets that.”

September 6, 2018:

9:37 a.m. – Umpire Leiby advised Appraiser Kunzman to provide any input based upon Appraiser Thomas’ estimate within five days. Umpire Leiby then indicated that the “the award [was] not yet final.”

September 17, 2018:

12:10 p.m. – Umpire Leiby sent the parties’ appraisers a revised appraisal award (the “Revised Award”) in the amount of $90,704.27.

12:59 p.m. – Appraiser Kunzman executed the Revised Award and returned it to Umpire Leiby.

The insurance company paid the insureds $90,704.27, the amount of the Revised Award.
The insureds then asked the court to confirm the First Award in the amount of $121,800.30, executed by the Umpire and the insured’s appraiser as the binding appraisal award. The insurance company argued that the insureds’ motion should be denied because the First Award was preliminary or, if the award was final, it was timely modified by the Umpire.

The court looked at the underlying insurance policy which stated:

The appraisers will state separately the value of the residential property and the amount of loss. If they fail to agree, they will submit their difference to the umpire. A decision agreed to by any two will be binding.

(Emphasis in original.)

The court granted the insureds’ motion, finding that the Umpire did not have the authority to unilaterally change the award after it was signed by two parties. In its order, the court explained that the express terms of the policy stated that a “decision agreed by any two [appraisers] will be binding.” Here, the court continued, the evidence supported the conclusion that the Disputed Award was final and there was a decision agreed to by any two. The court ruled that once the First Award was forwarded and signed by Appraiser Thomas it “became binding by the express and unambiguous terms of the insurance policy.”

The court pointed out that no party had moved to correct or clarify the award and there was no basis for modifying it. The court said that although subsequent emails reflected the Umpire’s statement that the Disputed Award was not intended to be final, those later emails “had no effect” on the Disputed Award’s “earlier binding effect under the express terms of the policy.”

In this case, the disputed (first in time) award was final and enforceable based on the insurance policy language.
1 Guzman v. American Security Ins. Co., No 18-cv-61195 (S.D. Fla. March 27, 2019).

Can An Insurer Waive Its Right to Appraisal?

Iris Kuhn | Property Insurance Coverage Law Blog | March 23, 2019

The purpose of Section 627.7015, Florida Statutes titled “Alternative procedure for resolution of disputed property insurance claims” is to encourage insurance companies and policyholders to resolve their disagreements regarding disputed property insurance claims without the necessity of litigation or appraisal. The statute requires, in part:

(2) At the time a first-party claim within the scope of this section is filed by the policyholder, the insurer shall notify the policyholder of its right to participate in the mediation program under this section.1

The statute defines a “claim” as “any dispute between an insurer and a policyholder relating to a material issue of fact. . . .”2 and it places the burden on the insurance company to provide notice to a policyholder of his or her right to participate in the statutory mediation process. If an insurance company fails to follow the notice requirements mandated in subsection (2) of the statute, the policyholder is not required to participate in the appraisal process as a condition precedent to filing a breach of contract action against the insurance company for failure to pay benefits due and owing under the policy.3

Recently, Florida’s Third District Court of Appeal decided a case involving Section 627.7015.4 The appellate court reversed the trial court’s decision compelling appraisal of the insureds’ claim where a dispute had arisen, and the insurance company demanded appraisal before it provided written statutory notice to its policyholders of their right to mediate under Section 627.7015.

In October 2017, the policyholders placed their insurance carrier, First Protective Insurance Company d/b/a Frontline (“Frontline”), on notice of their claim for property damage resulting from Hurricane Irma. A disagreement arose between the parties over whether the insureds’ windows needed to be replaced or simply repaired. The policyholders argued that their window model was no longer manufactured, and the windows would require a complete replacement.

As the dispute continued, in November 2017, the policyholders requested that Frontline provide them with copies of photographs taken by Frontline’s adjuster as part of his report. Frontline provided the report but refused to produce the photographs, alleging they were protected by the work-product doctrine. The appellate court noted that Frontline’s invocation of the work product privilege was significant because it implied that Frontline anticipated litigation as early as November 2017.5

In December 2017, the policyholders threatened to file a complaint with the Florida Department of Financial Services. In response, Frontline produced a sample estimate, which left most of the insureds’ questions and concerns unanswered. The policyholders then informed Frontline of their intent to retain counsel.

It was not until several months later that Frontline sent a written demand to the policyholders invoking the appraisal process under the policy. In June 2018, after Frontline had invoked the appraisal process, it provided notice to its policyholders of their right to pursue mediation under section 627.7015. In July 2018, the policyholders filed suit and Frontline moved to compel appraisal. The trial court granted Frontline’s motion, and the policyholders appealed the trial court’s decision.

The Third District concluded that Frontline could not demand appraisal without first providing its policyholders with notice of their right to mediation under state law. The court reasoned:

[S]ection 627.7015 furthers the ’particular need for an informal, nonthreatening forum for helping parties. . . because most homeowner’s . . . residential insurance policies obligate [the] insureds to participate in a potentially expensive and time-consuming adversarial appraisal process prior to litigation.6

It further noted that,

Frontline’s actions are in derogation of the salutary purpose of section 627.7015, i.e., to expeditiously bring the parties together for a mediation without any of the trappings of an adversarial process.7

The court held that once a dispute has arisen, an insurance company cannot demand appraisal before providing the policyholder with notice of his or her right to participate in mediation. By doing so, an insurer waives its right to appraisal.

The waiver of appraisal is a complicated matter. Appraisal can be waived through many actions, and it varies from state to state. Never hesitate to contact a Merlin Law Group attorney with specific questions on this topic or others. Please make certain to use our search function if you have other questions about property insurance claims and policyholder rights.
1 §627.7015(2), Florida Statutes (Emphasis added).
2 §627.7015(9), Florida Statutes.
3 §627.7015(7), Florida Statutes.
4 Kennedy v. First Protective Ins. Co. d/b/a Frontline Insurance, No. 3D18-1993, 2019 WL 1051386 (Fla. 3rd DCA Mar. 6, 2019).
5 Id. at *1.
6 Id. at *2. See also Universal Prop. & Cas. Ins. Co. v. Colosimo, 61 So. 3rd 1241, 1242 (Fla. 3rd DCA 2011).
7 Id. at *2.

Is A Licensed Public Adjuster Disqualified To Act As An Appraiser For Somebody Other Than A Policyholder?

Chip Merlin | Property Insurance Coverage Law Blog | March 16, 2019

Public adjuster Stephanie Lee approached me at the Win The Storm conference with an intriguing question—could she be appointed by a contractor holding an Assignment of Claim as the contractor’s appraiser in an appraisal? My first thought, and I bet it is the same thought most reading this blog, was “why not?”

Most states only require a person to be of sound mind and body, not employed by either party or related by blood and without a direct financial interest in the outcome, to be an appraiser. There are many variants to this rule, usually involving bias, but this is the one relevant for this discussion.

Despite appraisals routinely occurring where a public adjuster is selected as an appraiser by a contractor who holds an Assignment of Claim, Stephanie Lee’s problems started when the insurance company complained to the Oklahoma Insurance Department. She received this letter:

The Oklahoma Insurance Department seems to miss the fact that Lee was not hired as a public adjuster, but as an appraiser. Appraisers to a property insurance appraisal do not need a license. They generally have to satisfy the rule stated earlier.

In response, Lee hired counsel who filed a petition for an administrative hearing to correct the mistaken letter Order. The Petition asked for the following relief:

Respondent demands a hearing by the Insurance Commissioner on the aggrieved matter at a time and place certain, that the Insurance Commissioner issue the Subpoena Duces Tecum and Ad Testificandums stated hearing, that the Respondent be afforded all rights under the Administrative Procedures Act, that the Insurance Commissioner issue a final agency order with findings of fact and conclusions of law, and that the Insurance Commissioner rescind the Letter and all actions taken by OID against the Respondent.

The Oklahoma Insurance Department refused to grant an administrative hearing. Lee filed a lawsuit in Oklahoma state court seeking relief from the enforcement letter. The lawsuit made the following very strong allegation:

The Oklahoma Insurance Department and insurance carriers are acting as coconspirators in denying the public legal rights, stalling claims, and preventing policy holders from getting even basic repairs done to their property.

In addition to the army of lawyers and adjusters in their ranks, insurance carriers now have the added firepower, intimidation, and police power of a state agency.

The coordinated attack is detrimental to public policy—especially those on a fixed income who do not have the power, money and political influence that insurance carriers have.

Glen Mulready is the Oklahoma insurance commissioner. His political ads say he is for Oklahomans. But, he lists his experience as one for insurers:

Glen Mulready is a long-time insurance professional and private sector businessman who has worked with businesses of all sizes. Mulready spent 13 of his 35 years of experience in the insurance industry working on the executive teams of Oklahoma’s two largest health insurance companies.

We will keep you informed of developments in this case. It will be interesting to see if this case is allowed to explore another revolving door of insurance company executives running a state insurance department and protecting insurers interests over policyholder interests.

Arbitration Is an Increasing Trend Found Within Property Insurance Policies, and Arbitration is Not Appraisal

Chip Merlin | Property Insurance Coverage Law Blog | January 15, 2019

The photograph above depicts the Merlin Law Group “War Room” during a week-long arbitration last week. Michael Duffy, Ian Dankelman, Eric Dickey, and Kelly Kubiak were the winning Merlin Law Group team obtaining a $3.1 million award on Saturday. What a way to start off the year!

Arbitration is not appraisal. We have had policyholders and inexperienced lawyers from other law firms bring cases to us asking us to fix their bad arbitration awards because they treated the requirement of an arbitration like an appraisal.

Arbitrations require attorneys. It is almost like an informal trial. Evidence is presented after swearing in witnesses. It almost feels as if the proceeding is in a trial court. The proceedings are adversarial, and policyholders deserve to have excellent trial attorneys make the presentation because it is a lot more legally technical than an appraisal where the attorney’s trial skills do not matter.

The point of this post is to alert policyholders and public adjusters to determine whether the property insurance contract contains an arbitration provision versus an appraisal provision. We are finding more arbitration clauses within property insurance policies—especially commercial policies issued by surplus lines insurance companies. If the property insurance policy contains an arbitration clause, the proceeding differs vastly from appraisal and the case must be prepared as if it were going to trial rather than an informal appraisal.

Appraisal: Competent, Disinterested and Impartial. Are appraisers and Umpires Ever Actually Any of the Three?

Michael Buonocore | Property Insurance Coverage Law Blog | January 14, 2019

Recently, I presented at the Professional Public Adjusters Association of New Jersey educational conference on the area of insurance appraisal to roughly 30 public adjusters. During my preparation, I reviewed current and past appraisal provisions contained within standard insurance policies. In my research, I found some very interesting differences contained within insurance policy appraisal provisions concerning three key terms: competent, disinterested and impartial.

In analyzing four insurance policies: the 165-line, State Farm, ISO with standard HO3, and NFIP, I found that each policy contained very different uses and omissions of competent, disinterested and impartial as it pertains to appraisers and umpires during the appraisal process. Below you will see a chart1 that outlines, for each of the four policies, whether an adjuster or umpire involved must be competent, disinterested, and/or impartial during the process.

It is amazing to see that the insurance companies are writing appraisal provisions where the umpire need not be competent, disinterested or impartial such as the ISO HO3 and NFIP. These glaring omissions within each policy open up a host of issues which eventually make their way to the courts. However, depending upon the jurisdiction, the courts may rule differently.

In New York, an umpire under a standard fire policy is to be both competent and disinterested. However, the courts have ruled that using an appraiser or umpire who has had prior dealings with the insurer is not on its face evidence of being an interested party. In New Jersey, an appraiser must be impartial and disinterested. The courts have held that an appraiser in New Jersey can have previous dealings with the hiring party but must not have a pecuniary interest in the outcome of the appraisal process. In Pennsylvania, however, a contingency fee of an appraiser does not render them more biased than if paid on a flat fee basis.

Altogether, you can see from the above posted chart and changing language of appraisal provisions within insurance policies that you must be careful when invoking appraisal. Always read the policy, define the scope of the appraisal and put everything in writing.
1 Tim Ryles, Appraisal Clause in Homeowners Policies, International Risk Management Institute (IRMI), October 2014.