The Continued Question Of Disinterested Appraisers For Florida Appraisals

William Collum and Michael Rainey | Butler Weihmuller Katz Craig

In most circumstances involving an insurer’s extension of coverage for a property loss, an appraisal provision in an insurance policy provides an insured and an insurer a mechanism by which to resolve disagreements regarding the amount owed for that loss. If invoked, each party appoints an appraiser, the individual to act as a representative of that party for the appraisal.

While most, if not all, policies require a “competent” appraiser, some policies also require appointment of a “disinterested” appraiser. If an insured appoints a public adjuster with whom the insured has a contingency fee agreement, can that contingent-fee public adjuster serve as a “disinterested” appraiser where that person’s fee is contingent on the outcome of the appraisal?

Until recently, the Florida Supreme Court was poised to hear and resolve this unsettled question upon which the Florida’s appellate courts have disagreed. However, with the Florida Supreme Court’s unanimous October 18, 2021 order discharging jurisdiction for review of State Farm Florida Insurance Company v. Sanders, 45 Fla. L. Weekly D870 (Fla. 3d DCA Apr. 15, 2020), the Court chose not to resolve this conflict.

Consequently, this “disinterested” appraiser issue remains unresolved for singular application statewide. This overview outlines the current postures of Florida’s appellate districts and their respective judicial circuits on this issue, addressing the Florida jurisdictions where a court: 1) will permit a contingent-fee public adjuster to serve as a “disinterested” appraiser, 2) should prohibit it under existing case law, and 3) might go either way on the issue.

Courts that prohibit financially-interested individuals from serving as “disinterested” appraisers

Three of Florida’s five appellate districts have expressed prohibitions in some form or another against parties with financial interests and/or fiduciary duties from serving as a “disinterested appraiser.” Those districts, their respective judicial circuits and counties, district-specific nuances, and relevant case law are as follows:

DCACircuits/CountiesRule & Case Law
2nd DCA6th Judicial Circuit❯ Pinellas❯ Pasco10th Judicial Circuit❯ Hardee❯ Highlands❯ Polk12th Judicial Circuit❯ Desoto❯ Manatee❯ Sarasota13th Judicial Circuit❯ Hillsborough20th Judicial Circuit❯ Charlotte❯ Collier❯ Glades❯ Hendry❯ LeeA public adjuster who has a contingency interest in an insured’s appraisal award or represents an insured in an appraisal process is not a “disinterested appraiser” under an insurance policy’s appraisal provision requiring parties to select “disinterested” appraisers. State Farm Fla. Ins. Co. v. Parrish, 312 So. 3d 145 (Fla. 2d DCA 2021)
4th DCA15th Judicial Circuit❯ Palm Beach17th Judicial Circuit❯ Broward19th Judicial Circuit❯ Indian River❯ Martin❯ Okeechobee❯ St. LucieA pubic adjuster who holds a contingency interest of an insured’s ultimate recovery, inspects the property and submits the claim to the insurance company, and who then names himself as the insured’s appraiser for the purposes of appraisal, cannot be “disinterested” and therefore cannot serve as the “disinterested appraiser” for the insured. State Farm Fla. Ins. Co. v. Valenti, 285 So. 3d 958 (Fla. 4th DCA 2019).Of note, the Valenti court stopped short of concluding that, as a matter of law, a contingency agreement in an insured’s recovery precludes a public adjuster from serving as a “disinterested appraiser.” Instead, the current precedent within the district establishes a more narrow approach in which the facts of the case, in addition to the existence of a contingency agreement, establish whether a public adjuster can serve as a “disinterested appraiser”.
5th DCA5th Judicial Circuit❯ Citrus❯ Hernando❯ Lake❯ Marion❯ Sumter7th Judicial Circuit❯ Flagler❯ Putnam❯ St. Johns❯ Volusia9th Judicial Circuit❯ Orange❯ Osceola18th Judicial Circuit❯ Brevard❯ SeminoleAttorneys may not serve as their clients’ “disinterested appraisers” for the purposes of appraisal. Fla. Ins. Guaranty Ass’n v. Hanse, 150 So. 3d 1272, 1273 (Fla. 5th DCA 2014); Fla. Ins. Guaranty Association v. Branco, 148 So. 3d 488 (Fla. 5th DCA 2014).If an appraiser is entitled to a percentage of the recovery from an insured’s claim, the appraiser cannot serve as the insured’s “disinterested appraiser”. State Farm Florida Insurance Company v. Crispin, 290 So.3d 150, 152 (Fla. 5th DCA 2020)

Courts that permit financially-interested individuals to serve as “disinterested” appraisers

At present, only one of Florida’s five appellate districts permits individuals with financial interests to serve as a “disinterested appraiser”:

DCACircuits/CountiesRule & Case Law
3rd DCA11th Judicial Circuit❯ Miami-Dade16th Judicial Circuit❯ MonroeDirect or indirect financial or personal interest in the outcome of an appraisal does not disqualify an individual from serving as a “disinterested appraiser.” If the appraiser’s interest is disclosed, it is acceptable for the appraiser to participate in the appraisal process. Brickell Harbour Condo. Ass’n, Inc. v. Hamilton Specialty Ins. Com., 256 So. 3d 245, 249 (Fla. 3d DCA 2018) (applying the court’s prior rulings in Rios v. Tri-State Ins. Co., 714 So.2d 547 (Fla. 3d DCA 1998) and Galvis v. Allstate Ins. Co., 721 So. 2d 421 (Fla. 3d DCA 1998)); State Farm Fla. Ins. Co. v. Sanders, 45 Fla. L. Weekly D870, 2020 WL 1870776 (Fla. 3d DCA Apr. 15, 2020), review granted, SC20-596, 2020 WL 5946343 (Fla. Oct. 7, 2020), and case dismissed, SC20-596, 2021 WL 4824155 (Fla. Oct. 18, 2021).The rule presently in effect in this district originates from the Third District’s opinion in Rios, which addressed whether policy language requiring an “independent” appraiser precluded an individual with a contingency interest in an appraisal outcome from serving as a party’s appraiser. The Third District, in looking to the dictionary definition of “independent”, held that the policy language only required that an appraiser be unaffiliated with the appointing party.With regard to the question of whether the type of compensation an appraiser receives (e.g., contingency interest) precludes a party from serving as an appraiser, the court determined that it did not, its rationale being the Code of Ethics for Arbitrators in Commercial Disputes, promulgated jointly by the American Arbitration Association and American Bar Association, in effect at the time. This “Code of Ethics” at the time required that any direct or indirect financial or personal interest in the outcome of the [appraisal] be disclosed. The court further reasoned that any partiality on the part of any party appraisers could be offset by “a competent, impartial umpire” appointed by the party-designated appraisers.The Code Ethics has been revised since the Third District’s Rios and Galvis decisions. The revised version, effective March 1, 2004, adopted by the American Arbitration Association and the American Bar Association, establishes a presumption of neutrality and impartiality for all [appraisers], including party-appointed [appraisers]. This revision was highlighted by the Fifth District, using it as a basis for its opinion in Branco, which in turn helped shaped the Second and Fourth District’s holdings.The Third District recognized its decisions in Rios and Gavis have been undermined by the revision of the Code of Ethics combined with decisions by Florida’s other appellate districts. However, the Third District in Sanders reasoned that, until the issue of disinterested appraisers comes before the Third DCA on appeal of a final judgment, rather than through a petition for writ of certiorari (which is reviewed differently by an appellate court), the decisions of Rios and Gavis will remain the controlling law within the Third District and its judicial circuits. This commentary in Sanders, however, provides an argument that, on an appeal of a final judgment, the Third District may end up receding from its prior decisions and joining the weight of authority holding that a financially-interested individual cannot serve as a “disinterested” appraiser.

Courts that have not directly resolved whether financially-interested individuals may serve as “disinterested” appraisers

Currently, only the First District has not resolved by written opinion whether an individual with a financial interest in an insured’s recovery may serve as a “disinterested appraiser” for the appraisal. The First District, stretched across the Florida panhandle, contains the following judicial circuits and counties: 

Given the prohibitions in effect in the Second, Fourth, and Fifth Districts and the recent recognition by the Third District that its prior decisions and reasoning has been undermined, courts within the First District may agree that a financially-interested individual cannot serve as an insured’s “disinterested” appraiser.

Tenth Circuit Rules Against Insurer and Decides That Appraisers Can Decide Causation

Karl Schulz | Cozen O’Connor

In the continuing saga of what can and cannot be appraised in a property insurance appraisal, the Tenth Circuit, in contrast to many other courts, has ruled appraisers can determine coverage issues.

In Bonbeck Parker, LLC v. Travelers Indem. Co. of Am., 2021 U.S. App. LEXIS 29607 (10th Cir. October 1, 2021), a hailstorm damaged three buildings covered under a commercial property insurance policy.  A dispute between the insured and insurer arose over whether the hailstorm caused all of the damage claimed.  The insurer paid some of the claimed damage, but denied coverage for other claimed damage, asserting that it was caused by non-covered causes such as wear and tear.  The insured invoked appraisal. 

The insurer asserted that it would only participate in appraisal under certain conditions.  The insurer wanted to limit the appraisal only to undisputed hail damages.  Thus, the appraisal panel would be limited to deciding how much repairs would cost but not what caused the roofs to require repairs in the first place.  The insured objected. 

The insurer filed a declaratory judgment action.  On summary judgment, the district court sided with the insured and agreed that the appraisal clause allows appraiser to determine causation.  The parties had other disputes, but this blog entry focuses on the causation issue within appraisal.

The Tenth Circuit made an “Erie Guess” as to how the Colorado Supreme Court would rule on the issue.  The district court and Tenth Circuit focused on the appraisal clause’s statement that, if there is a disagreement as to the “amount of loss,” either party can demand appraisal of the loss.  The Tenth Circuit observed that “amount of loss” was not defined in the policy and consulted dictionary definitions.  The Tenth Circuit cited various definitions of “loss,” such as “the amount of an insured’s financial detriment by… damage that the insurer is liable for.”  The Tenth Circuit concluded that all of the definitions included a causation component.  Further, the Tenth Circuit surveyed case law from Minnesota, Iowa, and Delaware.  Perhaps the most emphatic citation was from an Iowa intermediate appellate court that held: “causation is an integral part of the definition of loss, without consideration of which appraisers cannot perform their assigned function.”

The Tenth Circuit rejected various arguments by the insurer.  For example, the insurer noted that the appraisal clause gives the insurer the right to deny coverage even after the appraisal is complete.  The insurer argued that denial could be based on any ground available in the policy, including that the damage resulted from an excluded cause of loss.  The insurer argued that the court could not give effect to the plain meaning of the sentence if the appraisal panel determines causation. 

The Tenth Circuit reasoned that the insurer’s argument could not be reconciled with the plain meaning of “amount of loss.”  The Tenth Circuit opined that “amount of loss” explained subjects on which the parties may request appraisal, while the “right to deny” concerns the insurer’s options after an appraisal on one of those subjects. 

Also for example, the Tenth Circuit rejected an argument by the insurer that the term “appraiser” reflected an intent to limit that person to making monetary determinations, thus precluding causation determinations.  The Tenth Circuit opined that determining the value of something includes a causation element because that “something” is the “amount of loss.”     

In conclusion, the Tenth Circuit cited the leading case from the Texas Supreme Court, State Farm Lloyds v. Johnson, 290 S.W.3d 886, 892 (Tex. 2009):

As the Texas Supreme Court observed, that kind of causation issue arises “in every case,” and if “appraisers can never allocate damages between covered and excluded perils, then [they] can never assess hail damage unless a roof is brand new.” Id. at 892-93. Such a result “would render appraisal clauses largely inoperative, a construction we must avoid.” Id. at 893. Other district-court decisions have recognized as much, and we find their reasoning persuasive. See, e.g., Auto-Owners Ins. Co. v. Summit Park Townhome Ass’n, 100 F. Supp. 3d 1099, 1103 (D. Colo. 2015).

Notably, the Texas Supreme Court in Johnson also opined as follows in what has become an oft-cited headnote:

Indeed, appraisers must always consider causation, at least as an initial matter. An appraisal is for damages caused by a specific occurrence, not every repair a home might need. When asked to assess hail damage, appraisers look only at damage caused by hail; they do not consider leaky faucets or remodeling the kitchen. When asked to assess damage from a fender-bender, they include dents caused by the collision but not by something else. Any appraisal necessarily includes some causation element, because setting the “amount of loss” requires appraisers to decide between damages for which coverage is claimed from damages caused by everything else.

This of course does not mean appraisers can rewrite the policy. No matter what the appraisers say, State Farm does not have to pay for repairs due to wear and tear or any other excluded peril because those perils are excluded.

Johnson, 290 S.W.3d at 893. 

In a footnote, the Tenth Circuit cited authorities from the Supreme Courts of Alabama and Mississippi holding that appraisers cannot resolve causation issues.  The Tenth Circuit did not get into the rationales of those other courts, but stated that its decision was based on a conclusion of how the Colorado Supreme Court would resolve the issues.

The Tenth Circuit held that the district court properly granted summary judgment for the insured on its claim that the insurer breached the policy when it refused to allow the appraisal to proceed. 

Under Bonbeck, although appraisers may consider causation, the insurer was not wrong to be concerned that the appraisal process would be abused to sweep everything that was wrong with the insured’s buildings into the appraisal, resulting in an award that the insurer would be pressured to pay in full regardless of coverage.  It will be interesting to see how Bonbeck is applied and if a Colorado state court adopts the reasoning and its holding. 

Appraisal Appropriate Despite Pending Coverage Issues

Tred R. Eyerly | Insurance Law Hawaii

    The court granted the insured’s motion for partial summary judgment, allowing an appraisal to go forward even with outstanding coverage issues in dispute. DC Plastic Products Corp. v. Westchester Surplus Lines Ins. Co., 2021 U,.S. Dist. LEXIS 95908 (D. N.J. May 19, 2021). 

    DC Plastic’s property was damaged by Superstorm Sandy in October 2012. Claims submitted to Westchester resulted in a payment of $951,102.89 to DC Plastic. The parties disagreed on whether further payments were due. In 2017, DC Plastic sued Westchester for additional payments. DC Plastic moved to compel an appraisal for its claims, requesting that the court appoint an umpire for the appraisal process. Westchester cross-moved to dismiss the case in its entirety. 

    DC Plastic’s complaint asked that the court appoint an umpire. The policy stated if the parties could not agree on the amount of loss, each party would select an appraiser, who would then agree upon an umpire. If they could not agree, either party could request the court to appoint the umpire. Therefore, the court was authorised to select the umpire here.

    Nevertheless, Westchester argued that the court should not yet appoint an umpire because there were still outstanding coverage issues. But Westchester did not point to anything in either the case law or the policy that stated that coverage issues must be handled before the appraisal process. New Jersey law simply made it clear that appraisers could not make legal determinations and could only determine a disputed amount of loss, not a party’s liability. Appointing an umpire would not prevent Westchester from contesting liability later on to all or part of DC Plastic’s claims. Therefore, the court directed the parties to proceed with the appraisal process as set forth in the policy. Westchester’s motion was denied. 

Policyholder Permitted to Videotape Appraisal

Maria Louise (Ria) Cousineau | Property Insurance Law Observer

In Silversmith v State Farm Insurance Company, 2021 W.L. 2910240 (Fla. 4th DCA July 7, 2021), Florida’s Fourth District Court of Appeal ruled that policyholders may openly videotape an inspection by the insurance company appraiser, despite the state’s “two-party consent law.” The court held that an appraiser has “no legitimate expectation of privacy while in the insured’s home for the inspection.” Silversmith v State Farm, 2021 WL 291040, p.1. 

The facts revealed that the insurer invoked the appraisal clause on a property loss, and the policyholder sought to videotape the appraisal. The insurer’s appraiser objected on privacy grounds.  The policyholder filed an action seeking permission to videotape the appraisal of her home, and the trial court refused.  Relying on Section 934.03 Florida Statutes 2020 (the two-party consent rule), the trial court denied the request, ruling, “no one may audio/video record the inspection unless all participants consent.” Id.

On appeal, the Fourth District Court of Appeal reversed the trial court and held (1) “nothing in the policy precluded [the videotaping] of an appraisal inspection,” and (2) the insurer’s appraiser “has no legitimate expectation of privacy while in the insured’s home for the inspection.”  The appellate Court reversed the trial court order and remanded the case for further proceedings.

Does this mean an insurer can videotape the inspection conducted by the insured’s appraiser?  Not on the plain language of this decision. The court decided this case on a legitimate expectation of privacy in the insured’s home.  The court found the insurance company’s appraiser did not have one; the question remains whether a court will hold the insured’s own appraiser to this same privacy standard.    So, based on this case, an insured in Florida has the right to videotape the insurer’s appraiser during an inspection of the insured’s home.

Appraisal Provision Enforced

Burns White

In a dispute involving the appraisal provision of a residential insurance policy, the Eastern District of Pennsylvania granted an insurer’s motion to dismiss a breach of contract claim after finding that the insured’s claim was a dispute over the value of the loss, not a coverage dispute, and that the claim must proceed with the appraisal process set forth in the policy.  The Court additionally stayed the insured’s bad faith claim pending the completion of the appraisal process.  See Bussie v. American Security Ins. Co., 2021 WL 2206282 (E.D. Pa. Jun. 1, 2021).

In Bussie, the insured filed a claim with her insurer after her home was damaged in a fire.  The insured’s public adjuster inspected the premises and estimated damages to be $328,573.68.  The insurer retained its own adjusting firm, which initially assessed the damages to be $317,826.07 for the same areas to the home covered by the insured’s adjuster.  After a series of revisions, the insurer’s adjusting firm ultimately reduced the estimated the damages to be $74,261.96, and the insurer issued a check payable to the insureds for this amount less the deductible and a deduction for depreciation.

Recognizing that there was a dispute as to the amount of the insured’s loss, the insurer sent a letter to the insured’s public adjuster to invoke its right to an appraisal as outlined in an Appraisal Provision of the insured’s residential insurance Policy.  Per the Appraisal Provision, either party may demand an appraisal of the loss when there is a disagreement on the amount of the loss.  The insurance policy further provides that no action can be brought unless the policy provisions, including the Appraisal Provision have been complied with.  The insured did not identify an appraiser as required by the Appraisal Policy and instead initiated suit against her insurer and the insurance adjusting company.  The insured asserted claims against the insurer for breach of contract and statutory bad faith, among other claims.  The insurer moved to dismiss all claims.

The insurer argued that the breach of contract claim should be dismissed because it invoked its right to appraisal under the Policy’s Appraisal Provision and, pursuant to the terms of the Policy, the insured is required to engage in the appraisal process prior to commencing suit.  The insured argued that the appraisal process is neither mandatory nor appropriate because her Complaint alleges a coverage dispute, as evidenced by the insurer’s rejection of certain line items of damages and refusal to pay the majority of the claimed loss.  In rejecting the insured’s argument that there is a coverage dispute, the Court recognized that two adjusters preparing appraisals for a fire loss may disagree as to the scope of damage caused by the fire, and that this does not suggest that coverage is in dispute.  Accordingly, the Court dismissed the breach of contract claim, noting that the insured must proceed with the appraisal process.

In support of dismissal of the bad faith claim, the insurer argued the Complaint fails to allege the necessary elements of a bad faith claim because it fails to allege facts that support an inference that the insurer either denied the insured’s claim or acted knowingly or recklessly in doing so.  The Court, however, disagreed with the insurer’s characterization of the bad faith claim and found that the insured’s bad faith claim was grounded largely on allegations that the insurer worked together with the insurance adjusting firm to reduce the loss estimate prepared by the field adjuster.  Consequently, the Court stayed the bad faith claim pending completion of the appraisal process.