The document summarizes strategies for managing the property insurance appraisal process. It discusses when appraisal is appropriate, how to respond to premature demands, potential issues with unreasonable delays, and tips for selecting competent and impartial appraisers and umpires. The document also addresses managing the scope of appraisal to separate coverage issues from determining the amount of loss, and how appraisers can handle questions of causation and concurrent causes depending on the policy language and applicable law.

1. PLRB 2015 REGIONAL
ADJUSTERS CONFERENCE –
CENTRAL REGION
Mlesna, Istockphoto.com

2. Mlesna, Istockphoto.com

3. APPRAISAL
STRATEGIES FOR
PROPERTY
CLAIMS
MARCOS G. CANCIO, ESQ.
SEDGWICK LLP
MARCOS.CANCIO@SEDGWICKLAW.COM
DAVID HAUSCH, AIC
HAUSCH & COMPANY
DHAUSCH@HAUSCHCO.COM

4. Session Learning Objectives
• Analyze claim strategies to respond to appraisal
requests in a variety of first party losses.
• Separate issues to appraise and issues to resolve by
other means.
• Manage the appraisal process to achieve effective
outcomes.
• Identify options to respond to poor appraisal results.

5. WHY go to Appraisal?
Kevin Hromas, Kevin Hromas and Associates … A Division of US Insurance Information LLC

6. Overview of Appraisal Provisions
• The Standard Fire Insurance Policy of the State of New
York, commonly “the 165 lines,” has served as the
foundation.
• Commercial property insurance.
• Homeowner’s property insurance.

7. Overview of Appraisal Provisions
2. Appraisal
If we and you disagree on the values of the property or the amount of 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:
a. Pay its chosen appraiser; and
b. 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.
ISO CP 00 99 06 07

8. Overview of Appraisal Provisions
F. Appraisal
If you and we fail to agree on the value or amount of any item or loss, either may demand an
appraisal of such item or loss. In this event, each party will choose a competent and
disinterested appraiser within 20 days after receiving a written request from the other. The two
appraisers will choose a competent and impartial umpire. If they cannot agree upon an umpire
within 15 days, you or we may request that a choice be made by a judge of a court of record in
the state where the "residence premises" is located. The appraisers will separately set the
amount of loss. If the appraisers submit a written report of an agreement to us, the amount
agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to
the umpire. A decision agreed to by any two will set the amount of loss. Each party will:
1. Pay its own appraiser; and
2. Bear the other expenses of the appraisal and umpire equally.
In no event will an appraisal be used for the purpose of interpreting any policy provision,
determining causation or determining whether any item or loss is covered under this policy.
If there is an appraisal, we still retain the right to deny the claim.
ISO HO-3 2011

9. Demanding/Responding to Appraisal
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10. Demanding/Responding to Appraisal
1. What claims are appropriate for appraisal?
– When there is a dispute between the insurer and the
policyholder over the amount of loss.
– Focus on damages!
– Not liability for the loss - that’s for the court.
– All claim types: hail, hurricane, fire, BI.
– Coverage issues? No (more later).

11. Demanding/Responding to Appraisal
2. When is a demand premature?
– If parties have not reached “impasse”.
– Impasse: when neither party is willing to compromise
any further on an issue.

12. TEXAS
In re Universal Underwriters of Texas
Ins. Co., 345 S.W.3d 404 (Tex. 2011)
• The apparent break-down of good faith negotiations.
• “An impasse is not the same as a disagreement about the amount of
loss. Ongoing negotiations, even when the parties disagree, do not
trigger a party’s obligation to demand appraisal.”
• “Both parties must be aware that further negotiations would be futile
or would be of no effect if performed.”

13. Demanding/Responding to Appraisal
3. Strategies for responding to a premature demand:
Can and should the insurer object?
– Yes! An insurer is entitled to object to an appraisal demand it considers
premature.
– Send the insured written notice of the objection.
– Endeavor to renew negotiations with the insured.
– Educate the insured on the potential cost of an appraisal.

14. Demanding/Responding to Appraisal
4. Unreasonable delay to appraisal and has the right
to the appraisal been waived?
– Delay normally measured from the point of “impasse.”
– Time limits for appraisal generally upheld.
– If silent, a “reasonable period of time.”
– What constitutes an “unreasonable” delay?

15. IOWA
Terra Indus., Inc. v. Comm. Ins. Co. of America,
981 F.Supp. 581 (N.D. Iowa 1997)
• Despite two and half years of negotiations and “evident dispute,” the
insurer had “no notice that an impasse had been reached because
only the filing of [the insured’s] suit demonstrated [the insured’s]
unilateral conclusion that the parties were at an impasse.”
• Appraisal demand made within reasonable time.
• No waiver.

16. ILLINOIS
Lyon v. Am. Family Mut. Ins. Co., 617 F. Supp.
2d 754, 758-59 (N.D. Ill.), vacated in part,
644 F. Supp. 2d 1071 (N.D. Ill. 2009), supp.,
2009 WL 2421576
• More than a year passed between the time of loss and insurer’s motion seeking to compel
appraisal.
• “For months [the insurer] attempted to move negotiations forward and engage [the
insured] and her counsel in productive discussions about the dispute, but [the insured’s]
counsel continually responded that they had not had time to review the case file
adequately.
Finally [the insured’s] counsel promised to respond to American Family's inquiries by
the end of 2008. [The insured] did respond all right—but she did so by filing suit on
December 23, fully eleven months after the loss event.”
• Insurer demanded appraisal within “reasonable time” and no waiver.

17. INDIANA
Monroe Guar. Ins. Co. v. Backstage, Inc.,
537 N.E.2d 528 (Ind. Ct. App. 3d Dist. 1989)
• A party waives the right to demand appraisal if (1) impasse and (2) prejudice from delay.
• “Impasse” shown by some evidence, including adjuster’s letter: “As you are aware, we are
currently somewhat at an impasse. On the one hand, your public adjuster is unwilling to
concede that the operation of the coinsurance clause would, in effect, provide that you are
self-insured for approximately 23.95% of this partial loss.”
• No evidence of prejudice from delay shown when insurer recognized loss and paid
undisputed portion with co-insurance deduction.
• No waiver.

18. Practice Tips
1. Before demanding appraisal, obtain all of the insured’s repair
estimates, documentation of loss, etc. so there are no
document production issues.
2. If negotiations over the amount of loss have broken down, the
insurer should undertake a prompt review of whether an
appraisal is warranted.
3. An insurer should promptly respond, in writing, to any demand
for appraisal setting forth its agreement to appraisal or the
bases for rejection of the appraisal demand.
4. The insurer may have an affirmative obligation to inform the
insured of the existence of any time limitations for demanding
appraisal.

19. Steps to Ensure a Successful Appraisal
Vinnstock, Istockphoto.com

20. Steps to Ensure a Successful Appraisal
• Selection of competent,
experienced, and impartial
appraisers.
• Preventing claims of bias.
• What does the applicable
law and appraisal clause
require?
Jake Hellbach,
DollarPhotoClub.com

21. Steps to Ensure a Successful Appraisal
How select appraiser? Ask around…
• Consultants
• Contractors
• Engineering firms
• Lawyers
• State appraisal groups

22. Steps to Ensure a Successful Appraisal
• Appraisals are creatures of contract.
• Subject or scope of appraisal depends on the contract
provisions.
• Parties can contract for the qualifications of the
appraisers and the preferred ADR.
• Most appraisal provisions require a “competent and
disinterested” appraiser.
– But what constitutes “disinterested” or “impartial”?
– Varies from jurisdiction to jurisdiction…

23. INDIANA
Shree Hari Hotels v. Society Ins. Co.,
2013 WL 4777212 (S.D. Ind. 2013)
• An appraiser paid on a contingency fee basis has
a financial interest in the outcome of the appraisal.
• (Like PA’s who are often paid on contingency).
• Thus, is not impartial.

24. IOWA
Central Life Ins. Co. v. Aetna Cas. & Sur. Co.,
466 N.W.2d 257 (Iowa 1991)
• A contingent fee arrangement for an appraiser is not proper.
• The appraisal agreement requires one of the appraisers and the umpire to jointly
arrive at a decision. This places the appraiser in the position of decision-maker;
thus, the function of the appraiser becomes quasi-judicial. An inherent
qualification for a quasi-judicial decision-maker is disinterest in the result.
• The omission of the word “disinterested” in describing “appraiser” in the
appraisal agreement does not eliminate the requirement.
• A disinterested person is defined as one without a pecuniary interest.

25. MISSOURI
Harris v. Am. Modern Home Ins. Co., 571 F.
Supp.2d 1066, 1078 (E.D. Mo. 2008)
• “While an appraiser may receive a flat or hourly fee, he may not
receive a contingent fee; the appraiser’s fee may not be based on
a percentage of the settled loss....”
• “When an appraiser is paid through a contingent fee arrangement,
the appraiser receives a direct financial interest in the dispute and
becomes an interested party”.

26. LOUISIANA
Prien Properties, LLC v. Allstate Ins. Co.,
2008 WL 1733591 (W.D.La. 2008)
• An appraiser may be disinterested, even if the appraiser
was also that party’s adjuster in the same matter…
• So long as there is no evidence in the record to indicate
improper motives.

27. MICHIGAN
White v. State Farm Fire & Cas. Co.,
809 N.W.2d 637 (Mich. App. 2011)
• Public adjuster with a contingency fee agreement was
“independent”.
• Could participate as an appraiser for the insured.

28. TEXAS
MLCSV10 v. Stateside Enterprises, Inc.,
866 F. Supp. 2d 691 (S.D. Tex. 2012)
Undisclosed business referral relationship between
companies that employed appraisal umpire and insurer’s
appraiser, without more, did not render umpire and insurer’s
appraiser partial or create an appearance of partiality, as
would provide sufficient basis for disregarding appraisal
award.

29. MINNESOTA
McQuaid Market House Co. v. Home Ins. Co.,
180 N.W. 97 (Minn. 1920)
“That appraisers chosen in such cases have frequently acted in other insurance
disputes is no disqualification, nor evidence of bias or prejudice. It is a matter of
common experience that both parties in controversies of the kind prefer and in fact
chose appraisers with known fitness for the particular class of service. Nor is it a
disqualification that the person chosen as umpire happens to be an attorney at law,
and had previously been employed by the adjuster representing the insured.
To disqualify either there must be shown some act or acts of misconduct prejudicial
to the interests of the party complaining.”

30. The “Competency” Requirement
Ivelin Radkov, DollarPhotoClub.com

31. The “Competency” Requirement
American Union Ins. Co. v. Stull Bros. Co.¸ 7 A.2d 866 (N.J. 1939).
• Many courts equate “competent” with “disinterested.”
• “An appraiser need not rely solely on his own knowledge
of values, but may act upon information obtained from
others in an informal way.”
• “A competent appraiser is one who in this manner is able
to measure the loss with accuracy. He need not be an
expert, in the sense that his testimony on values would
be received in a court of law.”

32. The “Competency” Requirement
American Central Ins. Co. v. District Court, 147 N.W. 242 (Minn. 1914).
• Court rejected the insurer's contention that an expert on the type of property
damage was the primary consideration and affirmed the appointment of the
attorney to the panel.
• “The duties imposed upon the appraisers do not necessarily require them to
be experts, and the contract contains no such requirement, unless it be
inferred from the term ‘competent.’ In the absence of anything indicating a
different intention, this term should be given the same meaning usually
given to it when applied to arbitrators.”
• “It is undoubtedly desirable that those making an appraisal be familiar with
the matters and things which they are called upon to appraise; but, unless
so stipulated in the contract, it has never been held, so far as we are aware,
that experts only are competent as such arbitrators or appraisers.”

33. The “Competency” Requirement
• Significant experience with adjusting losses can satisfy
the competency requirement.
• But, can I object on competency?
– Yes, but the objecting party generally bears burden.
– Any challenge to an appraiser or umpire should be made at
the time of designation or appointment. Equity Mut. Ins. Co. v.
Campbell, 886 S.W.2d 221 (Mo. App. 1994)

34. The “Competency” Requirement
• Selecting “neutral” umpire:
– Party-appointed appraisers generally are to agree on a
neutral umpire.
– If no agreement, a party may ask the court to appoint ... but
beware of race to courthouse!
• Umpires in some states are subject to strict, mandatory
disclosure requirements:
– Prior or pending cases served as a party or neutral arbitrator involving
any party or one of the lawyers.
– All matters that could cause a person to reasonably entertain doubt that
neutral would be impartial.

35. Practice Tips
1. Appraisers and umpires should be vetted to ensure they are
competent and disinterested, and, as necessary, have subject
matter expertise.
2. Lookout for substantial business relationships, and insist on
compliance with all applicable disclosure requirements at the
outset of the appraisal process. Most policies require the
selection of an umpire prior to a determination by the appraisers
that they are unable to agree on the amount of loss, so the
identity of the umpire should be known.
3. The time to attack the credentials of an umpire is at the time of
the appointment. Similarly, any challenge to an appraiser
should be made at the time of designation.

36. Managing the Appraisal Process
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37. “Managing” the Appraisal Process
Scope of Appraisal:
• Amount of Loss
– Panel’s power is generally limited to determining
amount of loss.
• Bifurcating Coverage Issues From Damage Issues.
– What is a “coverage issue”?
– Pre-existing damage, uncovered causes of loss,
multiple events causing damage, etc.

38. Managing the Appraisal Process
Causation:
• Is an issue for the court when coverage is disputed, but an issue for the
appraisers when coverage has been admitted.
• In some jurisdictions, appraisers are permitted to segregate pre-existing
damage from damage caused by the harmful event.
• Causation is a matter for the courts, not an appraiser, when the Policy does
not allow for the appraiser to address causation. Spearman Industries Inc. v.
St. Paul Fire and Marine Ins. Co., 109 F.Supp.2d 905 (N.D. Ill. 2000).
• Court should not restrict the method by which the appraisers and umpire
value property and loss where the policy does not authorize and the parties
did not agree. Hull v. Motorists Ins. Grp., 2011-Ohio-2502.

39. Managing the Appraisal Process
Concurrent Causes:
• Court must decide causation when there is an indivisible injury with
several possible causes.
• However, when different types of damages occur to different items of
property, appraisers may decide the cost to repair each without deciding
who must pay for it. State Farm Lloyds v. Johnson, 290 S.W.3d 886,
894 (Tex. 2009).
• In Texas, the insured bears the burden of proving what portion of the
damages were caused by a covered cause of loss. See Farmers Group
Ins., Inc. v. Poteet, 434 S.W.3d 316 (Tex.App. 2014, rev. denied).

40. Managing the Appraisal Process
Timing Issues:
• Courts generally have some discretion.
• Stay of Litigation While Appraisal Proceeds
– Litigation does not need to be stayed while the appraisal
moves forward. In re Universal Underwriters of Tex. Ins. Co.,
345 S.W.3d 404, 413 (Tex. 2011).
– But courts often choose to stay litigation pending conclusion
of appraisal process.

41. Managing the Appraisal Process
Procedure:
• Basic rules of procedure usually established by policy
– But court can establish guidelines. Dufrene v. Certain
Interested Underwriters, 91 So.3d 397 (La.App. 5 Cir. 2012).
• Access to Property
– Policy provisions requiring access to property remain in force
during appraisal process.
– Denial of access can be used to refute later allegations of bad
faith or inadequate investigation.

42. Managing the Appraisal Process
Procedure:
• Hearing with Umpire
– Rarely required, but often held.
• Form of Award
– Insurer may request that the award be
issued on a specific form.

43. Managing the Appraisal Process
• Strategies for preventing a “split the estimates” award:
– Key is to appoint a competent, unbiased umpire.
– Insurers can consider changing policy wording to delay selection of umpire until the
appraisers are at an impasse.
• Insured’s Cooperation
– Insured’s failure to cooperate during appraisal may relieve insurer of liability. Employers Mut.
Cas. Co. v. Skoutaris, 453 F.3d 915 (7th Cir. 2006); Three Palms Pointe, Inc. v. State Farm
Fire & Cas. Co., 362 F.3d 1317, 1319 (11th Cir. 2004) (recognizing that failure to cooperate
can serve as basis for challenging appraisal award).
• Costs
– Each party generally bears costs of own appraiser and split umpire’s fees.
– Usually less than litigation.

44. Managing the Appraisal Process
Rights & Duties Upon Entry of Appraisal Award
• If coverage has been admitted, time is of the essence: some
policies contain deadlines for payment for covered damage as
soon as a few business days after entry of the award. See
Church on the Rock North v. Church Mut. Ins. Co., 2013 WL
497879, *8 (N.D. Tex. 2013).
• If coverage is disputed, the award will not affect insurer’s right to
deny the uncovered portions of the claim.
• Both parties retain the right to challenge the validity or seek
modification of the award in court. Franco v. Slavonic Mut. Fire
Ins. Ass’n, 154 S.W.3d 777, 785 (Tex.App.- Houston [14 Dist.]
2004, no pet.).

45. Managing the Appraisal Process
Effect of Appraisal On Bad Faith Claims:
It depends…
– The timely payment of a valid appraisal award will eliminate
claims for breach of contract and bad faith. See United
Neurology, P.A. v. Hartford Lloyd’s Ins. Co., 2015 WL
1470296 (S.D. Tex. 2015).
– No bad faith without evidence of malice or fraud. Jenkins v.
State Farm Mut. Auto. Ins. Co., 2013-Ohio-1142, ¶ 47.
– Submission of the claim to appraisal and the subsequent
payment, without more, are insufficient to defeat a claim
under section 155. McGee v. State Farm Fire & Cas. Co., 315
Ill. App. 3d 673, 686 (2000).

46. What Can You Do With A Poor
Appraisal Award?
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47. What Can You Do With a Poor Appraisal
Award?
• Presumptively valid.
• Reasons for vacating an appraisal award:
– An award will be sustained unless: (1) it was made by the
appraisers and/or the umpire without authority; (2) it was the
result of fraud, accident, or mistake; or (3) the award did not
comply with the terms of the contract, which are “in the
nature of affirmative defenses.”
– The burden of proof is on the party challenging the award.

48. What Can You Do With a Poor Appraisal
Award?
• No authority for award.
– Wells v. American States Preferred Ins. Co.,
919 S.W.2d 679 (Tex.App.—Dallas 1996, writ denied).
• Award did not comply with terms of policy.
– American Storage Centers v. Safeco Ins. Co. of Am.,
651 F. Supp. 2d 718 (N.D. Ohio 2009).
• Fraud, accident or mistake.
– Dufrene v. Certain Underwriters at Lloyd's,
91 So. 3d 397, 403 (La. Ct. App. 2012).

49. Practice Tips
1. Consider wording changes to address.
2. Unilateral appointments.
3. Itemization of how the panel reaches its decision.
4. Disclosure of all business relationships.
Momius, DollarPhotoClub.com

50. Q & A
MARCOS.CANCIO@SEDGWICKLAW.COM
DHAUSCH@HAUSCHCO.COM