Procor President, Arnie Mascali, provides clarity for those choosing the panel in a first-party property and business interruption appraisal.
Arnie Mascali is the President and Founder of Procor Solutions + Consulting. He is an attorney and risk management professional with more than thirty years of experience in all aspects of property and casualty insurance law and claims. He began his career in 1991 as an insurance trial attorney in New York and New Jersey and quickly developed a reputation as a leading insurance expert across the country.
Insurance industry professionals often tout the ability of claimants and insurers to resolve first-party property claims without litigation. And for the vast majority of claims, this is accurate. When insurance professionals and policyholders work collaboratively to follow the mandates of the policy, namely, to identify scopes of loss and damage, and investigate business income losses candidly, claims can be adjusted and settled. If, however, a dispute does arise concerning the value of that damage, or the extent of income loss, the property policy requires, upon the demand of one party, the carrier and policyholder resolve that valuation dispute in “appraisal.” Given that an appraisal process is binding, this article addresses the single most important decision a party can make in appraisal – whom to select to value the loss and damage related to the event. Ask any lawyer what the most important part of a trial is; the response will be “jury selection.” In appraisal, with no right of appeal, it is not hyperbole to suggest that appraiser and umpire choices matter as much as the underlying facts.
Appraisal provisions normally permit each party to appoint an appraiser of their choosing, who generally needs only to be “competent” and “disinterested.” Finding an industry expert that meets that low bar should not be too difficult. For the most part, the appraiser’s competence and interest go unchallenged – each party should be able to appoint whomever they want. Policyholders are generally somewhat at a disadvantage in finding a good appraiser; insurance companies have much more experience, of course, at handling claims and have a wide selection of industry professionals from which to choose. Policyholders should seek input from those within the insurance community they trust, perhaps their insurance broker or agent, attorney, or property management team, and meet with potential appraisers to gauge their ability.
- For an effective appraiser, a party ought to consider their:
- Demonstrated ability to analyze data, facts, and the various components of the claim;
- Resources within their firm to provide technical assistance, technology platforms, and administrative support;
- Experience with similar claims or issues;
- Comprehensive understanding of the appraisal process, and their experience in acting as a party-appointed appraiser; if a candidate cannot tell you the likely path the appraisal will follow, that may be a sign of inexperience in this venue; and finally,
- Ability to translate complex concepts into an easily understood narrative.
This last point warrants elaboration. Too often, appraisers solely rely upon industry experts such as building consultants, engineers, code experts, industrial hygienists, and others to support the evaluation. Simply submitting a cadre of experts and their sophisticated reports to an Umpire and expect that person to dissect it and fully appreciate the nuances of the various positions rarely proves effective. Imagine the result if that same trial lawyer mentioned earlier presented engineering concepts to a jury without explanation. The most effective appraisers can break down concepts into fundamentals that an ordinary person (Umpire!) can understand and apply to the given circumstances. In choosing an appraiser, parties should evaluate their written and oratory skills to ensure they can explain their findings in the context of the loss, and then persuade a neutral Umpire to follow those findings.
A careful reader might have noticed it is not suggested that “advocacy” is among the requisite skills needed for an appraiser to be effective. That is by design; a good appraiser must always remain unbiased, disinterested, and open-minded, and provide an independent assessment of the value of loss and damage. That independence is threatened by an appraiser who feels s/he has a “client” to serve, and the interest of that client to advance. Each party pays its own appraiser and certainly has the right to expect their appointed appraiser to fully support and defend their findings to the Panel. But if each appraiser simply advocates for a previous position asserted by an insurer or policyholder, the appraisal process, it is submitted, is nothing more than a continuation of the failed adjustment process, full of sound and fury, and often accomplishing nothing. Indeed, in some states, such as Colorado, if the property policy requires the appraiser to be “impartial”, advocacy for one side or another is specifically forbidden. The Colorado Supreme Court stated “[w]e conclude that the plain language of the policy requires appraisers to be unbiased, disinterested, and unswayed by personal interest. They must not favor one side more than another, so they may not advocate for either party.” (Owner Insurance Company vs. Dakota Station II Condominium Association, 2019 CO 65, 2019)
Once the appraisers are appointed, they together must select a neutral Umpire to complete the Panel. The expertise and experience of an umpire are left for the appraisers to determine – does a subject matter expert make sense (for example, an engineer if the focus of the appraisal is structural in nature; or an accountant if business income loss is the main issue). Or would a retired judge experienced at hearing and evaluating conflicting positions and rendering unbiased and detached decisions be better suited for the appraisal? Either option can work, depending upon the needs of the parties and the complexity of the issues. Note: the appraisers select the Umpire, not the parties. However, the policy does not prevent the appraisers from seeking input from the party that appointed them on an Umpire candidate.
The Umpire selection process works best when appraisers can narrow their choices and interview candidates, often by phone for the sake of time and money. An effective appraiser will begin to establish a relationship with the Umpire during those interviews, much like the good trial lawyer connects with juror candidates during voir dire. Above all else, the Umpire ultimately should be able to rely upon and trust the appraisers to work in the best interests of the parties, even where there are honest disagreements on the subjects at hand. That trust begins to develop when the appraisers first speak with the Umpire candidate. Telling the Umpire what to expect, and then not meeting those expectations during appraisal will resonate with the Umpire.
To avoid an unending selection process, the policy dictates that should the appraisers not come to an agreement on an acceptable umpire, then either party can make an application to a court of competent jurisdiction (generally where the loss occurred) and have the court appoint an Umpire. This is the least desirable way to complete the Panel. Having someone forced upon the parties, with little or no say in their selection, should only be the last resort. Again, an appraisal is binding on the parties, so naturally, the parties would be best served by agreeing to a neutral umpire they find acceptable. Fees for the Umpire are shared equally between the parties, and once officially selected, the Umpire becomes the chair of the Appraisal Panel.
Property and business interruption claims should be adjusted and resolved in good faith between the insured and the carrier. They are in the best position to evaluate, investigate and adjust losses. But where consensus cannot be reached, an appraisal is the mechanism by which loss valuation is finalized. Essential cogs in that mechanism are the appraisers and Umpire, and knowing how to choose them can be the difference between an effective outcome, and an unsatisfying result.