The State of Florida has experienced a significant rise in the demand for appraisal in disputed property settlements as found in homeowners' and commercial policies. Florida represents a special-case scenario due to the ravaging 2004 and 2005 hurricane seasons that precipitated a significant increase in the population of public adjusters, brought in thousands of catastrophe adjusters, and fostered an inflated and nebulous material and labor pricing environment. From all accounts, appraisal demand is on the rise in other states, as well.

There have been distinct changes in how the appraisal process has developed. I am involved in the process most often as a voluntary or court- appointed umpire. As an umpire, one is able to hear an analysis of both sides of the dispute, be exposed to the various strategies of presentation, and inherit the thankless job of making the final irrefutable decision in the award of damages. If you assume that there is an umpire who is completely unbiased, as he is supposed to be according to the law in Florida, and competent, then repeat business should be expected, right? However, this is not happening due to the inexorable law of attrition.

Dwindling Client Base

One party, if not both, is typically unsatisfied with the award. Therefore, the umpire inevitably will be excluded from consideration for the following job. If one plays this game long enough, the client base gets smaller and smaller. This also applies to the carrier's appraiser. Appraisers ride in the same boat as the umpire, and they are scrutinized and driven by results. As carriers experience more volume in this arena, expectations have risen. The process and the participants have morphed along with the demand and the process now is yielding mixed reviews from both sides as a result.

The appraisal process used to be rather benign, simplistic, and seldom utilized. One of the most significant changes that has occurred is an increase in the amount of direct involvement by carriers in the daily status of appraisals. Routine reporting is now a standard requirement. In the past, the carriers were not reluctant to hand the appraisal over to an independent adjuster and refrained from influencing it in any way. The thought process here was that the process was considered sacrosanct; an impartial caucus by clandestine warriors. The cloaking devices have been removed and the process is now moving toward center stage with bright lights. In many cases, carriers even submit “handling guidelines” to their appraisers.

In Florida, the main thrust behind increased involvement stems from case law that promulgates the idea that an appraiser is not required to be impartial…only the umpire. This diminished the role of the appraiser opened the door to strategic maneuvers, and accelerated the use of umpires dramatically. The umpire has become the pivotal key to the process and personal experience shows that nine out of 10 appraisals go to the umpire. Appraisers are throwing in the towel early with little or no negotiations. Unfortunately very few investigations or detailed presentations are being made by appraisers.

On the Chopping Block

Many times, the umpire is left holding the bag and having to investigate the cause of loss, coverage issues, and damages on his own. This puts the umpire's head on the chopping block since he now not only has to make the final decision about damages, but also must spend more time and expense concluding it (sometimes with limited data). A chosen umpire should take the job seriously enough to analyze all the evidence before a decision is made. All of this has made the process of choosing an umpire an important element to an appraisal. The jockeying to stack the deck or, minimally, trying to get an unbiased umpire is a circus act. I have never seen an official accept or reject a list of umpires so far. But I have seen several unofficial lists. And certainly most have an unwritten list.

Various precipitating actions of umpires bar them from the process. “Baby-splitting” is most abhorrent to the carrier. This is the decision by the umpire to split the difference between the highest and lowest estimate. This strategy may have worked for King Solomon, but it is an unacceptable practice since it is normally groundless and occurs without due diligence.

In Florida, the Windstorm Insurance Network (www.windnetwork.com) offers an umpire certification class at their annual conference. This is a big step in the right direction, and they should be applauded. To be certified, the potential umpire agrees to inspect the damages and determine the damages personally. This would logically mean having the physical ability to inspect roofs, etc., and the ability and software to write a damage estimate, not to mention an intimacy with construction methods. It is common for court-appointed umpires to possess no such skills. This is why the baby gets split. The Florida Windstorm Network is attempting to help by submitting their list of certified umpires to the various judicial districts around the state.

Excessive awards are by far the most feared element of the appraisal process. And naturally, only the carriers are concerned. Of course, “excessive” is not an objective standard. However, if the umpire's award includes coverage issues or undisputed coverage, there is a standard that holds the line. Florida courts have held that coverage issues have no place in the appraisal process and that this should be settled though the judicial system. When an umpire crosses this line, he is summarily removed from any further assignments and is subject to further indignation in the courts in an attempt to vacate the award. There also are cases where the umpire failed to obtain the policy declaration page and awards an amount in excess of the policy limit.

A Question of Conformity

Arbitrary awards are not met with joy by the carriers. This includes award decisions that are not based on documentation or evidence, and do not conform to policy language. For instance, allowing for an additional living expense award without documentation that the amount was incurred violates the policy language. Additionally, allowing for code upgrades without incurment is a touchy subject. Does the appraisal process allow for the suspension of policy criteria? Most would say no. Appraisers have a duty to influence the umpire by memorializing coverage issues, researching the evidence, and preparing a comparison of damages. This duty preserves the rights of the carrier and allows the carrier to successfully vacate an improper award, as well as effectively presenting the insured's dispute.

Strategic maneuvers have become commonplace on both sides of the dispute. Excessive delays, overwriting damages, underwriting damages, and stonewalling all hurt the process and make the proceedings much more expensive. Without mandated impartiality of the appraiser's role in the process, politics enter into decisions and the carrier's appraisers may decide to attend to their future employment opportunities rather than fulfill their fiduciary responsibility to the insured and the process.

Below are several highly recommended conceptualizations of the appraisal process:

Before proceeding to the appraisal process, demand that the insured's representative be detailed as to the dispute(s) and outline all coverages that are in dispute. This may seem elementary, but is rarely done, if ever. In Florida, case law has given the carrier the right to investigate additional damages before submitting to the appraisal process. Also, only disputed coverages can be brought to appraisal. Require a memorandum of appraisal, which outlines the dispute(s).
Develop general guidelines for your appraisers that include the investigation, documentation of damages, physical inspection of damages, preservation of policy requirements, and memorialization of all coverage issues.
Require your appraisers to represent all the damages regardless of the previous adjustments or any political issues and write their own estimate of damages.
Require your appraiser to demand an appraisal of the damages from the other side before the umpire is called in. The process is expensive and an umpire should not be called in unless both sides clearly establish their positions and differences.
Research the arena for impartial umpire candidates and review the final process to determine the umpire's credibility and the strengths or weaknesses of the original adjustment.
Demand disclosure from your umpire candidates. It is important to know if the umpire has a relationship with the insured, the insured's appraiser, or the carrier involved.
Look for umpires who write their own damage estimates and research the evidence.
If a court-appointed umpire is utilized, demand that he meets all of the above standards or else terminate the appointment and start over. Make it clear to the court with jurisdiction what qualifications are expected of an umpire.
Allow your umpires and appraisers the freedom to utilize all of their experience and ingenuity to negotiate a fair settlement.
Do not judge the competency of an umpire or appraiser based on a single settlement event (unless grossly obvious).
Be prepared to vacate an excessive award.

I have not mentioned reporting above, on purpose. There is a special situation in this regard and the decision must be left up to the individual carrier's management. To report or not to report, that is the question. Courts in Florida have so far upheld that the work product in the appraisal process is akin to jury deliberations and is therefore undiscoverable. If the appraiser is required to report on the process in detail, it very well may be discoverable since it appears in the carrier's file. This material may, in fact, be introduced as evidence in the process to vacate the award. It may be wise to require progress reports and eliminate detailed “work product” elements. There is no legal requirement for appraisers or umpires to preserve their files in Florida, as is the case for carriers.

The “good ole boy” days of appraising are over. The industry is moving toward accountability and demanding professionalism and experience. It is time for all to recognize this and to set standards that bring fair play and integrity to the process.

Tom Kosterman is the president and CEO of two domestic Florida independent adjusting firms, and is the author of the article, “Interdisciplinary Bioaerosol Complexity.”

Special Reports /

The Appraisal Process

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