If an association is unhappy with its insurer’s offer to settle a claim, it has two main avenues to resolve the dispute. First, the association can retain an attorney and file suit against the carrier for breach of contract. Second, the association can invoke the appraisal process afforded by most insurance policies.
The typical appraisal provision reads:
If we and you disagree on the value 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 still retain our right to deny the claim.
If your association’s insurance policy contains such a provision, appraisal can determine the appropriate amount owed for the damages, and, in some states, whether the damage resulted from a covered or non-covered peril.
The role of an appraiser is often a topic of conversation when I speak with association directors about these two options. The first comment I generally make is that the appraisal process is not the same as the typical property appraisal most associations have performed in the past.
While numerous courts have addressed the role of appraisers, probably the most insightful description came from Florida’s Third District Court of Appeals in Preferred Ins. Co. v. Richard Parks Trucking Co., 158 So. 2d 817, 820 (Fla. 3rd DCA 1963):
[A]ppraisers are generally expected to act on their own skill and knowledge; they may reach individual conclusions and are required to meet only for the purpose of ironing out differences in the conclusions reached; and they are not obliged to give the rival claimants any formal notice or to hear evidence, but may proceed by ex parte investigation so long as the parties are given opportunity to make statements and explanations with regard to matters in issue.
This quote clears up a lot of questions associations have about the role of an appraiser in an insurance claim context. The appraiser is an independent eye hired to inspect, investigate, and determine what damages exist (and in some cases what caused them). They may use prior estimates, investigation results, and other evidence to support their position, however, an appraiser is not usually bound by past inspections and estimates.
On the contrary, an appointed appraiser has the ability to investigate the claim independently, reach independent conclusions, and disagree with prior reports.