Appraisal In Insurance Policies

Policy holders in Grand Prairie, Arlington, Dallas, Fort Worth, Flower Mound, Haslet, Saginaw, Newark, Benbrook, Crowley, Cedar Hill, Hutchins, and other places in Texas will wonder what an “appraisal clause” in their insurance policy means. Insurance companies put these in policies because it is a good thing for them. There are ways of getting around these clauses, but an experienced Insurance Law Attorney needs to be consulted.
Many property insurance policies contain appraisal clauses. These clauses define a process for appraising the value of the damaged property, if the parties cannot agree. Common provisions call for each party to choose an appraiser. Those appraisers then choose a neutral third appraiser, called an umpire. If the parties or their appraisers cannot agree on an umpire, either party may petition a court to appoint one. Once the appraisers and umpire are chosen, they value the loss. If all do not agree on the value, the decision of any two will control. The intent is to give the insurance company and the insured a simple, speedy, and fair means of deciding disputed values. This was stated in the Texas Appeals Court in Waco, as far back as 1938. The reality however is that this is not always the case.
When two appraisers do not agree, the umpire does not simply choose between them. It is the duty of the umpire to ascertain and determine, in the exercise of his own judgment and as the result of his own investigation, the values of the disputed items. This is what a San Antonio Appeals Court said in 1994.
Either party may seek specific enforcement of the appraisal clause, and the court will abate any pending lawsuit and compel the parties to submit to the appraisal process. In addition, an insured may recover consequential damages sustained as a result of the insurance company’s failure to comply with the appraisal clause.
Although either party may seek abatement to compel the appraisal process, the trial court has discretion on the timing of that process and does not have to order an immediate appraisal.
An appraisal award is binding and enforceable. An appraisal award may be disregarded:
(1) when the award was made without authority;
(2) when the award was the result of fraud, accident, or mistake; or (3) when the award was not made in substantial compliance with the terms of the contract.
While appraisers have the power to determine the money value of the property damage, they do not have power to determine whether the insurance company is liable for the loss. Appraisers may answer some questions touching on causation but not for others, depending on the nature of the parties’ dispute and possible causes of loss alleged, among other factors. Generally, if different causes are alleged for a single injury to the property, causation issues are outside the scope of appraisal. This was stated by the Texas Supreme Court in a 2009 case styled, State Farm Lloyds v. Johnson.
If an insurance company imposes unreasonable conditions on the appraisal, or seeks to invoke appraisal other than in accordance with the policy’s terms, the insurance company may be found to have waived the appraisal requirement. This was the ruling in a 1960, Fort Worth Court of Appeals case where the insurance company tried to designate one individual and two companies as its appraisers, instead of a single individual as required by the policy.