Insurance Appraisal Process

Grand Prairie insurance attorneys and those in Fort Worth, Hurst, Euless, Bedford, Grapevine, Colleyville, Saginaw, and other places in Tarrant County would need to have some understanding of the appraisal process and issues that arise from that process. The United States District Court, Southern District, Galveston Division, issued an opinion on May 25, 2012, that should be of some interest.
The style of the case is, KLM Resources, LLC d/b/a Jan-Pro Houston v. Ohio Casualty Company. Here is some background.
KLM filed suit against its insurer, Ohio Casualty Company, seeking to recover its loss of business income as a result of losses suffered by its franchisees following Hurricane Ike. Ohio Casualty invoked its right to an appraisal as provided in the insurance policy. Harold Asher, who had been retained by KLM as an expert on damages, was also appointed by KLM as its appraiser. Ohio Casualty selected Edward Hoffman, a forensic accountant, as its appraiser. Asher and Hoffman agreed to the appointment of Howard Zandman as umpire. Ultimately, Zandman and Hoffman agreed to an award of approximately $5,000. Asher, who estimated KLM’s loss at approximately $92,000, disagreed and refused to sign the award. Since the award was less that the $10,000 advance that had already been paid to KLM, no additional payment was due. Following the award, and facing a motion for summary judgment as to all of its claims, KLM filed a “Motion to Reopen the Appraisal Process.”
KLM did not challenge Zandman’s credentials. Nor did KLM offer any evidence of collusion or dishonesty by Zandman during the appraisal process. The sole basis asserted by KLM to justify avoiding the award is its belief that Zandman’s, and apparently Hoffman’s, methodology was flawed and the award was, as a consequence, the result of a mistake. Under well-established Texas law, “mistake” in this context has a narrowly defined meaning: an actionable “mistake” is one which caused an award to operate in a way appraisers did not intend.
KLM offered no evidence of mistake under this standard. An affidavit filed by Asher simply expressed his disagreement with some of Zandman’s assessment methods. Such a disagreement can be expected to arise during appraisals, but even a reasonably held strong disagreement of this nature does not establish that the award was in an amount different from what Zandman and Hoffman intended.
This court then said that while it could certainly understand KLM’s condemnation of the award, it could not, even if sympathetic to KLM’s arguments, vacate the award because the umpire, in the exercise of his independent judgment, awarded far less than what KLM’s appraiser, or even the Court itself, deems appropriate. As a result, it was the opinion of the court that there was no evidentiary support in the record for KLM’s argument that the appraisal award was a result of “mistake” of the kind that would permit the Court to disregard it. Thus, the Motion to Reopen the Appraisal Process was denied in total.
Most insurance contracts have an appraisal clause in them. What is surprising is that many times this appraisal process is not invoked. However, when it is invoked, it is rare that the final decision by an umpire is overturned. An experienced Insurance Law Attorney would understand the things to look for in attempts to have an adverse decision overturned, and there are some, but it is still a rare occurrence.