Appraisals And Insurance

Most 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 the 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.  A 1938, Waco Court of Appeals opinion describes the process saying the intent is to give the insurer and insured a simple, speedy, and fair means of deciding disputed value.  This opinion is styled, Fire Association of Philadelphia v. Ballard.

The San Antonio Court of Appeals in a 1994 opinion styled, Providence Lloyds Insurance Company v. Crystal City, says that when the 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.

The 14th Court of Appeals tells us in a 1974 opinion styled, Standard Fire Insurance Co. v. Smith, that 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 1979, the same court said in, Standard Fire Insurance Co. v. Fraiman, that in addition, an insured may recover consequential damages sustained as a result of the insurer’s failure to comply with the appraisal clause.

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.  The effect of an appraisal award is to estop one party from contesting the issue of damages in a suit on the insurance contract, leaving only the question of liability for the court.  This was made clear in the 1996, Dallas Court of Appeals opinion, Wells v. American States Preferred Insurance Co.

While the appraisers have power to determine the money value of the property damage, they do not have power to determine whether the insurer is liable for the loss.  Appraisers may answer some questions touching on causation but not others, depending on the nature of the parties dispute and the possible causes of loss alleged, among other factors.  Generally, if different causes are alleged for a single injury to property, causation issues are outside the scope of appraisal.  This is according to the Texas Supreme Court 2009 opinion styled, State Farm Lloyds v. Johnson.


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