Insurance Appraisal Clause

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 chose 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 nay two will control.  The intent is to give the insurer and insured a simple, speedy, and fair means of deciding disputed values.  This was set out in the 1938, Waco Court of Appeals opinion, Fire Ass’n of Philadelphia v. Ballard.

The 1994, San Antonio Court of Appeals case, Provincial Lloyds Ins. Co. v. Crystal City I.S.D., says that when the two appraisers do not agree, the umpire does not simply choose between them, rather, 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.

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 insurer’s failure to comply with the appraisal clause.  This was made clear in the 1979, 14th Court of Appeals opinion, Standard Fire Ins. Co. v. Fraiman.

A 1999, Tyler Court of Appeals opinion, In re Terra Nova Ins. Co., has stated that although either party may seek abatement to compel the appraisal process, the trial court has discretion on the timing of the process and does not have to order an immediate appraisal.

The 1996, Dallas Court of Appeals opinion, Wells v. American States Pref’d Ins. Co., has made clear that an appraisal award is binding and enforceable.  The effect of 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.

It is important to realize and understand that while 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 the 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 is discussed by the Texas Supreme Court in its 2009, opinion, State Farm Lloyds v. Johnson.