What’s it “Gonna” Cost? I Don’t have a Clue!

1. What’s it “Gonna” Cost?I Don’t have a Clue! A Mock Appraisal Jose Palacios, Peninsula Insurance Bureau Etienne M. Font, Esq., All Lines Claims Consulting, Inc. Karl Bach, RK Bach & Associates, Inc. Bill Larabel, Bill Larabel Claims Consulting, Inc.

2. Appraisal!… What is that? Appraisal. If you and we fail to agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will choose a competent appraiser within 20 days after receiving a written request from the other. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a court of record in the state where the "residence premises" is located. The appraisers will separately set the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will set the amount of loss. Each party will: a. Pay its own appraiser; and b. Bear the other expenses of the appraisal and umpire equally.

3. Can I go to Appraisal? • In determining whether appraisal is appropriate, the trial court considers four (4) issues: (1) whether a valid appraisal agreement exists; (2) whether an appraisable issue exists; (3) whether is ripe (Romay); and (4) whether appraisal has been waived.

4. What should I know about appraisal? • Before invoking the appraisal both side should have "framed" the dispute. This means that in the adjustment process both sides have documented their respective positions and the nature dispute is known and understood. It is the disputes that are appraised. Any new claim that arises in the context of appraisal should be adjusted first. The parties should tell the appraisal panel what they expect a final award to look like. Meaning what areas need specific findings as to quantum. • Appraisal is different than Adjusting in that coverage is not in play only causation. As such any enforcement of policy provisions needs to be done by the carrier in advance of appraisal process. This means either reserving rights or partial denial of aspects of claims in advance of going to appraisal.

5. USF & Guar. Co. v. Romay • Appraisal is premature until the insured has complied with all post loss obligations, has engaged in some meaningful exchange of information and the disagreement arises after an honest effort to agree between the parties. • These include submission of a Sworn Statement in Proof of Loss and supporting documentation; submission to Examinations Under Oath; and making the property available for inspection.

6. Allstate v Suarez, Fla. Supreme Court 2002 “It is clear from a plain reading of the [appraisal] clause that an informal appraisal proceeding, not a formal arbitration hearing pursuant to section 682.06, Florida Statutes, was intended and agreed upon by the parties in agreeing to the appraisal provisions of the policy.”

7. Compelling Appraisal • If the other side refuses to agree to go to appraisal, either side can ask the court to intervene. • See Allstate v. Suarez

8. Effect of Allstate v Suarez • Hearings should be “informal.” • Ex parte contacts are permissible • Evidence can be presented • Denial/Granting of a Petition to Compel Appraisal not appealable.

9. Scottsdale Ins. Co. v. Univ. at 107 Ave, Inc. • 3 DCA affirmed summary judgment compelling appraisal where the insurer admitted it obtained in lawsuit discovery everything it had requested pre-suit. • Insurer denied the claim because the damages were below the deductible and then after the denial, provided the Sworn Proof of Loss and two representatives for their EUOs.

10. What can be decided in appraisal?State Farm v. Gonzalez • Causation is a coverage question for the court when the insurer wholly denies that there is a covered loss and an amount-of-loss question for the appraisal panel when an insurer admits that there is a covered loss, the amount of which is disputed. • Where an insurer admits there is a covered loss…”the appraisers are to inspect the property and sort how much is to be paid on account of a covered peril.” • They are to exclude payment for “a cause not covered such as normal wear and tear, dry rot, or various other designated excluded causes.”

11. Kendall Lakes Townhomes Developers, Inc. v. Agricultural Excess & Surplus Lines Co., 2005 Fla. App. LEXIS 15692 (3 DCA 2005) • Clarified Gonzalez: “It is permissible for an appraisal panel to decide causation issues when causation is not a coverage question, but rather an amount of loss question.”

12. Definition of a Coverage Question Where the amount owed on a claim, arguably within the policy coverage, is dependant on the resolution of disputed issues of fact and the application of policy language to those facts…the extent of the claim does not constitute a “coverage” question…the coverage question is merely whether the claim is arguably within the class of claims covered by the policy, and therefore the [appraisal] provision. JJF of Palm Beach, Inc. v State Farm

13. Liberty American v. Kennedy • Submission of a claim to appraisal does not foreclose an insurer from challenging an element of loss as not being covered by the insurance policy. • Only if the court determines that coverage exists to a specific element of loss will the amount of appraisal for that element of loss be binding on the insurance company.

14. So your claim is in appraisal… • The first duty of both the Insurance company and the insured is to name their appraisers. Who to choose? • The appraiser must be competent and is expected to act on his/her skill and knowledge. • An independent appraiser is an “outside appraiser, unaffiliated with the parties, not himself, herself, itself or the party’s employee.” Rios v. Tri-State • A Public Adjuster with a contingent fee agreement may serve as appraiser, assuming there is disclosure.

15. What should I send my Appraiser? • An appraiser should receive: • Policy of Insurance w/ Dec Page • All Photos • All Estimates prepared by Ins. Co. • All documents submitted by insured or representative

16. Appraisal Process? • Choose an Umpire. • Inspect property • Exchange estimates • Attempt to reach an agreement • Sign award

17. Why should I write my own estimate? • As the appraiser you should establish your own opinion on damages, relying on all previous documentation and your inspection. • Even if you believe the original estimate is correct, you should ensure scope and prices are still accurate.

18. Inspection • Appraisers can inspect a property before agreeing to an umpire. Not inspecting a property for months because the parties cannot agree on an umpire delays the process and goes against the spirit of appraisal. • The policy stipulates that each appraiser “separately set the amount of loss.” Meaning it is proper to conduct separate inspections of the property to arrive at your own evaluation of the damages. Conducting a joint inspection can also be helpful.

19. Contact with Umpire • An umpire should not be involved until the appraisers reach an impasse. • Having an umpire act as a moderator and mediator before there is an impasse serves no useful purpose other than to cost the parties additional fees. • The appraisers should be professional enough to deal with one another without the need for a moderator.

20. Who can be an Umpire? • Is the proposed umpire a “neutral” party or is the issue that the umpire not have a conflict? • Does the umpire have a construction background,? Should they? • Does the umpire have an understanding of “insurance” or is it better that they do not? • Is the umpire physically able to inspect the property (roof if necessary) or is it proper that they hire someone that can? • Is the umpire capable and willing to prepare and submit some sort of estimate or breakdown (spreadsheet) of the amounts or allowances that he will make on the final award.

21. Disclosure by Umpire • Prior to acceptance (and upon first notice by the appraisers) by the umpire or execution of the Umpire Agreement, the umpire should be provided with the name of the insurance carrier, as well as the names and contact information of the two appraisers. If the umpire has no “conflict” with the carrier or the two appraisers, he/she should then sign the document, providing each appraiser with a copy. If the umpire has a personal history or relationship with either of the appraisers or carrier, he should so advise the appraisers in writing of same

22. We cannot agree! Send it to the umpire • Prepare a package containing all the documents you relied on to base your decision including the other sides documents and present it to the umpire. • Your package/presentation to the umpire should be concise. Each appraiser should prepare an informal “package” or presentation containing their estimate, photos (if available), prior IA estimates and/or reports, engineering reports (if applicable) and any other pertinent documents that they feel are necessary and provide these documents to the umpire. • Your task is to convince the umpire you are correct.

23. Meeting with Umpire • Due to the informal nature of appraisal, the umpire sets the rules. They can allow: • Joint Meetings • It is usually suggested that the umpire hearing be held at the loss location in order to determine damage, if not already repaired. The type of home can sometimes reveal what repairs were made and to what the extent of the actual damage was. It is imperative that access be gained to the risk by the umpire. The umpire may choose to speak to the insured, view the neighborhood, etc.. • Separate Meetings • Ex Parte communications

24. Ex parte? Occasionally there are situations that allow for meetings/hearings taking place without a physical inspection by the umpire. Of course, complete supporting back up documentation should be provided in these situations. Examples of these types of situations are: 1. Contents only involved in an appraisal. 2. ALE or some other coverage commercial type claim with loss of stock, signs, etc. 3. Risk no longer at location (home leveled, etc.) 4. Risk sold.

25. Experts • Umpires can hire their own experts if they need assistance in reaching a decision. • Each side pays an equal portion of these costs.

26. How does the Umpire Decide? • A decision should be based on the merits of the case and based on the information received from each party. • It is recommended that the umpire prepare an estimate. If not a detailed estimate, then a breakdown should be provided to both appraisers. The estimate is sent to both appraisers before preparing an award, allowing each appraiser to review the estimate and if necessary, point out any areas of damage which may have been missed. • It is improper to reach a decision by splitting the difference between appraisers.

27. Finally an Award!! • Only two signatures needed. But be careful: • Kendall Lakes Townhomes Developers, Inc. v. Agricultural Excess & Surplus Lines Co., 2005 Fla. App. LEXIS 15692 (3 DCA 2005) • The 3 DCA approved an appraisal award deriving the total amount of loss and further breaking down “the amount of loss by virtue of excluded causes.” • However, the award was set aside because the umpire exceeded his scope by making findings as to coverage. • See also Preferred Ins. Co. v Richards Parks Trucking Inc.

28. What’s an award? • The award sets out the findings. The award can be a written agreement between the appraisers and umpire as to what the damages are. It need not be a standard form. • The award should, in the minimum, detail the payments by coverage line; I.e. Building, APS, Contents, ALE, etc.. • The award should not contain language relating to coverage but should be limited to an explanation of damages.

29. What now? • The award should be sent to all parties to sign. Once the award is signed, the carriers appraiser should present it to the insurance company immediately. The award should not be held until a closing report is done. The carrier has only 60 days to pay on an award. • Make sure you include the umpires invoice to your closing report.