CHAPTER 10 APPRAISAL

• Jurisdiction: United States

Almost all property insurance policies contain an "appraisal" clause similar to that in the Standard Fire Insurance Policy that provides:

In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon such umpire, then, on request of the insured or this company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him and the expenses of and umpire shall be paid by the parties equally ¹.

This provision is considered an arbitration proceeding in California. An appraisal is different than a standard arbitration, because it is a very limited arbitration where the appraisers are only allowed to resolve the value of the property and the actual cash value loss.²

When submitting a dispute over the amount of loss to appraisal, the submission to the appraisers should be in writing, instructing that the parties do not want the appraisers to follow hard and fast, arbitrary, or fictitious rules in determining actual cash value, but to consider all evidence presented to them so that their award will serve to fully indemnify or compensate the insured for the actual loss he or she has sustained. At the same time, the appraisers must be instructed to not place the insured in a better position than he or she was in just before the fire.

By the appraisal provision the insured and the company promise that if they cannot agree as to the amount of loss, they can submit their differences to a panel of three impartial arbitrators, called "appraisers." The decision of the appraisers regarding the amount of loss is binding on both parties and should be used as a last resort when all efforts to reach an agreed amount of loss with the insured have failed. The provision is optional, and neither the insured nor the insurer is obligated to invoke that provision.

California, by statute, has limited the process under certain situations by changing the statutory standard fire policy. The 2001 statute provides:

[P]roceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, Ainformal means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of and umpire shall be paid by the parties equally. In the event of a government declared disaster, as defined in the Government Code, may be requested by either the insured or this company but shall not be compelled. ³

The change was designed to cure a perceived use of appraisal as a device to beat into submission insureds making claims during disasters like earthquakes. It uses a battle tank to destroy a tricycle and deprives the insured and the insurer of the right to compel appraisal during disasters, thereby forcing insureds or insurers to litigate their differences if an agreement cannot be reached.

A. Appraisal Is Arbitration

In Klubnikin v. California Fair Plan Ass'n, 84 Cal. App. 3d 393, 148 Cal. Rptr. 563 (Cal. Ct. App...