Is Appraisal an Arbitration Under the Federal Arbitration Act?

Having left exotic Hawaii and returning to sunny Southern California, it is only appropriate to turn to a quick study of California property insurance law. So, is appraisal an arbitration under the Federal Arbitration Act? 

One federal court deciding a policyholder’s motion to compel appraisal of a fire loss pursuant to the Federal Arbitration Act (FAA) made the following analysis:1

‘Under Ninth Circuit precedent, whether an appraisal constitutes arbitration for purposes of the FAA is a question of state law.’ Anderson, 2019 WL 8128570 (citing Portland Gen. Elec. Co. v. U.S. Bank Tr. Nat. Ass’n., 218 F.3d 1085, 1086 (9th Cir. 2000)). In California, whose laws the parties appear to agree govern this dispute, ‘[a]n agreement to conduct an appraisal included in a standard fire insurance policy constitutes an ‘agreement’ within the meaning of Code of Civil Procedure section 1280, subdivision (a), and thus is considered an arbitration agreement subject to the statutory contractual arbitration law.’ Kirkwood, 193 Cal. App. 4th at 57. Accordingly, such an appraisal provision is the proper subject of a motion to compel arbitration under the FAA.

I have written about this issue in Is Appraisal Governed Under the Federal Arbitration Act? and If Appraisal Is Governed by the Federal Arbitration Act, What Is the Process? I would suggest that this issue is very much at play in many states and that the FAA is often overlooked. My guess is that most simply are ignorant about this legal issue. 

The bottom line is that depending on state law, many courts may apply provisions of the FAA to appraisal. The problem is that many conducting appraisals are not conducting them pursuant to the provisions of the FAA. All is fine until somebody raises this difficult legal issue as a way to avoid a perceived injustice from an appraisal award. 

I do not intend to throw a “monkey wrench” into appraisals. However, this law is developing, and practitioners, public adjusters, restoration contractors, as well as parties to the insurance contract should be aware of this case and others similar to it. The arbitration process and who can be an arbitrator is very different from the typical appraisal and who qualifies as an appraiser. 

I will be discussing this subject with Steve Badger next week at the IAUA conference in Park City, Utah. Here is the link for that registration. 

Thought For The Day 

I first saw the ocean as a kid. We would drive from Arizona in the summer and arrive as the sun was starting to come down over the hill near Laguna in southern California. We would always sing a song, and it was a big joyous family moment when we came over the hill.

—Ted Danson

1 Pollock v. Federal Ins. Co., No 21-cv-09975, 2022 WL 2756669 (N.D. Cal. 2022).