Appraisers in home insurance claims don’t have to be neutral, court finds

Appraisers in home insurance claims don’t have to be neutral, the umpires do, the Court of Appeal for Ontario has ruled.

In Desjardins General Insurance Group v. Campbell, Ruth Campbell made a home insurance claim against Desjardins General Insurance Group after a 2018 tornado damaged her home in Ottawa, Ont.

The two sides disagreed about the value of the loss, so Campbell named her lawyer, Joseph Obagi, as her appraiser. Desjardins named their adjuster on the file. The two appraisers agreed on their choice of an umpire, William Neville.

During the appraisal process, Obagi advised that he might be bringing a bad faith claim against Desjardins on Ruth Campbell’s behalf based on the adjustment of her file. Neville expressed concern about Obagi’s dual role as both an appraiser and a lawyer in the forthcoming bad faith claim. Since Desjardins would potentially be a party to the bad faith action, the umpire also expressed concern with the independence of Desjardins’ appraiser.

Neville advised Campbell and Desjardins that the appraisal “must be seen to function as an independent panel under the Insurance Act where there is no actual or perceived conflict of interest.”

Desjardins named a new appraiser who was not an employee, but rather from the independent adjusting firm Crawford & Company. Ruth Campbell insisted that her lawyer, Obagi, be the appraiser.

Neville suspended the appraisal until he received direction from the Superior Court of Justice. The Superior Court held that whereas the umpire is required to be impartial, that is not true of the appraisers selected by the parties. Desjardins appealed, and the Ontario Appeal Court denied the insurer’s appeal.

“In short, the flaw in [Desjardins’] argument that appraisers must be independent is that it collapses the roles of the umpire and the appraisers,” the Appeal Court ruled.

First, the Appeal Court noted, the appraisal process is designed to be collaborative.

“While this involves advocacy in the sense that each side may be expected to advocate their valuation to the other, their overall role within the appraisal process is more collaborative and less adversarial,” the court noted in its Feb. 15 decision. “The umpire will ultimately choose one side or the other. That places a premium on each side to be reasonable and also to reach agreement with the other side if possible.”

Second, the court found, the appraisal process is not the same as an administrative tribunal process.

“There is no indication in the [Insurance Act] that the appraisal mechanism is an administrative tribunal,” the court’s decision reads. “The appraisal process under the Act is not adjudicative or quasi-judicial in nature but is rather based on discussion and on the sharing of expertise in valuation.

“It is not an arbitration. Appraisal does not require a hearing, consideration of evidence, or reasons. Appraisers and the umpire do not determine legal questions. Moreover, while the process contemplates a valuation process that is comprised of the appraisers and the umpire, the ultimate decision maker if the parties are unable to agree is the umpire and not the appraisers.”

Feature photo courtesy of iStock.com/AndreyPopov