Insurance Contract Interpretation—Check For State Exceptions and Policy Language Differences

One warning I provide to audiences when discussing insurance contract interpretation is that general rules may have state exceptions and that policy language may impact those state exceptions. An example is that appraisers cannot be retained on a contingent fee. I recite this rule while speaking about appraisal and always warn that a few states allow the opposite.

In Hozlock v.Donegal Companies/Donegal Mut. Ins. Co., 1 a Pennsylvania court ruled in a case of first impression that appraisers could be retained and paid on a contingent basis. However, the court made this further note, warning that policy language could result in a different outcome:

We note that if Appellant so desired, it could have explicitly contracted for completely neutral appraisers. It did not. In fact…which mandates certain provisions in fire insurance policies, requires that such policies include a clause providing for third party appraisal when the parties disagree on the value of a loss. The statute sets out a stock paragraph providing for such appraisal, which insurance companies are required to use in their policies. This stock paragraph contains the specific language that parties’ appointed appraisers be ‘competent and disinterested.’ … The appraisal clause in Appellant’s policy merely requires the appraisers to be competent. Appellant was required by statute to use the code’s stock language. It chose not to do so.

Saying that Pennsylvania is a state that allows appraisers to be retained on a contingent fee is only partially correct. Based on the case holding, it would be more accurate to say that Pennsylvania is a state where, depending on specific policy language, an appraiser could be hired on a contingent basis as an exception to the general rule followed in nearly every jurisdiction that prohibits the practice.

Thought For The Day

Get up, stand up, Stand up for your rights. Get up, stand up, Don’t give up the fight.
—Bob Marley

1 Hozlock v. Donegal Companies/Donegal Mut. Ins. Co., 745 A.2d 1261 (Penn. Superior Ct. 2000).