Is It Proper or Ethical to Race to Get an Umpire Appointed Without Informing the Other Party?

The Golden Rule is often a good gauge of propriety and ethics. If good ole insurance defense attorney Steve Badger called me and said, “Chip, guess what? I saved you a bunch of time, effort and cost. I sent an email to a judge, and he appointed the umpire to our client’s insurance appraisal,” most of you could guess what my verbal response would be to him. So, why would policyholders or their attorneys think the same practice done by them to insurance companies is legitimate?

The Golden Rule thought came to my mind while reading an Alabama federal case1 where it appears the policyholder sent a unilateral demand for the appointment of an umpire via email to a state court judge. The federal judge noted the following:

In February 2023, Geovera received a letter dated November 5, 2022, from DNB demanding appraisal. In response, Geovera requested DNB submit to an examination under oath, which it indicated was a condition precedent to the appraisal process. (Id.) After months of attempting to schedule an examination and once a November date was ‘held’ as a possibility, DNB indicated to Geovera that it would submit to an examination only after Geovera named their appraiser.

In December 2023, DNB sent Geovera a letter stating that it would ‘move forward with requesting a court-appointed umpire’. DNB then sent a letter to a Baldwin County Circuit Court Judge, without copying Geovera, which resulted in the judge providing DNB with a letter ‘order’ appointing an umpire for appraisal. According to Geovera, the state court judge was not fully informed of the underlying facts prior to his issuance of his “order” at DNB’s request.

In light of the ‘order’ compelling Geovera to engage in the appraisal process, Geovera filed the instant declaratory action seeking a declaration that ‘enter judgment declaring Geovera has no obligation to participate in the appraisal as ordered by Judge Stankoski of the Circuit Court of Baldwin County, Alabama as Judge Stankoski was not apprised of the actual nature of the dispute, or the parties involved therein at the time of the request for the order and the issuance of the order itself.’

The federal court judge dismissed the action indicating that the amount in controversy did not rise to the level required to provide a federal court jurisdiction to hear the matter. But the question remains—is the unilateral race to appoint an umpire proper or ethical?

The letter sent to Judge Stankoski states in part:

DNB demanded appraisal in writing more than one year ago, but GeoVera has refused to choose its own competent and impartial appraiser pursuant to the Policy. This failure entitles DNB to request that ‘the choice be made by a judge of a court of record in the state where the ‘residence premises’ is located.’ Accordingly, since all conditions precedent, including the requisite 15-day notice requirement, have been met, occurred or been waived, on behalf of DNB, we ask that you appoint an umpire so that the appraisal process can move forward.

Appraisal clauses, commonly found in homeowners, automobile, and property policies in Alabama, provide a means to resolve disputes about the amount of loss for a covered claim.

When appointment of an umpire is necessary, either party may request a judge of a court of record to perform this role. ‘If in an agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed. . . .’ Lexington Ins. Co. and Chartis,101 So. 3d 1190, 1196 (Ala. 2012) (quoting 9 U.S.C. § 5). Thus, appointment of an umpire is an extrajudicial action that may be completed by a judge outside of the judicial system, without pleadings, discovery, and hearings.

Therefore, as provided under the Policy, DNB and its appraiser ask that you appoint a competent and disinterested umpire to oversee the appraisal process. DNB is aware that the individuals identified in the attached list of potential umpire candidates would be willing and able to serve in the capacity of umpire for this dispute, if appointed by this Court, all of which are competent and disinterested.

Please provide the name and contact information of the umpire selected in the space provided below. I will immediately provide this information to the insurance carrier and its appointed appraiser as well as my client’s appointed appraiser.

The letter apparently did not copy counsel for the insurance company. The email sent to the judge did not, and the judge’s Order was not copied to the insurance company attorney.

I raised how unfair a unilateral appointment can be in How Are Insurers Changing the Process to Appoint an Umpire in an Insurance Appraisal, $56 Million Dollar Appraisal Award Leads to Fraud Counterclaim and Lawyer Hostility, and Order Vacates $56 Million Dollar Appraisal Award—Unilateral Appointment of Replacement Umpire Breached Policy Time Requirements By One Day. At the Insurance Appraisal and Umpire Association (IAUA) and Property Loss Appraisal Network (PLAN) courses, I teach that unilaterally sought umpire appointments are not proper and could be unethical in many states that prohibit lawyers from having unilateral contact with judges asking for material orders or on anything of substance. Indeed, it was at a Georgia Association of Public Insurance Adjusters (GAPIA) meeting where an insurance law professor said it was an unethical act for lawyers to seek this type of remedy without alerting the opposing side.

The Alabama Canons of Judicial Ethics state that a judge should not initiate, permit, or consider ex parte communications concerning a pending proceeding, except in certain circumstances like scheduling, administrative purposes, obtaining advice from a disinterested expert, or conferring separately with the parties in an effort to mediate or settle, as long as no party gains an advantage:

A judge should accord to every person who is legally interested in a proceeding, or his lawyer, full right to be heard according to law, and, except as authorized by law, neither initiate nor consider ex parte communications concerning a pending or impending proceeding. A judge, however, may obtain the advice of a disinterested and impartial expert on the law applicable to a proceeding before him; provided however, a judge should use discretion in such cases and, if the judge considers that justice would require it, should give notice to the parties of the person consulted and the substance of the advice, and afford the parties reasonable opportunity to respond.

For me, I am teaching that it is unethical in the vast majority of jurisdictions for an attorney to send such a unilateral request to a judge.

What do you think?

Thought For The Day

Whatever disagreement there may be as to the scope of the phrase “due process of law” there can be no doubt that it embraces the fundamental conception of a fair trial, with opportunity to be heard.
—Oliver Wendell Holmes, Jr.

1 Geovera Specialty Ins. Co. v. DNB Investments, No. 24-003, 2024 WL 3836074 (S.D. Ala. Aug. 15, 2024).