What Happens If One Appraiser Refuses to Participate in the Appraisal?

Steve Badger and I were hitting hard during our debate at the Insurance Appraisal and Umpire Association (IAUA) event in Houston last week. At one point, I almost went down for the count. I have to admit that he had me stumbling backward after pointing out some “fair” language he drafted in a proposed memorandum of appraisal. I was stunned to see something which seemed “fair” from my clever opponent.

A member of the audience, Neal Moynahan, asked about a rare but difficult topic—what do you do when the other appraiser refuses to appraise or meet? Moynahan then sent a Texas appellate case1 suggesting that the Umpire or participating appraiser could cite the following language to the non-participating appraiser in a good faith attempt to move the matter along:

There is authority to the effect that if one of the appraisers resigns or deliberately refuses to act, the other appraiser and the umpire may make an award. In re Appointment of Falloon, 1958, 161 Cal. App. 2d 522, 327 P.2d 18; German Ins. Co. v. Hazard Bank, 31 Ky. Law Rep. 1126, 104 S.W. 725. See also 6 Appleman on Insurance Law & Practice, p. 366, where it is stated: ‘If one appraiser or arbitrator resigns, withdraws, or refuses to act further, it has been held that the other one and the umpire may complete the proceeding and make a valid award.’

Although the trial court ruled that the award with just the one appraiser and the Umpire was valid, the Texas appellate court, based on the record before it, did not agree. It reversed the trial court’s decision. The Texas appellate court focused on the policy requirement that the two appraisers must fail to agree upon the loss and then approach the umpire with their differences:    

There is no evidence as to whether Osterloh and Northrup did or did not fail to agree as to the loss. If they did not fail to agree, there was nothing to submit to the umpire and nothing upon which he could act. If they did fail to agree, then they were required by the policy to submit their differences only to the umpire. There is nothing in the policy giving the umpire the right to act in the absence of differences between the appraisers. The record is silent as to whether there were any differences. The umpire testified that no differences were submitted to him and that he resolved no differences between the appraisers. There is no evidence to the contrary. Since the umpire’s power to act is conditioned upon a disagreement between the appraisers and the submission of their differences only to him, we are of the opinion that the award, which was signed by only one appraiser and the umpire who had no authority to act, is invalid.

The appellate court cited to an insurance treatise, noting the following:2    

Where the policy provided that the appraisers should submit their differences to an umpire, it was held that the signature of the umpire was without validity unless and until the two appraisers failed to agree. * * * An umpire may act to settle differences between appraisers respecting the amount of a loss, when such differences become known to him. But an umpire, appointed to decide on matters of difference only, has no authority to pass on matters concerning which there was no difference between the appraisers. The function of an umpire who is to act in matters of difference only is not to coincide with one or the other of the appraisers, but he is to make his award independently of such estimates. * * But where the umpire did not confer with the insured’s appraiser, the appraisement was held to be ineffective.

So what do you do when confronted with this situation? If it appears that one appraiser is simply not participating and good faith efforts to move the appraiser along have failed, a party should seek assistance from an attorney. Steve Badger and I both agreed on this point. The method of remedying the situation calls for legal analysis depending on state law that applies and the exact policy language.  

Later in the afternoon, and after I came back to finish off Badger, I gave a second speech to the audience. Part of the speech involved the integrity of the appraisal process. The process is supposed to be fair, efficient, and relatively fast. The IAUA Code of Ethics contemplates that appraisers and umpires need to move their appraisal assignments along:

Appraisers and Umpires, upon undertaking an Appraisal, shall act with dispatch and due diligence in achieving a proper disposition of the Appraisal.

Slow appraisals caused by appraisers and umpires not moving the matters along in good faith is not good for policyholders who were hoping to obtain their insurance recovery immediately. It can tarnish the integrity of the appraisal process. While I think non-participation is rare, I am happy that the appraisal industry addresses it in its code of ethics.  

Thought For The Day

Slow motion goes one of two ways. It either makes it look really, really cool, or it makes it look really, really bad.

—Blake Griffin

1 Fisch v. Transcontinental Ins. Co., 356 SW 2d 186 (Tex. App. 1962).

2 Fisch, 356 SW2d 186, 190 (citing, 6 Appleman on Insurance Law & Practice, p. 368).