The first step towards recovery after an insured property is damaged is to file a claim. Upon filing a claim, an insurance adjuster will inspect the property to determine the nature, extent, and – in some cases – the valuation of the damage. The claims adjuster is generally an employee or contractor of the insurance company. As these claims adjusters’ paychecks and bonuses are often determined by the insurance company, adjusters must balance accessing damage honestly and in good faith with the insurance company’s business tactic to pay out as little as possible to maximize profits. At times, these conflicting interests can lead to an unfavorable estimate of loss for either the policyholder (the “insured”) and the insurance company (the “insurer”).
If a dispute arises over the adjuster’s findings, most insurance policies allow either party to invoke the appraisal clause. Each party may select an appraiser, who will independently evaluate the loss at issue. The parties’ appraisers will then select a neutral umpire. If the parties’ appraisers cannot agree on the amount of the loss, then the umpire must “break the tie” and sign off on an appraisal award with one of the two appraisers. It is ideal that the chosen appraisers are impartial and conduct their assessment adequately. Insurance companies have attempted to require the appraisers to use a specific format or software for an appraisal. However, a recent Texas federal court rejected this tactic.
What Insurers Want
Insurers often demand that insurance appraisers use a particular format for a property damage appraisal. The insurers want a very detailed, itemized type of format to determine the award, where appraisers must “state the amount of loss separately for each portion of the property in dispute and for each major building component (for example, roofs, exterior walls and windows, interior water damage, etc.).” This is not motivated by a desire to keep excellent records – rather the more detail there is in the award, the easier it is for an insurer to pick it apart line-item entries and refuse to pay individual components. Remember, the insurace company holds the trump card in the apprasial process of being able to deny the claim if it does not like the amount awarded. Unfortunately, policyholders have no such advantage.
What’s Best For Policyholders
It is usually in the best interests of a policyholder to have a very simple appraisal award format where the appraisal panel awards lump sum numbers, outlining only broad categories such as building damage, personal property, and sometimes law and ordinance coverage.
Mt. Hawley Insurance Company, et al v. Harrods Eastbelt, LTD
In Mt. Hawley Insurance Company, et al v. Harrods Eastbelt, LTD, Judge Nancy F. Atlas declined to require the use of an appraisal format that goes beyond the format required by the insurance policy. In this case, the insurer asked the court to require appraisers to present their findings with separate totals for each major portion of the property and each major building component. The Court ruled that the request was outside the scope of the agreed upon policy terms, which only required that “appraisers state separately the value of the property and amount of loss.”
Moreover, the court reiterated that the Texas Supreme Court has previously emphasized the propriety of avoiding judicial intervention pre-appraisal. This is a significant victory for policyholders in their ability to avoid pretextual disputes from insurers during the appraisal process.
Appraisals are generally binding, so it is important to consider all your options before invoking an appraisal clause.
If you have experienced commercial property damage, our team of insured lawyers is equipped to provide the best possible outcome for our clients in the shortest amount of time. Our experienced attorneys have the knowledge and skill to cut through the schemes and tactics involved in bad faith insurance disputes and property damage claims. Our national success in trial and negotiation can help you achieve the results you seek to ensure a solution that works for you. For specific questions concerning your claim, please contact our office.