Are You Considering Appraisal? | Raizner Slania LLP

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Potential Pitfalls
Appraisal Deadlines
Do's and Don'ts

POTENTIAL PITFALLS

The insurance company can “reserve the right” to deny coverage, even if appraisal results in a large, favorable number for you. We’ve seen this often: when the insurance company doesn’t like the number, it will continue to deny the claim. Meanwhile, you’ve lost months with nothing to show for it.

An insurer may ask you to sign a release in exchange for it making the appraisal award payment. You should never be asked to sign a release, whether before or after an appraisal. It is improper for an insurer to condition payment of an appraisal award on you signing a release or anything other than a proof of loss form.

The insurance company almost certainly has a lawyer working behind the scenes to guide the process. In some circumstances, these attorneys are working secretly to guide the appraisal toward a reduction or denial of payment.

What is appraisal?

How does appraisal work?

Who can handle an appraisal?

What is appraisal supposed to resolve?

What can go wrong in appraisal?

What happens after appraisal?

What is appraisal?

Appraisal is a dispute resolution provision in a property insurance policy – which usually can be invoked by either the policyholder or the insurer – that determines the amount of the loss for an insurance claim. While appraisal is sometimes a helpful vehicle to resolve insurance claims, it is an adversarial process insurance companies use to their advantage.

How does appraisal work?

Both the policyholder and insurer select a “disinterested” appraiser, and the two appraisers pick an “umpire” to form a three-person panel. The panel evaluates the damages and renders a binding decision as to the amount of the loss.

Who can handle an appraisal?

You don’t have to be a lawyer to handle an appraisal, but insurance companies generally have lawyers operating behind the scenes. Should an appraisal involve large or complex real estate and/or a substantial amount of money, you should seek legal advice regarding the process.

What is appraisal supposed to resolve?

Appraisal is designed to resolve solely the amount of the loss, leaving questions about what caused the loss and whether it is covered under the insurance policy unresolved. Insurance companies often use these technicalities to avoid paying an appraisal award in full. If an insurer has denied your claim in whole or in part, appraisal can’t provide a complete resolution and you must consider legal options.

What can go wrong in appraisal?

Appraisal usually takes place outside the court system; and, without experienced judges protecting and following the rule of law, insurers can game the system and engage in abuse. Sometimes they will follow through on the appraisal process, only to later refuse to pay because the damage was supposedly not caused by an event covered under the policy. In other instances, an appraiser may have a longstanding relationship with an insurer that they do not disclose. Outside the protections of the court system, unscrupulous insurance companies and their appraisers can engage in fraud and abuse of their policyholders, delaying or denying claims.

What happens after appraisal?

An insurer should pay the award, plus interest. If they don’t pay it in full, or they fail to pay interest on the award, the insurer can be held accountable in court. Under Section 542 of the Texas Insurance Code and our firm’s Barbara Technologies decision, an insurer will owe interest, and may owe attorney’s fees, if it delays payment of the claim beyond the specific time limits mandated by Texas law.

APPRAISAL BY THE NUMBERS

The insurance company is subject to certain strict time limits after receiving your claim, including:

Acknowledging your claim, beginning its investigation of the claim, and requesting relevant information from you, within 15 days after receiving your claim.

Within 15 days after receiving all relevant information it requested from you, the insurer must make a decision to accept or reject your claim.

If the insurer decides to accept your claim, it must pay the portion it accepted within 5 business days.

If the insurer needs more time to make a decision, it must tell you, and explain why it needs more time. But even if it needs more time, it must make a decision within 45 days of notifying you that it needs more time.

If the insurer delays payment for more than 60 days after receiving all information necessary to decide your claim, the insurer “shall pay” interest and attorney’s fees, in addition to the amount of the claim.

The Texas Prompt Payment of Claims Act

The Texas Prompt Payment of Claims Act, Section 542 of the Insurance Code, requires insurance companies to pay interest, in addition to the amount of the insurance claim, when the insurance company delays payment of the claim longer than the statute’s deadlines for making a decision on the claim.

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Some “Do’s and Don’t’s” to consider while evaluating your options

DO'S

DON'TS

DO'S

Consider all of your dispute resolution options.

Some matters may be appropriate for appraisal, while others will need to be litigated in court.

If you make the decision to go to appraisal early and without considering all options, you may end up wasting substantial time on a matter the insurer will eventually deny.

You will then have to start all over again in court.
Make sure you have the appropriate professional protecting your interests during appraisal.

Recognize that courts – including the Texas Supreme Court – have declared appraisal to be an “adversarial process.” That means the insurer will have a lawyer working for them in background; and, in many cases, you should too.
Require the insurance company and its chosen appraiser to disclose all possible conflicts of interest.

Appraisal is supposed to be conducted on a level playing field, but it rarely is. And if you think it is, you are probably on the wrong side of a very unbalanced process.

Insurance company appraisers may be hired guns for the insurer. In some unfortunate circumstances, we have seen quid pro quos among appraisers and umpires who are willing to reduce appraisal values in exchange for preferred treatment by appraisal panel members in a different appraisal.

You should always require clear disclosures about such potential conflicts of interest.

DON'TS

Never sign a release after the appraisal process, at least not without obtaining legal advice.

You may be giving up valuable rights to pursue interest or unpaid amounts.
If an insurer issues a “reservation of rights,” do not proceed to appraisal without obtaining legal advice.

Insurers who reserve their rights to deny a claim may very well do so, usually after you have spent extensive time and money engaged in the appraisal process
Never, ever go to appraisal on a case where the insurer has denied the claim, in whole or in part.

A denial means the insurer is asserting that the claim was either not covered under the policy or was not caused by a covered loss.

In this circumstance, appraisal can be an enormous waste of time and money – because the insurer may decide not to pay even if you obtain a substantial appraisal award.
Don’t “bring a knife to a gun fight” in terms of the professions you work with.

While many appraisals do not require the experience of an attorney, large or complex appraisals usually do. The bigger the dispute, the greater the exposure for your insurer, and thus it look at ways to avoid payment.

If the insurer is represented by legal counsel – with or without your knowledge (and assume they are) – you will find yourself at a serious disadvantage.

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