Complex Insurance Appraisals
It’s a story as old as time. The insurance industry will deploy experienced lawyers and vast financial strength to avoid complying with laws that require the prompt and fair payment of claims in appraisal.
Raizner Slania has the strength and experience to counter these efforts and guide you through and after a large or complex appraisal. Our resume includes:
- Lead counsel in Barbara Technologies v. State Farm – the leading case in Texas establishing the policyholder’s right to obtain interest on a claim in appraisal
- Co-liaison counsel that led the Hurricane Ike litigation against the Texas insurance industry
- Vast experience handling litigation arising under the Texas Prompt Payment of Claims Act against insurance companies
- Decades of experience combatting “wear and tear,” causation and other defenses often asserted after appraisal
- Decades of experience managing complex appraisals and litigation that follows an appraisal award
- Substantial financial resources available to retain highly qualified experts and consultants during the appraisal process
- Our attorneys are licensed in multiple states and federal courts with experience handling appraisal and post-appraisal litigation throughout the U.S.
- We can work with your public adjuster, contractor, engineer or consultant to form a multifaceted team
The decision whether to seek a resolution through the appraisal process can be difficult. It is best to consider all of your dispute resolution options in order to make a fully informed decision on whether to utilize appraisal or to file a lawsuit. Remember, the insurance company has highly experienced attorneys working for it, often in the background during the appraisal process.
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 Under Section 542 of the Texas Insurance Code requires insurance companies to pay interest, in addition to the amount of the insurance claim, when an insurance company delays payment of a claim longer than the statute’s imposed deadlines for making a claims decision. An insurer must pay interest at a rate ranging from 10% to 18% if the claims process takes longer than about 75 days, and appraisal is not an excuse for delay.
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.
Bringing Balance Back to Insurance Appraisals: 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.
The Texas Prompt Payment of Claims Act contains rules and deadlines designed to make the insurance claims process as efficient as possible. Yet over the past ten years, the insurance industry won a handful of appellate decisions that resulted in extensive delay, particularly in the appraisal process.
Even worse, these decisions gave insurance companies immunity for their delay. Our firm took the insurance industry to court, and in 2019 won the landmark Barbara Technologies v. State Farm decision.
As a result, when insurance companies misuse the appraisal process to delay payment of a claim beyond the Texas Prompt Payment of Claims Act deadlines, they must pay interest at a rate ranging from 10% to 18%.
By reaffirming penalties for delay in the appraisal process, Barbara Technologies restored a measure of balance to the claims handling process.
Barbara Technologies v. State Farm
Raizner Slania led the fight to force the insurance industry to bear the cost of delay in the appraisal process.
Barbara Technologies is a Texas Supreme Court case from 2019 where we represented the plaintiff. The Court’s decision overruled more than a decade’s worth of law in Texas, which previously held the payment of an appraisal award prevented the insured from pursuing interest owed under the Texas Prompt Payment of Claims Act.
Previously, when an insurance company paid an appraisal award – no matter how long after a claim was filed, and no matter what the insurance company did to cause delays – the policyholder could not obtain the interest owed under the Act.
Barbara Technologies changed this, bringing Texas in line with the prevailing United States rule that an insurer must pay for its delay.
Interest amounts potentially owed by the insurer:
If you gave notice of the claim prior to September 1, 2017, an insurer can be liable for interest at rates of 18.00% simple interest per year.
And even if you have a more recent claim, the interest rate the insurance company owes on the appraisal usually ranges between 10.00% and 11.00%.
The rules on the payment of interest are clear – and it can add up – and Raizner Slania has been on the cutting edge of ensuring insurance companies always bear the cost of delay.
Unresolved Appraisal Issues and Insurer Misconduct
Even if your insurance company has paid some or all of the “face value” of the appraisal award, you still might be able to recover additional funds.
Examples:
- The failure to pay interest at a rate ranging between 10% and 18%
- Withholding portions (or all) of the award due to causation, “wear and tear” or other denials of coverage
- Recovery of monies held back for depreciation after you complete repairs
- The failure to pay amounts due for “code compliance”
Appraisal is supposed to be a fair and independent process, but sometimes insurers game the system by selecting their own hired guns as appraisers who have conflicts of interest. Unfortunately, many insurers and their appraisers conceal these conflicts until it’s too late. If they engage in this type of behavior, you might have legal recourse.
Some “Do’s and Don’t’s” to consider while evaluating your options:
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.
Frequently Asked Questions
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.
What else can you recover after an appraisal?
Large appraisal awards can be tricky and often include amounts that an insurer company must pay later, usually after repair work is completed. In some cases, an insurer may hold back the payment of depreciation – meaning the difference between today’s market value versus the full replacement cost – until repairs are completed.
Insurers also hold back the payment of costs required to bring an older building up to current building codes. In some cases, an insurer may simply decide it doesn’t want to pay the award, and will claim it gets a discount or offset for items pre-existing damage, wear and tear, manufacturing defects, faulty installation and other items it claims were not caused by the loss.
Like interest, these hold backs can add up, and when an insurance company unreasonably delays or refuses to pay the full award, Raizner Slania can help.