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When work is completed, the amount of loss should be set from an Objective Lens

Appraisers are tasked with objectively judging the amount of loss. In fact, some insurers have recently gone to great lengths to ensure the individuals serving as appraisers are impartial and disinterested, preserving the objectiveness of appraisal. In an appraisal of damages when work is completed, the awarded amount of loss should include the scope of work performed from an objective lens, and be cautious not to rely solely upon amounts paid (or demanded). We must be mindful as appraisers not to be subjective when appraising an item that has been replaced. This is taught as viewing the amount of loss from an objective standard.


For example, if a person asserted that they were battered (contact with a person of another) and filed a claim for damages, but the facts showed that the claimant’s shirt sleeve was gently brushed by a passer-by at a busy airport, the claimant would not likely prevail even though the claimant subjectively felt that they were injured. This is because objectively (outside looking in), the claimant’s hypersensitivity would not meet an objective standard of injury. In appraisal, an example of subjectivity is to use the amount spent by an insured to perform repairs as the only evidence. This is a slippery slope: For example, if an insured paid 2.5x’s market value for work performed, appraisers would not award that [inflated] amount because it is significantly greater than what it is worth, and be unfair to the insurer. Conversely, the same principle applies to instances where an insured paid less than market value.

Lets take a dive into contractor pricing to illustrate the pitfalls of undervaluing repair costs. If a contractor is working for an amount significantly lower than a market rate, it raises questions as to whether they are properly-licensed, if they carry proper Workers Comp premiums, and whether they are hiring un-verified labor forces, which is an abuse of undocumented workers. Paying crews a lower than fair trade wage also encourages poor workmanship, corner-cutting, and oftentimes negligence. Construction is hard work. It is more challenging in Florida because of in-climate weather, high demand for verified labor, increased cost of Workers Compensation Insurance, compliance with Federal OSHA laws that if not followed, can and will result in OSHA fines of up to $13,294.00 per occurrence (See Florida Contractors Manual and OSHA 1926 for reference). Plus, local authorities must perform additional intermittent inspections, which frustrates construction efficiency. The construction business as a whole is also considered very high risk, and for taking that risk, in a capitalistic society, contractors are due reasonable profits in addition to the overhead to operate a business and complying with the Department of Business and Professional Regulation. On a personal note, as a licensed roofer and licensed general contractor, I cannot set pricing in an appraisal of damages which encourages behavior that inherently averts Federal Safety Acts and immigration laws, as doing so condones illegal conduct and unsafe work environments.

So, when appraising work already performed, Umpires and Appraisers would be wise to give the amounts paid a critical review to ensure that the awarded amount of loss is within a range that is consistent with market values. How do we do that? Simple: Review the loss from an objective standard.

By Aaron Penn

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