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When there is a sub-dispute over the scope of the appraisal, the respective parties at interest should take the time to set forth a clear and precise memorandum of appraisal. If there is no appraisal protocol set, then all areas of loss are on the table in the amount of loss and appraisers must be prepared to include or defend any and all property diminished as a result of the claimed peril.  

Brief overview of appraisal:  

A colleague of mine describes Appraisal as a “quasi-legal proceeding.” In California, appraisal is statutorily defined as an informal proceeding precluding discovery, depositions, or transcriptions.1 At its core appraisal bears similarities to tripartite arbitration2. Tripartite arbitration is a medium for resolution wherein three experts are paneled, two of which are named by their respective and otherwise interested party, and in appraisal, one panel member is chosen by the opposing panel members. This neutral party, commonly referred to as an umpire, holds unifying authority should the appraisers disagree on the amount of loss.  

The standard fire policy – dating back to the 19th century – commissions the appraisers to determine the amount-of-loss3. For the amount-of-loss in an insurance claim, appraisers consider “diminutions” (reductions) in value so long as the items in dispute are covered by insurance. Diminution is defined by Webster’s as a “reduction in size, extent, or importance of something.”  

“ [appraisal] is one of the only provisions that afford protection to the interests of the insured in equal measure to those afforded the insurer. It has long been a valuable tool to all parties to the insurance contract in most states around the country.” – Jonathan J. Wilkofsky, Esq

As a practicing appraiser, I have recently come across appraisers who will, at the onset, state that they have unilateral instructions from their respective party at interest to appraise a limited scope of the amount of loss. This can be caused by several issues, i.e., the insured’s omission – intentional or not – of areas of ostensible or non-ostensible damages, e.g. an insured’s assignee asserts a dispute towards the cost of the roof, but omits damages to ensuing or resulting damages, or physical damages to structural fenestrations.  

This causes several issues. Foremost, the lack of clear guidance agreed upon by both parties limits the objective capacity of the appraiser. For example, if one appraiser is given explicit instructions to appraise only limited areas, this could appear that the appraiser is less than unbiased and risking their disqualification. Without a formal memorandum agreed to by the parties at interest, the appraisers are tasked with resolving a sub-dispute – if you will – of not only the amount-of-loss, but also what is to be included in the amount of loss. This ambiguity opens doors to slippery slopes, risking the potential for unqualified appraisers to make determinations of matters of law, coverage, or contractual interpretation(s). 

What is clear is that an appraisal can be the most efficient method of property dispute if used properly. As stated above, to prevent sub-disputes over the scope of the appraisal, the respective parties at interest should take the time to set forth a clear and precise memorandum of appraisal to effectuate a just and swift settlement.  

Tips for Effective Insurance Appraisal

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