Corruption of the Appraisal Process

October 4, 2012

USLAW Magazine

The following is an excerpt from, "Corruption of the Appraisal Process," originally published in the Fall/Winter 2012 issue of USLAW Magazine.

Fire Insurance policies have long been required to use standard policy provisions. They provide that, when the insured and insurer fail to agree as to the actual cash value or amount of a loss, they must participate in an appraisal. Each party selects a competent and disinterested appraiser, who together select (or the court appoints) a competent and disinterested umpire. The party-appraisers appraise the loss and, in the event of disagreement, submit their differences to the umpire. Courts have enforced appraisal clauses in fire insurance policies for a hundred and twenty five years. (See Old Saucelito Land & Dry Dock Co. v. The Commercial Union Assurance Co., 66 Cal. 253 (1884).)

Code of Civil Procedure § 1280, which governs the conduct of arbitrations, provides that agreements to arbitrate include valuations and appraisals. (Coopers & Lybrand v. Schwartz, 212 Cal.App.3d 524, 534 (1989).) An appraisal is an arbitration and, prior to 2001, appraisals were subject to arbitration provisions regarding subpoenas, depositions, and document discovery. A court reporter could transcribe testimony.

In 2001, in response to complaints of alleged insurer abuses following the 1991 Oakland fire and the 1994 Northridge earthquake, the legislature inserted the following language into the Standard Policy’s Appraisal paragraph:

“Appraisal proceedings are informal... For purposes of this section, ‘informal’ means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings.” (Ins. Code § 2071.)

As a result, the procedures governing appraisals have been significantly changed and adjusters and defense counsel should change their practices accordingly.

For the full article, please use the following link: Corruption of the Appraisal Process.