A recent case out of the United States District Court for the Northern District of Florida invalidated a $187 million insurance appraisal award and shows the importance of knowing the appraisal clause and adhering to it. In the case, the Court held that the property owner’s appraiser did not fulfill his duties as an appraiser when he submitted a “Statement of Loss” totaling over $233 million but admitted that it was not his opinion on the amount of loss but a price list from which the umpire could determine an amount of loss.

The Court interpreted the following appraisal language:

APPRAISAL - If the Insured and this Company fail to agree on the amount of loss, each, upon the written demand either of the Insured or of this Company made within 60 days after receipt of proof of loss by the Company, shall select a competent and disinterested appraiser. The appraisers shall then select a competent and disinterested umpire. If they should fail for 15 days to agree upon such umpire, then upon the request of the Insured or of this Company, such umpire shall be selected by a judge of a court of record in the county and state in which such appraisal is pending. Then, at a reasonable time and place, the appraisers shall appraise the loss, stating separately the value at the time of loss and the amount of loss. If the appraisers fail to agree, they shall submit their differences to the umpire. An award in writing by any two shall determine the amount of loss. The Insured and this Company shall each pay his or its chosen appraiser and shall bear equally the other expenses of the appraisal and of the umpire.

Interpreting this language, the Court held that the appraisers had the following duties under the policy:

• Umpire Appointment. The appraisers were required, if possible, to jointly designate a “competent and disinterested umpire.”

  
  

• Separate Appraisal of Loss. Then, the appraisers were to earn their namesake and “appraise the loss.” To do so, each appraiser was required to state the value of Portofino’s insured property “at the time of the loss” as well as the “amount of loss” to Portofino’s property caused by Hurricane Sally.

  
  

• Agreement or Submission of Differences. Next, the appraisers were tasked with conferring as to whether they could agree as to the “amount of loss.” If unable to agree, the appraisers were instructed to “submit” their dispute to the umpire, who would be tasked with breaking the deadlock.

  
  

• Award. Finally, if the two appraisers were able to agree as to the “amount of loss,” then they would issue an award in writing. Otherwise, one appraiser would join the umpire in doing the same. Regardless of the combination, an award in writing by any two panel members would “determine the amount of loss ” to Portofino’s property caused by Hurricane Sally.

Based on its view of these duties, the Court held that the appraisal clause required that each appraiser was required to state his opinion of the value of the property at the time of the loss and the amount of the loss. Then, the appraisers were to attempt to agree on an amount of loss and if they could not do so, seek assistance from the umpire. The Court pointed out that appraisal was a dispute resolution procedure designed to settle disputes, not a mini-trial. This case provides a valuable reminder to counsel and appraisers that the job of an appraiser is to act as a “competent and disinterested” expert who provides an opinion on the “amount of loss.” Appraisers also must attempt to agree on an amount of loss before turning to the umpire for help. Contact us for any questions about insurance appraisal.