Property Damage Appraisals Process, Law, and Strategies

							Property Damage Appraisals: Process, Law, and Strategies
                                                 BY RANDOLPH EVANS AND J. STEPHEN BERRY
         Beginning in approximately 2000, there has been a trend for property damage claims (in
which coverage is largely uncontested, but the amount of loss is contested) to evolve into
litigation claims in which the insureds allege bad faith and seek punitive damages, and/or the
insurer alleges failure to cooperate and attempts to avoid coverage for the entire claim. Three
factors have contributed to the trend.

       First, inordinate delays inherent to complex claims become the focal point for extra-
contractual disputes. Most of these disputes manifest themselves as allegations against the
insured of a failure to cooperate and/or allegations against the insurer of bad faith delay in
payment.

        Second, deviations between demands, payments, and appraisal awards become the
predicate for further litigation. If an appraisal panel awards any significant amount different
from what the insured demanded or the insurer has paid, then there are allegations of wrongful
conduct. For the insured, the claim is a wrongful refusal to pay. For the insurer, the claim is for
a false/fraudulent claim. (Some attorneys use a formula, basically if there is a 40% deviation,
then a separate claim is made resulting in expensive and contentious litigation.)

        Third, differences in information submitted in connection with claims result in additional
allegations of improper claims conduct. If additional information is developed by either party in
connection with the appraisal process, then there are often allegations that the original
adjustment or submission was based on inadequate investigation or inaccurate/false/fraudulent
data. The insured claims bad faith. The insurer claims a false insurance claim or proof of loss.

        Effectively, these factors have increasingly made appraisals an “all or nothing”
proposition as opposed to an alternate claims dispute resolution procedure. In order to address
this challenge, new strategies have emerged which are designed to return the
adjustment/appraisal/claims resolution process for both the policyholder and the insurer. These
strategies focus on back-shifting the focus of the resolution process to an appraisal/dispute
resolution-centric model as contemplated by the insurance contract as opposed to a litigation-
centric model that thwarts the goal of efficient and timely resolution of the claim.

        As part of this process, this new focus has centered on procedural and substantive court
orders and memoranda of understanding that (a) vest jurisdiction in the appraisal panel
(specifically the umpire); (b) channel disputes about the progress of the appraisal (specifically
including the speed of the process) back into the appraisal itself; and (c) specify the award form
in order to eliminate disputes regarding what the panel decided and what it did not. Examples of
these documents and agreements are effective tools for creating an appraisal centric model for
claims resolution.
        The possibilities that these strategies offer are many. Under appraisal-centric models, if
an insured does not believe that the process is moving fast enough, then the insured can seek
immediate relief from the panel to move the process along. On the other hand, an insured who
has not sought to move the process along can not later complain about the speed of the process
since the insured could have addressed the problem in real time as opposed to forensically after
the delay has occurred. Similar remedies are available for any allegations of inaccurate
submissions, improper claim adjustments or failure to pay. The process does not resolve all
issues, but it does create better opportunities for global resolution of all the claims issues.


Randy Evans is the chair of the Financial Institutions practice team of McKenna, Long &
Aldridge, LLP in Washington, D.C. He handles high-profile coverage litigation in courts
throughout the United States; served as outside counsel to the Speakers of the 104th-109th
Congresses of the United States; and is a frequent lecturer and author on insurance law,
professional liability, and government ethics.

Stephen Berry is a member of the Insurance Coverage and Bad Faith practice team of McKenna, Long &
Aldridge, LLP in Atlanta, Georgia. He is a frequent lecturer and author on the subject of insurance
coverage for construction defect liability and catastrophic property damage. Stephen is listed in the 2007,
2008, and 2009 editions of The Best Lawyers in America in the practice area of Insurance Law.




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