Appraisal Fundamentals In Modern Property Insurance Practice
By
Kristin Suga Heres, Karl S. Vasiloff, and Jonathon C. Held
Introduction
The appraisal process can be a highly effective and efficient tool for both insurers
and insureds in resolving disputes regarding the amount of loss or damage. While there
is typically only modest variation among appraisal provisions found in modern property
insurance policies, there are significant jurisdictional variations in the way in which such
provisions are enforced and construed. Particularly in recent years, with the
proliferation of claims arising from major Gulf Coast hurricanes, courts have been
confronted with fundamental questions regarding the nature, scope, and purpose of
appraisal. The decisions arising out of these cases have, in many instances, clarified
the law of appraisal and provided needed guidance to parties seeking to use this
important contractual right to resolve loss measurement disputes.
This paper will explore some of the “fundamentals” of appraisal including: (1) how
various jurisdictions view the appraisal process (and whether and how they differentiate
between “appraisal” and “arbitration”); (2) ways in which a party may waive its appraisal
rights; and (3) the scope of issues that may be considered and/or determined by an
appraisal panel. By highlighting different approaches to appraisal among various
jurisdictions, this paper seeks to increase awareness of these issues and to engender a
greater understanding of the legal framework under which appraisals operate.
2
I. Appraisal or Arbitration: What Is the Difference and Why Does It
Matter?
Appraisal and arbitration are both methods of alternative dispute resolution
employed in the insurance context. While these two processes share common features,
including the avoidance of full blown litigation, most authorities agree that there are
significant differences between them. Not all jurisdictions, however, have taken this
view. In several states, appraisal is regarded as a form of arbitration. Even in states
that have recognized some distinction between the two processes, courts sometimes
use the terms “appraisal” and “arbitration” interchangeably, creating an element of
uncertainty and confusion. Whether a proceeding is labeled an “appraisal” or
“arbitration” is not merely a question of semantics. The way in which a court views the
proceeding can have substantive implications with respect to its scope and the law
governing its resolution.
While there are many definitions of the term “appraisal,” the common
denominator among them is the concept of valuation:
Appraisal, n. (1817) 1. The determination of what
constitutes a fair price; valuation; estimation of worth. 2. The
report of such a determination. – Also termed appraisement.
Cf. ASSESSMENT (3). – appraise, vb.1
As one court noted, “appraisal is primarily concerned with ascertaining the value of
something.”2 In the insurance context, the term is generally associated with a form of
alternative dispute resolution focused upon resolving disagreements between parties to
an insurance policy regarding the valuation of the loss.
1 BLACK’S LAW DICTIONARY 117 (9th ed. 2009).
2 FTI Int’l, Inc. v. Cincinnati Ins. Co., 339 Ill. App. 3d 258, 260 (Ill. Ct. App. 2003).
