Insurance Law360
December 23, 2016
Like Gertrude Stein’s “rose”, an appraisal is an appraisal is an appraisal except in Massachusetts. Massachusetts’ version of appraisal is a statutory process named “reference.” Although a reference proceeding is very similar to the appraisal process that many insurers and insureds may be familiar with, references can also be vastly different. This article will highlight those differences and similarities as well as identify the pitfalls parties should understand when navigating the reference process in Massachusetts.
When Does Reference Apply?
Pursuant to Massachusetts General Law Chapter 175, § 99, reference should be contained and is in fact incorporated into all Massachusetts insurance policies covering Massachusetts’ property. The statutory language states that reference can be demanded where “a claim is presented under any policy of fire insurance issued on property or interests in the commonwealth in the standard form, and if the parties fail to agree as to the amount of loss.” This is quite similar to appraisal.
When a loss arises from property located in Massachusetts, the applicable Massachusetts’ reference statute should govern the claim. Specifically, the parties shall proceed to reference where there are disagreements as to the “amount of loss” arising from the Massachusetts’ claim. In such an instance, an insured can demand reference.
Similar to most state appraisal procedures, the scope of reference only relates to disputes as to the amount of loss and questions of coverage are reserved for the court. The Massachusetts’ statute (M.G.L. 175, § 101(e)) expressly states that insurers do not waive legal defenses, including coverage defenses, by submitting to a reference and that “such proceedings shall fix only the amount of loss sustained by the insured.” One Massachusetts federal court did appear to uphold a reference panel’s decision regarding the cause of loss, but held that the issue of whether the insured fraudulently overvalued the claim was beyond the scope of reference and remained for decision by the court. Federal Insurance Co. v. Klinck, No. 91-133347-Z, 1993 WL 291733 (D. Mass. July 6, 1993)
Notably, the statutory language is written in a way to make it appear that only insureds can demand reference. However, Massachusetts courts have interpreted that this procedure is also available to insurers. E.g., Kiley v. Metro. Prop. & Cas. Insurance Co., 159 F. Supp. 3d 135,...
