New York Appraisal—Can a Federal Judge Choose the Umpire?

Can a federal judge appoint the umpire in an appraisal? Certainly, many have done so. But a United States Magistrate Judge made a request last week which may indicate that federal courts lack jurisdiction to appoint umpires to New York appraisals.1

The magistrate judge ordered briefing on the issue, noting the following:

The Court previously directed the parties to select an umpire to assist with the appraisal process. The parties were unable to agree on an umpire, and accordingly requested that the Court select one. In briefing the issue of umpire selection, Plaintiff raised that the Court may not have jurisdiction to select an umpire, based on this provision of N.Y. Ins. § 3408: “Whenever application shall be made for the selection of an umpire pursuant to the provisions relating to appraisals contained in the standard fire insurance policy of the state of New York it shall be made to a justice of the supreme court residing in the county or to a county judge of the county in which the lost or damaged property is or was located.” Here, the umpire-selection provision in the insurance policy is the same, in substance, as the relevant provision in New York’s standard fire insurance policy.

The parties are ordered to submit simultaneous letters by November 3, 2023, addressing whether the Court has jurisdiction to select an umpire, or whether the parties need to file an application to a New York County Supreme Court justice.

I will report on the judge’s final ruling in a later blog. This is an important issue because so many insurance companies remove cases in New York to federal court.   

I cited a Zelle insurance partner, Kristin Cummings, in a post I made a decade ago, Umpire Selection–Can a Neutral Umpire Really Be Selected? Her article, “The Devolution Of Appraisal In Insurance Disputes,”2 stated in part:

Not surprisingly, the insured’s appraiser almost always agrees with the insured’s position. Likewise, the insurer’s appraiser almost always agrees with the insurer’s position. Does this mean that the appraisers are not impartial? Not necessarily.

However, it does indicate that appraisers — though perhaps still “impartial” as defined by the policy — are now essentially advocates for their client’s positions in a prelitigation dispute resolution process.

With almost no appraisals resolved by the appraisers themselves, the appointment of an umpire is a virtual certainty. Most policies specify that if the appraisers cannot agree on the amount of loss, they are to work together to agree on an umpire. Historically, there had been a good faith effort by the two appraisers to reach agreement on a neutral umpire. Or, if such agreement couldn’t be reached, they would jointly ask a judge in a local court to appoint an umpire of its choosing.

My thoughts about the selection of an umpire stated the following:

Is any umpire truly neutral? I am certain that many umpires answer this question with an emphatic ‘yes.’

Yet, this question is asked frequently by attorneys and public adjusters when they ask, ‘what is so and so like as an umpire?’ or ‘who would you suggest as an umpire in this case?’ I usually ask about the case and, especially, the appraisers already selected before answering the question. Then, I do what I expect everybody else does but is afraid to admit, I determine who may be a favorable umpire, weed out those that will probably favor the insurance company, and finally note those who appear neutral. But my answer is always speculation.

Some umpires are notorious fifty-fifty referees. That is not neutral. That is cowardly.

Some umpires are very knowledgeable about a given area of construction or type of damage. But preconceived bias and opinions are sometimes wrong. It is hard to get a person who knows he is right to admit when he is wrong or that someone else may understand the issue a little better. It is hard to teach humility during appraisal debate.

…

Any randomly selected umpire will have some bias. That is why it is important for parties to have a dialogue before the selection by a court. As the old adage teaches, it is sometimes better to stay with the devil you know.

In the heat of a passionate debate with Steve Badger about the nuances of the appraisal process, or when I’m standing at the podium imparting what knowledge I can about appraisal, one significant question inevitably is raised: “Who should be the umpire?” The umpire is the linchpin in the delicate machinery of appraisal, responsible for impartially rendering decisions when the two sides can’t agree.

But here’s the rub: the success of an appraisal process hinges on the selection of a person with high integrity. It is easy to say but incredibly complex in practice to select such a person in all appraisal situations. Great umpires aren’t just seasoned industry experts. They must also be individuals of unwavering integrity, capable of making skilled, balanced, and honest determinations. Yet, who among us can claim the extrasensory perception needed to peer into the depths of a person’s heart and mind to discern whether they truly possess such moral fiber?

And then there’s the judicial wild card. If both parties to the contract can’t agree on an umpire, a judge takes over the reins. Here’s where things get even more unpredictable. Having been in the trenches, I can tell you that there’s no guidebook for predicting or understanding how a judge will approach the task of umpire selection. Will they prioritize industry experience, an even-tempered disposition, or something else altogether? Your guess is as good as mine.

Because of this uncertainty, my advice to appraisers and parties has remained steadfast for over a decade: strive to find common ground in selecting an umpire you both can trust. In other words, “Stay with the Devil You Know.” Why roll the dice with a judicially appointed umpire when the devil you’ve jointly chosen is—at least—one whose temperament and integrity you both have had a say in?

The selection of an umpire in the appraisal process is not just a procedural formality. It’s a critical decision that can influence the fairness and credibility of the entire process. Choose wisely, for the integrity of your chosen umpire will either uphold or undermine the very essence of a balanced appraisal.

Thought For The Day

Real integrity is doing the right thing, knowing that nobody’s going to know whether you did it or not.

—Oprah Winfrey

1 Victor’s Café 52nd Street v. Travelers Indemnity Co. of America, No. 22-CV-07223 (S.D. N.Y. Oct. 27, 2023).

2 Kristin c. Cummings, Steven J. Badger. The Devolution of Appraisal in Insurance Disputes. Insurance Law360 (Oct. 15, 2012). Available online at: https://www.law360.com/articles/385359/the-devolution-of-appraisal-in-insurance-disputes (subscription may be required).