Who Should Be Appraisers to an Appraisal Panel? NAPIA Takes a Stand

The post last week, Louisiana Bill Proposes to Codify All the Rules of Appraisal, generated a lot of comments. I quickly read the bill, wrote my concern that the rules might not be as good as the common law, and asked for responses. Some comments, private and public, contained very interesting analysis. One public comment was not so nice to me. So, let me provide some background and updates because who can be an appraiser and if written rules will be applied to this process is one of the biggest issues of insurance dispute resolution.

I have publicly stated that I believe that appraisal without rules is unconstitutional because the process does not afford due process to the participants and is effectively a kangaroo proceeding. My opinion is not the accepted view and not the law. I have written that even the United States Supreme Court has found the process is constitutional in, Supreme Court Has Ruled That the Appraisal Clause in the Standard Fire Policy Is Constitutional.

I once chaired an ABA Property Insurance Law Sub-Committee in the 1990s, looking for methods that would render fairer awards. Nothing came from it, but my concern then was that some policyholders appointed licensed real estate appraisers who were the only “appraisers” one could find in the Yellow Pages directory. These appraisers were sheep to slaughter when it came time for an insurance appraisal.

The issue of who can be an appraiser has come up frequently in many of my blogs and virtually every seminar I have attended or presented regarding appraisal. The cases discussing these vary from state to state on who can be an appraiser, with many deeply analyzing the policy terms “impartial,” “unbiased,” and “independent.”

The Florida Department of Financial Services recently charged an individual claiming that a person had to be a licensed public adjuster to be appointed as the policyholder’s appraiser. I disagree because it is not in the policyholder’s best interest to limit people just to licensed public adjusters—I try to look at these issues from the policyholder’s perspective. I will write more on this, but the National Association of Public Insurance Adjusters agrees with me. Here is its position:

NAPIA has been dealing with the appraisal issue in many states for over 70 years. NAPIA has also written and published a white paper on the appraisal process and has sponsored courses for CE credits on appraisal, both in ethics and solely regarding the process. It is NAPIA’s position that an appraiser appointed by either the insured or the insurer in a first party property claim under the relevant insurance policy must be competent and disinterested, as is required under most if not all first party property insurance policies. There is no requirement in any state that an appraiser be specifically licensed. A public adjuster may serve as an appraiser, but not on the same claim in which he or she has been engaged under contract with the insured as a public adjuster for that particular loss. Other professionals who may serve as competent and disinterested appraisers may be contractors, attorneys at law, real estate brokers or appraisers, independent adjusters, or others. An appraiser should never work on a contingent or percentage fee basis. NAPIA has never advocated nor does NAPIA advocate now for a need for appraisers to be licensed by any state.

I applaud NAPIA’s leadership because they could have taken a self-interest view but did not and viewed the issue as what is best for the client. I once posted in Being on The Side of Angels—Public Adjusters Will Lose If They Fail to Follow This Philosophy:

The interests and needs of policyholders is why public adjusters get to make a living adjusting claims. The financial interests of the public adjuster are not paramount to the policyholder. The public interest is paramount over the public adjuster trade. So long as public adjusters properly serve policyholders, serve the public interest, and strive to raise the bar of those participating in their trade, they will be allowed to practice what used to be illegal in Florida, is limited in some states, and still illegal in a few states.

So, the Louisiana Bill came to my attention, and it seemed worthy of publication. I know nothing about the who, how, or why the language of the bill was written. However, the topic is important to everybody in the property insurance claims resolution business and worthy of respectful discussion. I was en route to David Young’s funeral while I wrote the blog, and my analysis was not deep other than to question whether common law rules may be better than these written rules found in the bill.

To me, the proposed Louisiana rules regarding who can be an appraiser seem to set forth criteria to determine and prevent conflicts of interest that are more akin to the rules of arbitration, where there are rules for who can be selected as an arbitrator that are more defined. Some insurance companies have argued that the rules of arbitration govern the rules of appraisal. Indeed, Florida case law, until it was explicitly overruled, provided that Florida’s arbitration code applied to appraisals. So, this concept is not foreign or brand new. However, the vast majority of courts have rejected that arbitration rules are to be followed in appraisals.

Louisiana is a Code state, and having written rules defining a process seems like a Louisiana type of thing to do. Still, in the 20 pages of rules and what can and cannot be done, I am certain there will be a lot of disagreement. There are a lot of rules, and my bet is most readers of this blog did not read all 20 pages. For example, did you get to the part where the insurance commissioner selects the Umpire if the parties cannot agree to a qualified criteria umpire? Selecting the Umpire from a pre-arranged pool of candidates rather than a court doing the same is certainly a novel approach. Umpires will also have to provide itemized appraisal awards, which inevitably drives up the costs, times, and probably subsequent litigation chances following appraisal.