Jeff Zane | Property Insurance Coverage Law Blog | November 13, 2017
In theory, the appraisal process is intended to provide an efficient means of determining the cost to repair or replace damaged property. It is also intended to have a degree of finality – once the appraisal panel determines the amount of damages, the damages are typically fixed at that amount.
However, that does not mean you shouldn’t examine an appraisal award, or that you necessarily must accept it if it is substantially defective. In Texas, as in many states, an appraisal award may be set aside: (1) when the award was made without authority; (2) when the award was made as a result of fraud, accident, or mistake; or (3) when the award was not in compliance with requirements of the policy.1
If your appraisal award seems incorrect to you, try to obtain as much information as you can about the basis for the award. This is not always easy, because appraisal panels can be less than transparent about their reasoning and methods. For this reason, it is sometimes important that your appraiser attempt to memorialize as much as is possible about the panel’s deliberations through emails, notes or other contemporaneous records.
It may be possible to set aside an appraisal award, for example, if the panel improperly bases its award on repairs or replacement with materials that are not like kind and quality with the existing property.
To explain, most insurance companies promise in their policies they will repair or replace damaged property with materials of “like kind and quality.”2 Notwithstanding this clear language, a carrier’s appraiser may coax an umpire to reduce the amount of an award by basing it upon the cost to use a materially different roofing system. Perhaps the carrier feels that a 90-millimeter roof can be replaced by a 45-millimeter roof, or that premium tiles may be replaced by lower-grade tiles with a more limited life-span. Arguably, neither example represent materials of “like kind and quality.”3
If this happens, you might consider challenging the appraisal award because the appraisal panel has exceeded its powers by failing to comply with the terms of the underlying contract. Appraisal panels enjoy a good deal of discretion, but they do not enjoy the unfettered ability to stray from the governing insurance policy. If an appraisal award is “not in compliance with the requirements of the policy” because it does not comply with the “like kind and quality” provision, then a court should reject the award.
Challenging an appraisal award is always an arduous task, however, and you will want to consider your options carefully. If you have any doubts about your award, be sure to speak with an experienced attorney.
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1 Garcia v. State Farm Lloyds, 514 S.W.3d 257, 265 (Tex. App. 2016), review denied (June 2, 2017). See also Hanson v. Commercial Union Ins. Co., 150 Ariz. 283, 285, 723 P.2d 101, 103 (Ariz. App. 1986) (“An award must comply, in substance and form, with the submission agreement. Thus, the act of an umpire in excess of his authority renders the award void, to the extent that the authority is exceeded. And the same result is reached, whether the authority is exceeded consciously or by mistake. Appraisers’ acts in excess of authority are not binding on the parties, without ratification.”).
2 The standard Texas homeowner’s policy, for example, provides that the insurance company will “repair or replace any part of the damaged property with material or property of like kind and quality.”
3 I also urge you to read – or re-read – my colleague Jonathan Bukowski’s excellent post regarding “matching” issues in an appraisal award in a recent Colorado case.